We contracted with the independent public accounting firm of CliftonLarsonAllen LLP (CLA) to audit the financial statements of FHA as of and for the fiscal years ended September 30, 2021 and 2020, and to provide reports on FHA’s 1) internal control over financial reporting; and 2) compliance with laws, regulations, contracts, and grant agreements in its financial reporting. Our contract with CLA required that the audit be performed in accordance with U.S. generally accepted government auditing standards, Office of Management and Budget audit requirements, and the Financial Audit Manual of the U.S. Government Accountability Office and the Council of the Inspectors General on Integrity and Efficiency.
In its audit of FHA, CLA reported:
- The consolidated financial statements as of and for the fiscal year ended September 30, 2021, are presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles.
- One material weakness and one significant deficiency in internal control over financial reporting, based on the limited procedures that it performed.
- A material weakness existed related to FHA controls over financial accounting and reporting.
- A significant deficiency existed related to FHA econometric modeling activities used to estimate the agency’s loan guarantee liability.
- No reportable noncompliance issues for fiscal year 2021 with provisions of applicable laws, regulations, contracts, and grant agreements tested and no other matters.
This report, along with the audited financial statements, is included in FHA’s Annual Management Report, which is available at https://www.hud.gov/program_offices/housing/hsgrroom/fhaamr
Recommendations
Housing
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Status2022-FO-0003-001-AOpenClosedClosed on June 16, 2022
Request an opinion from HUD’s Office of the Chief Financial Officer’s Appropriation Law Division on whether the abnormal balance in account 4901 constitutes a violation of the Antideficiency Act.
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Status2022-FO-0003-001-BOpenClosedClosed on September 30, 2022
Enhance standard operating procedures around system and account reconciliations to ensure that they cover all possible scenarios and are easy to follow.
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Status2022-FO-0003-001-COpenClosedClosed on September 30, 2022
Appropriately train and monitor new personnel to ensure that they understand and execute the procedures and controls.
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Status2022-FO-0003-001-DOpenClosedClosed on June 30, 2022
Update procedures to clearly define error thresholds that require follow-up and the communication process for elevating errors to supervisors, managers, and senior leadership.
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Status2022-FO-0003-001-EOpenClosedClosed on June 30, 2022
Establish clear lines of communication within and between divisions to ensure that all personnel become aware of issues that may impact their duties and responsibilities.
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Status2022-FO-0003-001-FOpenClosedClosed on September 30, 2022
Strengthen controls over the preparation of HECM-related reconciliations, reviews, and oversight by ensuring that (1) program personnel preparing such reconciliations understand how such reconciliations impact financial accounting and reporting and (2) financial personnel sufficiently understand programs and systems to determine their general ledger impact.
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Status2022-FO-0003-001-GOpenClosedClosed on September 30, 2022
Enhance the quarterly variance analysis to identify the business reasons for changes in account balances and pay specific attention to abnormal balances and activity.
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Status2022-FO-0003-001-HOpenClosedClosed on September 30, 2022
Strengthen the financial statement review controls by completing a compliance matrix to ensure all balances that are presented and disclosed reflect the most up-to-date financial accounting and reporting guidance.
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Status2022-FO-0003-002-AOpenClosedClosed on September 30, 2022
Perform a comprehensive analysis for all cohort years and assess the impact that the use of the scheduled UPB instead of the current UPB has on the LGL. If significant based on a quantitative threshold, update the SF cash flow model to incorporate the current UPB data.
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Status2022-FO-0003-002-BOpenClosedClosed on September 30, 2022
Develop and implement a new process to require the annual validation of the fourth quarter endorsement volume estimation method for the SF Forward model. The process should include a management review and approval control component. The process should be documented and should demonstrate that management’s estimate is based on the analysis of past experiences, current policy, and market considerations, and, if necessary, incorporate improvement recommendations.
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Status2022-FO-0003-002-COpenClosedClosed on September 30, 2022
Perform a comprehensive review of the SF and HECM model documentation and update the specific sections with the current practices and procedures required to execute the model activities.
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Status2022-FO-0003-002-DOpenClosedClosed on September 30, 2022
Establish a process that requires the timely review and update of model documentation. The process should include tracking the dates and nature of the revisions.
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Status2022-FO-0003-002-EOpenClosedClosed on June 15, 2022
Provide training and periodic reminders to field staff and management to ensure that the data fields in DAP and on the final Form HUD-290 are accurate and consistent.
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Status2022-FO-0003-002-FOpenClosedClosed on June 29, 2022
Develop and implement written procedures that provide guidance or best practices that should be followed to address data anomalies. At a minimum, these written procedures should include the following: (1) a process for identifying key data attributes that significantly impact the results, (2) the determination of preset thresholds for analyst and management attention, (3) the treatment of data anomalies, such as null values or values that exceed preset thresholds, (4) a process for providing feedback to the upstream data provider(s) for corrective and preventive actions when data integrity issues are detected and management concludes the issue is significant, and (5) a process for preparing documentation to support management decisions.