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This report was reissued on December 6, 2017 to correct an error in recommendation 2G found in Finding 2.  Recommendation 2G now reflects the correct prior year recommendation that must be reopened.

We are required to audit the consolidated financial statements of the U.S. Department of Housing and Urban Development (HUD) annually in accordance with the Chief Financial Officers Act of 1990 as amended. 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, 2017 and 2016 (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 2017 and 2016 (restated) due to severe weaknesses in HUD’s internal controls over financial reporting. This report provides additional details on six material weaknesses, three significant deficiencies, and three instances of noncompliance with applicable financial management laws and regulations. We also cited another matter that warranted attention by management. Details of the results of our audit of HUD’s component entities, the Federal Housing Administration and Government National Mortgage Association, can be found in separate audit reports.

Primarily, HUD (1) lacked adequate controls over its financial reporting preparation process; (2) inadequately accounted for assets, liabilities, commitments, and disbursements in accordance with generally accepted accounting principles (GAAP); (3) delayed completion of significant reconciliations; (4) lacked adequate financial management systems to ensure accurate and reliable financial reporting; and (5) reported significant amounts of invalid obligations. These conditions were caused by (1) ineffective internal controls, including customer complementary controls, over financial reporting after the transition to a Federal shared service provider; (2) poor oversight of components’ 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, including developing and implementing effective customer complementary controls; and (3) deobligate up to $648.9 million in invalid or inactive obligations and return to the U.S. Treasury more than $329.3 million in unapportioned funds that are not available for obligation.

Recommendation Status Date Issued Summary
2018-FO-0004-001-A Closed November 15, 2017 Implement a repeatable and sustainable process to prepare timely and accurate quarterly financial statement notes, including third and fourth quarter notes within the OMB required timeframe.
2018-FO-0004-001-B Closed November 15, 2017 Establish policies and procedures for recording the budget authority apportioned to HUD during a continuing resolution, including both the proprietary and budgetary transactions.
2018-FO-0004-001-C Closed November 15, 2017 Ensure that the budget execution policies and procedures are properly delegated, assigned, and communicated to the personnel fulfilling these responsibilities.
2018-FO-0004-001-D Closed November 15, 2017 Ensure that the budget execution procedures executed internally by OCFO Budget are consistent with those established by ARC.
2018-FO-0004-001-E Closed November 15, 2017 Develop and implement policies and procedures to ensure that intragovernmental differences identified with U.S. Treasury’s General Fund are resolved on a timely basis with corrective action plans.
2018-FO-0004-001-F Closed November 15, 2017 Develop standard operating procedures for implementing accounting changes, including steps to assess the appropriate impact on each treasury account symbol.
2018-FO-0004-001-G Closed November 15, 2017 Review all of Ginnie Mae’s TAS’s to determine the appropriate accounting treatment for anticipated collections, make the appropriate adjustments as determined necessary, apply this process going forward, and make restatements if necessary. The CFO should ensure that the accounting treatment follows the USSGL guidance through all phases of the anticipated collection (before collection and after collection).
2018-FO-0004-002-A Closed November 15, 2017 Work with PIH to develop and implement a consistent and reasonable methodology for determining the PIH prepayment that (1) allows for timely recording of financial events, (2) complies with GAAP, and (3) provides an adequate audit trail until the cash management process is automated.
2018-FO-0004-002-B Closed November 15, 2017 Develop and implement procedures to ensure that the methodology is reevaluated by PIH and OCFO annually and any changes do not compromise (1) the audit trial, (2) compliance with GAAP, or (3) the accuracy of the balance.
2018-FO-0004-002-C Closed November 15, 2017 Reopen recommendation 2016-FO-0003-002-A, “Evaluate the IHBG investment process and implement a proper accounting treatment in accordance with Federal GAAP.”
2018-FO-0004-002-D Closed November 15, 2017 Reopen recommendation 2016-FO-0003-002-B, “Work with the Office of Native American Programs to calculate the amounts advanced to grantees and restate HUD’s financial statements to recognize the prepayments on the financial statements.”
2018-FO-0004-002-E Closed November 15, 2017 Reopen recommendation 2016-FO-0003-002-C, “Develop standard operating procedures for routinely obtaining information on grantee investment activity and accurately reporting amounts in HUD’s general ledger and financial statements.”
2018-FO-0004-002-F Closed November 15, 2017 Work with OCFO to develop a consistent and reasonable methodology for determining the PIH prepayment, which (1) allows for timely recording of financial events, (2) complies with GAAP, and (3) provides an adequate audit trail until the cash management process is automated.
2018-FO-0004-002-G Closed November 15, 2017 Reopen recommendation 2016-FO-0003-002-D, “Develop a tracking function for the payments advanced to IHBG recipients to facilitate financial reporting and monitoring compliance with grant time restrictions.”
