HUD Single-Family and Multifamily Property Programs:

Inadequate Controls Resulted in Questionable Payments and Potential Fraud

GAO-04-390: Published: Mar 3, 2004. Publicly Released: Apr 2, 2004.

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In our 2003 performance and accountability report on the Department of Housing and Urban Development (HUD), we continued to identify HUD's single-family (SF) mortgage insurance program as highrisk --an area we have found to be at high risk for fraud, waste, abuse, and mismanagement. Also, for years, GAO and HUD's Office of Inspector General (OIG) have reported weaknesses in HUD's contract administration and monitoring for both SF and multifamily (MF) programs. Given these known risks and the millions of dollars in disbursements made by the agency each year, GAO was asked to review payments related to the single-family property program and determine whether (1) internal controls provide reasonable assurance that improper payments will not be made or will be detected in the normal course of business and (2) payments are properly supported as a valid use of government funds. We also assessed HUD's monitoring of a major multifamily project with a state housing agency.

Significant internal control weaknesses in the process used to pay for SF property expenses made HUD vulnerable to and in some cases resulted in questionable payments and potential fraud. These weaknesses included (1) delegation of oversight functions in a manner that weakened the control environment, (2) lack of key control activities, including proper documentation and approvals and (3) limited monitoring of contractor performance. These weaknesses likely contributed to the $16.5 million in questionable and potentially fraudulent payments that we identified using data mining, document analysis and other forensic auditing techniques. GAO classified $16.3 million of payments as questionable because they were not supported by sufficient documentation to determine their validity. GAO also classified $181,450 of payments as potentially fraudulent after visiting single-family properties being managed by a certain contractor. At all the properties visited, GAO noted discrepancies between what was represented on paid invoices and what was actually received. The photographs below were taken at one of the occupied properties after HUD paid $2,060 for bathroom repairs. These potentially fraudulent payments for single-family properties were made to the same contractor that was engaging in potentially fraudulent billing practices related to our earlier work on the HUD MF property program. HUD paid this contractor $2 million in fiscal year 2002 and $2.5 million in fiscal year 2003 for SF property expenses. GAO also identified insufficient HUD monitoring of a major MF program with a state housing agency. While HUD provided all the funding for the program, it provided little oversight and instead relied on the state housing agency to perform oversight functions. Ten years into the program, actual cost totaled over $500 million dollars, almost triple the original development budget.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: HUD/OIG conducted a review of the expenses and determined that the costs charged by the MassHousing Agency for the expenses reviewed were supported and reasonable and met the requirements of the agreement between HUD and the Agency.

    Recommendation: To address the significant internal control weaknesses that we identified related to monitoring the multifamily program with a state housing agency under a sole source agreement, the Secretary of Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to consider requesting the HUD Office of Inspector General to review the propriety of the use of funds under the program with the state housing agency.

    Agency Affected: Department of Housing and Urban Development

  2. Status: Closed - Implemented

    Comments: In November 2004, HUD officials informed GAO that staff training to be held in 2005 would include coverage of enhancements to HUD's internal controls over payment processing. In addition, HUD is developing a quality assurance process for management control and oversight of its disposition program specific to the requirements of the new contract. Oversight of the disbursement process by HQ is being incorporated into the control process under development. In the interim, HQ staff will review a random sampling of SAMS transmittals to determine adherence to invoice review process. As of November 2006, HUD's financial control manual now requires that payment officials review supporting documentation for payments to confirm that the goods or services are for a legitimate government need. In addition, HUD provided formal training to its employees in the policies and procedures contained in the manual.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should require confirmation that the goods or services are for a legitimate government need.

    Agency Affected: Department of Housing and Urban Development

  3. Status: Closed - Implemented

    Comments: In November 2004, HUD officials informed GAO that staff training to be held in 2005 would include coverage of enhancements to HUD's internal controls over payment processing. In addition, HUD is developing a quality assurance process for management control and oversight of its disposition program specific to the requirements of the new contract. Oversight of the disbursement process by HQ is being incorporated into the control process under development. In the interim, HQ staff will review a random sampling of SAMS transmittals to determine adherence to invoice review process. As of November 2006, HUD included terms in its revised management contracts that detailed minimum documentation requirements, including competitive bids, that must be met for all payment requests. In addition HUD implemented procedures, as part of its financial control manual that stipulated that all procurements above $2,500 must be supported by at least two written quotations (bids) from subcontractors and other vendors. Additionally, HUD's financial control manual now requires that payment officials review evidence of the bids and that they determine that the bids were obtained from competitive sources, the prices quoted were reasonable, and were for identical services or goods.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should stipulate that competitive bids be obtained and evaluated before the work is performed.

