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This report was reissued on February 24, 2017, to correct Appendix A. This reissued report now correctly shows the monetary benefit associated with each recommendation.

This report supplements our independent auditor’s report on the results of our audit of HUD’s principal financial statements for the fiscal years ending September 30, 2016 and 2015 (Restated) related to HUD’s internal controls and compliance with applicable laws, regulations, and governmentwide policy requirements and provisions of contracts and grant agreements.

We issued a disclaimer of opinion on HUD’s consolidated financial statements for fiscal years 2016 and 2015 (restated) due to HUD’s inability to deliver principal financial statements for the fiscal years ending September 30, 2016 and 2015 (Restated) and accompanying notes in a timely manner.  This report provides additional details on five material weaknesses, four significant deficiencies, and four instances of noncompliance with applicable financial management laws and regulations.  Details of the results of our audit of HUD’s component entities, the Federal Housing Administration and Government National Mortgage Association (Ginnie Mae), can be found in separate audit reports. 

Primarily, HUD (1) lacked adequate controls over its financial reporting preparation process, (2) inadequately accounted for assets and liabilities in accordance with GAAP, (3) delayed completion of significant reconciliations, (4) did not account for the Office of Community Planning and Development’s formula grant programs’ commitments and disbursements in accordance with GAAP, and (5) lacked adequate financial management systems to ensure accurate and reliable financial reporting.  These conditions were caused by (1) inadequate monitoring and rushed implementation of the New Core Project and the transition to a Federal shared service provider, (2) poor internal controls and oversight of Ginnie Mae’s financial reporting, and (3) continued weaknesses in HUD’s financial management governance structure.

We recommend that HUD (1) properly account for all financial transactions in accordance with GAAP, (2) improve internal controls over the financial reporting process, (3) transition as much as $168.3 million in excess funding from public housing agencies to HUD-held reserves, and (4) deobligate $332.4 million in invalid or inactive obligations.

Recommendation Status Date Issued Summary
2017-FO-0003-002-A Open November 15, 2016 Continue working with ARC and complete the reconciliation and cleanup efforts for balances related to HUD’s loan guarantee programs.
2017-FO-0003-008-P Open November 15, 2016 Review the contracts totaling $72.8 million to determine validity and if no longer needed, forward to HUD’s procurement office for closure and deobligation.
2017-FO-0003-008-Q Open November 15, 2016 Record the deobligations provided by OCPO totaling as much as $86.4 million for the contracts identified during our review. Additionally, Ginnie Mae should deobligate the $587,505 in three administrative obligations marked for deobligation during the departmentwide open obligations review.