2018-FO-0004-002-H Closed November 15, 2017 Remove the waiver concerning the completion and submission of the SF-425 by CPD’s grantees and implement a process to collect SF-425 information electronically. This process should begin with initial (and ongoing) grant documentation containing specific requirements stating that the Federal Financial Report should be properly completed and required to be submitted quarterly, semiannually, or annually (depending on the grant type and applicable program requirements).
2018-FO-0004-002-I Closed November 15, 2017 During the implementation process of the waiver removal and collection of SF-425 data, ensure that CPD verifies the accuracy of the accrual data collected from the grantees and provided to its contractor conducting the validation methodology and retain documentation showing that it has independently verified that the contractors resulting accrual estimation information is accurate.
2018-FO-0004-003-A Closed November 15, 2017 Develop and implement a formal process to (1) track and age the suspense accounts by individual transaction detail, (2) perform regular monitoring of all suspense (clearing) accounts, and (3) promptly research transactions entered into the suspense accounts to ensure that they are posted to the appropriate TAS within 60 days.
2018-FO-0004-005-A Closed November 15, 2017 Implement an information system or system application that can produce HUD’s consolidated financial statement notes accurately and in a timely manner.
2018-FO-0004-006-A Closed November 15, 2017 Establish and implement policies and procedures that require identification and performance of complementary controls and periodic evaluation of established complementary controls to ensure that they continue to address financial and operational risks and document, assign, and communicate user complementary controls roles and responsibilities.
2018-FO-0004-007-A Closed November 15, 2017 Establish and approve funds control matrices for S&E transactions and ensure traceability to the program funds, adopting the policies for budget execution, obligation, and expenditure of funds.
2018-FO-0004-007-B Closed November 15, 2017 Ensure that each program office maintains current reporting elements in its funds control documentation, including the appropriation fund, CAM1, and BOC, to provide traceability to the Oracle financial system and the transaction source.
2018-FO-0004-007-C Closed November 15, 2017 Establish records maintenance policies and procedures to ensure the accurate recording of IPAC transaction details, including summary amount, detail amount, unit amount, and unit price.
2018-FO-0004-007-D Closed November 15, 2017 Monitor the review and verification processes to ensure that each IPAC transaction is accurately posted to the appropriate fund (TAS) in the Oracle financial system in a timely manner.
2018-FO-0004-007-E Closed November 15, 2017 Ensure that originating base IAAs and modifications are maintained in HUD’s procurement system of record, PRISM, including manual documentation and records from HIAMS.
2018-FO-0004-007-F Closed November 15, 2017 Develop, document, and implement policies and procedures for initiating, recording, and approving IAAs and subsequent modifications.
2018-FO-0004-007-G Closed November 15, 2017 Monitor the records management procedures of OCPO field offices for administering consistency among contracting officers processing IAAs and corresponding modifications.
2018-FO-0004-008-A Closed November 15, 2017 Improve controls to ensure that the OOR process is successful. This includes but is not limited to the following: (1) providing clarity on what constitutes a reasonable justification for retaining obligations marked for review during the OOR and (2) ensuring that a reasonable amount of time is provided for program offices to adequately complete the markup review phase of the OOR.
2018-FO-0004-008-B Closed November 15, 2017 Deobligate all obligations marked for deobligation during the departmentwide OOR, including as much as $212,447 in 46 administrative obligations and 1 program obligation totaling $135,956 marked for deobligation as of September 30, 2017.
2018-FO-0004-008-C Closed November 15, 2017 Deobligate all obligations marked for deobligation during the departmentwide OOR, including as much as $11,463,971 in 189 program obligations and $13,640 in 10 administrative obligations marked for deobligation as of September 30, 2017.
2018-FO-0004-008-D Open November 15, 2017 Review the 1,110 identified inactive retained obligations with remaining balances totaling $229,327,332 and close out and deobligate amounts tied to obligations that are no longer valid or needed.
2018-FO-0004-008-E Closed November 15, 2017 Close out and deobligate the remaining balances on 2,741 expired homeless assistance contracts of $159,437,069.
2018-FO-0004-008-F Closed November 15, 2017 Deobligate all obligations marked for deobligation during the departmentwide OOR, including as much as $42,491,202 in 581 administrative obligations and $2,932,320 in 12 program obligations marked for deobligation as of September 30, 2017.
2018-FO-0004-008-G Closed November 15, 2017 Review the 84 identified inactive retained obligations with remaining balances totaling $56,435,559 and close out and deobligate amounts tied to obligations that are no longer valid or needed.