    Agency Affected: Department of Housing and Urban Development

  4. Status: Closed - Implemented

    Comments: In November 2004, HUD officials informed GAO that staff training to be held in 2005 would include coverage of enhancements to HUD's internal controls over payment processing. In addition, HUD is developing a quality assurance process for management control and oversight of its disposition program specific to the requirements of the new contract. Oversight of the disbursement process by HQ is being incorporated into the control process under development. In the interim, HQ staff will review a random sampling of SAMS transmittals to determine adherence to invoice review process. As of November 2006, HUD included terms in its revised management contracts that require documentation to support that all payments are for valid obligations of the program, such as property number and other details. In addition, HUD developed a financial control manual for use by all its homeownership centers in processing payment requests for management contractors. The manual includes guidance on what constituted acceptable documentation in order to review and approve items for payment. Additionally, HUD is contracting for the services of an independent public accountant to assess the effectiveness of these procedure.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should require documentation that the payment is for a valid obligation of the program.

    Agency Affected: Department of Housing and Urban Development

  5. Status: Closed - Implemented

    Comments: In November 2004, HUD officials informed GAO that staff training to be held in 2005 would include coverage of enhancements to HUD's internal controls over payment processing. In addition, HUD is developing a quality assurance process for management control and oversight of its disposition program specific to the requirements of the new contract. Oversight of the disbursement process by HQ is being incorporated into the control process under development. In the interim, HQ staff will review a random sampling of SAMS transmittals to determine adherence to invoice review process. As of November 2006, HUD developed a financial control manual for use by all its homeownership centers in processing payment requests for management contractors. The manual requires that documentation and justifications, including a valid contract or modification for any disbursements, be contained in one place for the approving officials to review when needed. Additionally, HUD utilized the services of an independent public accountant to assess the effectiveness of these policies and processes.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should require annotated verification that the amount and timing of the payment is supported by a valid contract or other agreement signed by both parties.

    Agency Affected: Department of Housing and Urban Development

  6. Status: Closed - Implemented

    Comments: In November 2004, HUD officials informed GAO that staff training to be held in 2005 would include coverage of enhancements to HUD's internal controls over payment processing. In addition, HUD is developing a quality assurance process for management control and oversight of its disposition program specific to the requirements of the new contract. Oversight of the disbursement process by HQ is being incorporated into the control process under development. In the interim, HQ staff will review a random sampling of SAMS transmittals to determine adherence to invoice review process. As of November 2006, HUD included terms in its revised management contracts that require the contractors to include with all payment requests documentation to support the quantity and cost for the goods or services billed. HUD also developed a financial control manual for use by all its homeownership centers in the review and approval of contractor payment requests. The manual stipulated that all documentation is to be reviewed by HUD officials prior to authorizing payment, including evidence that the goods or services billed had been received. In addition, HUD provided formal training to its employees in the policies and procedures contained in the manual.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should call for documenting that the quantity and cost for the goods or services is correct, was received and has been reviewed for each item purchased.

    Agency Affected: Department of Housing and Urban Development

  7. Status: Closed - Implemented

    Comments: In November 2004, HUD officials informed GAO that staff training to be held in 2005 would include coverage of enhancements to HUD's internal controls over payment processing. In addition, HUD is developing a quality assurance process for management control and oversight of its disposition program specific to the requirements of the new contract. Oversight of the disbursement process by HQ is being incorporated into the control process under development. In the interim, HQ staff will review a random sampling of SAMS transmittals to determine adherence to invoice review process. As of November 2006, HUD included terms in its revised management contracts that detailed minimum documentation requirements that must be met for all payment requests. Additionally, HUD implemented procedures for reviewing and processing these payment requests as part of its new financial control manual and utilized the services of an independent public accountant to assess the effectiveness of these controls at selected payment locations.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. These polices and procedures should establish policies and procedures over single-family payments to contractors and other vendors that ensure all such payments are clearly documented and the documentation is readily available for appropriate officials to consider at the time they review and approve payment requests. Depending on the type of payment, these policies and procedures should necessitate evidence of the nature of the goods or services the payment is for.

    Agency Affected: Department of Housing and Urban Development

  8. Status: Closed - Implemented

    Comments: In November 2004, HUD officials informed GAO that staff training to be held in 2005 would include coverage of enhancements to HUD's internal controls over payment processing. In addition, HUD is developing a quality assurance process for management control and oversight of its disposition program specific to the requirements of the new contract. Oversight of the disbursement process by HQ is being incorporated into the control process under development. In the interim, HQ staff will review a random sampling of SAMS transmittals to determine adherence to invoice review process. As of November 2006, HUD is contracting for the services of an independent public accountant to review compliance with the manual requirements at prescribed time intervals and to recommend corrective actions as needed.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. These polices and procedures should require HUD monitoring at prescribed time intervals to ensure that these control features are being consistently implemented at all payment review locations.