2018-FO-0004-008-H Closed November 15, 2017 Review and if necessary deobligate the 40 and 30 expired or inactive Section 236 and Section 202-811 projects totaling $17,416,572 and $86,715,301, respectively.
2018-FO-0004-008-I Closed November 15, 2017 Review the one identified retained inactive obligation with a remaining balance totaling $765,000 and close out and deobligate amounts tied to obligations that are no longer valid or needed.
2018-FO-0004-008-J Closed November 15, 2017 Deobligate all obligations marked for deobligation during the departmentwide OOR, including as much as $2,266,017 in 100 administrative obligations marked for deobligation as of September 30, 2017.
2018-FO-0004-008-K Closed November 15, 2017 Review the 14 identified retained inactive obligations with remaining balances totaling $2,165,769 and deobligate amounts tied to obligations that are no longer valid or needed.
2018-FO-0004-008-L Closed November 15, 2017 Deobligate all obligations marked for deobligation during the departmentwide OOR, including as much as $559,569 in 53 administrative and $641,110 in 9 program obligations marked for deobligation as of September 30, 2017.
2018-FO-0004-008-M Closed November 15, 2017 Review the seven identified retained inactive obligations with remaining balances totaling $143,344 and close out and deobligate amounts tied to obligations that are no longer valid or needed.
2018-FO-0004-008-N Closed November 15, 2017 Deobligate all obligations marked for deobligation during the departmentwide OOR, including as much as $279,282 in 11 administrative obligations marked for deobligation as of September 30, 2017.
2018-FO-0004-008-O Closed November 15, 2017 Deobligate all obligations marked for deobligation during the departmentwide OOR, including as much as $264,476 in 108 administrative obligations marked for deobligation as of September 30, 2017.
2018-FO-0004-008-P Closed November 15, 2017 Deobligate all obligations marked for deobligation during the departmentwide OOR, including as much as $257,102 in 55 administrative obligations marked for deobligation as of September 30, 2017.
2018-FO-0004-008-Q Closed November 15, 2017 Deobligate all obligations marked for deobligation during the departmentwide OOR, including as much as $174,132 in 160 administrative obligations marked for deobligation as of September 30, 2017.
2018-FO-0004-008-R Closed November 15, 2017 Deobligate all obligations marked for deobligation during the departmentwide OOR, including as much as $78,021 in two administrative obligations marked for deobligation as of September 30, 2017.
2018-FO-0004-008-S Open November 15, 2017 Deobligate all obligations marked for deobligation during Ginnie Mae’s open obligation review, including as much as $34,814,053 in eight contract obligations marked for deobligation.
2018-FO-0004-010-A Closed November 15, 2017 Notify OCFO to disregard Ginnie Mae’s previously provided FMFIA and FFMIA assurance statements and issue corrected FMFIA and financial management system OMB A-123, appendix D (FFMIA), assurance statements that reflect Ginnie Mae’s noncompliance with FFMIA.
2018-FO-0004-010-B Closed November 15, 2017 Update policies and procedures to require evidence supporting component and program office assurance statements to ensure submissions’ completeness and accuracy, including but not limited to (1) outstanding material weaknesses, (2) remediation plans, and (3) overall scope of assurance statements.
2018-FO-0004-011-A Closed November 15, 2017 For all 32 debts not under repayment agreement, (1) send demand letters for any debts for which a demand letter has not been sent and (2) aggressively work with the PHAs to determine appropriate repayment agreement terms.
2018-FO-0004-011-B Closed November 15, 2017 Establish procedures to ensure that the debt file is sent to the OCFO DCCO for claim establishment if initial collection attempts prove unsuccessful.
2018-FO-0004-011-C Closed November 15, 2017 Establish procedures to routinely send all debts (delinquent or not) to OCFO for evaluation as required by the debt collection handbook.
2018-FO-0004-011-D Closed November 15, 2017 Finalize the repayment agreement procedures and implement training to ensure that all of PIH is aware of the procedures. The repayment agreement procedures should ensure that PIH follows HUD’s debt collection handbook.
2018-FO-0004-011-E Closed November 15, 2017 Work with PIH to determine which debts should be transferred to the Departments of Treasury or Justice and which debts should be written off. The Deputy CFO should ensure that proper documentation is maintained to support a decision for writeoff.
2018-FO-0004-011-F Closed November 15, 2017 Establish controls to ensure that program offices send all outstanding debts to the Fort Worth Accounting Center for appropriate recording and management in a timely manner and in accordance with the debt collection handbook.
2018-FO-0004-013-A Closed November 15, 2017 Determine the amount of additional funds needed to cover the remaining administrative costs and any possible upward adjustment of current obligations and seek authority from Congress to return up to $329,370,982 of the unapportioned authority remaining in the EHLP program account that is not needed.