    Agency Affected: Department of Housing and Urban Development

  9. Status: Closed - Implemented

    Comments: In November 2004, HUD officials informed GAO that staff training to be held in 2005 would include coverage of enhancements to HUD's internal controls over payment processing. As of November 2006, HUD developed a financial control manual that, among other things, requires that government technical representatives perform initial reviews of payment requests from management contractors. In addition, HUD provided formal training to its employees in the policies and procedures contained in the manual. November 2006 Update: In response to this recommendation, HUD developed a financial control manual that, among other things, requires that government technical representatives perform initial reviews of payment requests from management contractors. In addition, HUD provided formal training to its employees in the policies and procedures contained in the manual.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. These polices and procedures should specify that the technical review of payment requests be performed solely by HUD-appointed individuals with the requisite training and experience.

    Agency Affected: Department of Housing and Urban Development

  10. Status: Closed - Implemented

    Comments: In November 2004, HUD officials informed GAO that staff training to be held in 2005 would include coverage of enhancements to HUD's internal controls over payment processing. As of November 2006, HUD developed a financial control manual. The manual is used by HUD payment review and approval officials and includes procedures to be followed and minimum acceptable documentation requirements for the preparation, review and approval of payment requests. These policies apply to vendors that do not have access to HUD's automated payment system.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. These polices and procedures should provide adequate controls over preparation, review, and approval of payment requests for vendors that do not have access to the automated HUD Single-Family Acquired Asset Management System.

    Agency Affected: Department of Housing and Urban Development

  11. Status: Closed - Implemented

    Comments: In November 2004, HUD officials informed GAO that staff training to be held in 2005 would include coverage of enhancements to HUD's internal controls over payment processing. As of November 2006, HUD included terms in its revised management contracts that require the contractors to prepare all payment requests for which they are the payee, including revised payment requests when the initial requests are found to be deficient. In addition, HUD developed a financial control manual for use by all its homeownership centers in processing payment requests for management contractors. The manual requires management contractors to prepare payment requests for which they are the payee and requires that HUD return all payment requests that require revision to the contractors for correction and resubmission to HUD.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. These polices and procedures should require management contractors to prepare all payment requests for which they are the payee, including any revised payment requests that may be required.

    Agency Affected: Department of Housing and Urban Development

  12. Status: Closed - Implemented

    Comments: In November 2004, HUD officials informed GAO that staff training to be held in 2005 would include coverage of enhancements to HUD's internal controls over payment processing. In addition, HUD is developing a quality assurance process for management control and oversight of its disposition program specific to the requirements of the new contract. Oversight of the disbursement process by HQ is being incorporated into the control process under development. In the interim, HQ staff will review a random sampling of SAMS transmittals to determine adherence to invoice review process. As of November 2006, HUD implemented new procedures as part of its financial control manual to be used by officials at the homeownership centers. The new procedures stipulated that immediately after invoices are approved for payment by the certifying officer, all invoices and supporting documentation must be stamped as "PAID" to prevent reuse of these documents. In addition, HUD provided formal training to its employees in the policies and procedures contained in the manual.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should require that all invoices and other supporting documentation be effectively canceled to prevent reuse.

    Agency Affected: Department of Housing and Urban Development

  13. Status: Closed - Implemented

    Comments: In November 2004, HUD officials informed GAO that staff training to be held in 2005 would include coverage of enhancements to HUD's internal controls over payment processing. In addition, HUD is developing a quality assurance process for management control and oversight of its disposition program specific to the requirements of the new contract. Oversight of the disbursement process by HQ is being incorporated into the control process under development. In the interim, HQ staff will review a random sampling of SAMS transmittals to determine adherence to invoice review process. As of November 2006, HUD included terms in its revised management contracts that detailed minimum documentation requirements that must be met for all payment requests. In addition HUD implemented procedures as part of its new financial manual that stipulate that all payment requests are to be supported by original invoices. In the cases where the contractor or HUD cannot the original invoice, transmittals may be processed only if these are stamped with a "Paid as Original" or "Use as Original" stamp.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should require that only original documents be used to support payments, or that there be evidence of compliance with policies concerning the use of reproduced documents.

    Agency Affected: Department of Housing and Urban Development

  14. Status: Closed - Implemented

    Comments: On May 20, 2008, HUD issued a memorandum implementing "Single Family Asset Management Data Review Procedures for Expenses related to the Management and Sale of REO (Real Estate Owned) Properties." These procedures provide for the analysis of property specific expenses and establish a standard performance metric to assist HUD managers in their quarterly reviews to identify trends and anomalies in all expense categories.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should establish policies and procedures over single-family payments to contractors and other vendors that will improve the effectiveness of HUD's oversight of contractor performance. These policies and procedures should establish standard business metrics for comparing contractor performance, to include expense data by contractor, total expenses per property, and per expense classification.

    Agency Affected: Department of Housing and Urban Development

  15. Status: Closed - Implemented

    Comments: As of May 2006, the Disposition Demonstration Program was essentially complete. All multifamily properties in the program were repaired or rebuilt and sold. Consequently, through disposing of all the program's assets, HUD has effectively addressed the intent of our recommendation--reducing HUD's vulnerability to fraud, waste, abuse, and mismanagement.

    Recommendation: To address the significant internal control weaknesses that we identified related to monitoring the multifamily program with a state housing agency under a sole source agreement, the Secretary of Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to implement risk-based oversight and monitoring policies and procedures to reduce HUD's vulnerability to fraud, waste, abuse, and mismanagement in the multifamily program with the state housing agency.

    Agency Affected: Department of Housing and Urban Development

  16. Status: Closed - Implemented

    Comments: In response to GAO's recommendation, HUD developed and implemented a financial control manual, dated September 2006, that contains detailed procedures for key steps in the single-family payment process. Also, training was conducted in 2006 which headquarters and home ownership center staff attended. This training included coverage of areas of contract administration, monitoring, management controls, and financial controls over disbursements. Additionally, HUD is planning to use an independent public accountant to perform reviews of these controls and make recommendations for improvements as necessary.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should establish policies and procedures over single-family payments to contractors and other vendors that will improve the effectiveness of HUD's oversight of contractor performance. These policies and procedures should establish compensating internal controls to address areas of vulnerability identified through the risk assessment process.

    Agency Affected: Department of Housing and Urban Development

  17. Status: Closed - Implemented

    Comments: In response to GAO's recommendation, and in accordance with the Improper Payments Information Act, HUD began performing annual assessment of payments for key programs in fiscal year 2005, including single-family payments to contractors and other vendors regarding single-family property dispositions. In FY 2005 these payments were subjected to statistical sampling and the results indicated a decrease in the improper payment dollar rate. This improvement has been attributed to better data identification and collection, as well as increased oversight of the payment process by HUD staff. The HUD FY 2005 Performance and Accountability Report showed single-family payments to be below the threshold established by the Improper Payments Information Act and therefore it has been removed from HUD's inventory of activities of at-risk of a significant level of improper payments.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should establish policies and procedures over single-family payments to contractors and other vendors that will improve the effectiveness of HUD's oversight of contractor performance. These policies and procedures should measure the potential or actual impact of identified risks on program operations.

    Agency Affected: Department of Housing and Urban Development

  18. Status: Closed - Implemented

    Comments: HUD completed its risk assessment of single-family contractor payment transmittals in November 2006. HUD's Financial Control Manual, which became effective November 1, 2006, was revised to require the Government Technical Manager (GTM) to verify "before" and "after" pictures of repairs to gain additional assurance that the repairs were performed before paying the contractors. In addition, the manual requires that GTMs or Government Technical Representatives perform quarterly performance reviews of each single-family contractor including random inspection of major repairs.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should establish policies and procedures over single-family payments to contractors and other vendors that will improve the effectiveness of HUD's oversight of contractor performance. These policies and procedures should perform a risk assessment of single-family payments to contractors and other vendors to determine the nature and extent of HUD's exposure to improper payments. The risk assessment should include a comprehensive review and analysis of operations to determine where risks exist and what those risks are, including assessing the need for linking property inspections with billed amounts for goods and services provided.

    Agency Affected: Department of Housing and Urban Development

  19. Status: Closed - Implemented

    Comments: Version 2 of HUD's Financial Control Manual, effective November 1, 2006, established improved control procedures over single-family housing payments, including procedures requiring review of all payment transmittals to ensure that they are adequately documented and recovered, as appropriate. Specifically, with respect to the recovery of identified amounts, HUD provided data in 2008 showing that GAO identified questionable amounts were offset against amounts owed contractors.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should establish policies and procedures over single-family payments to contractors and other vendors that will improve the effectiveness of HUD's oversight of contractor performance. These policies and procedures should pursue recovery of amounts paid, as appropriate.

    Agency Affected: Department of Housing and Urban Development

  20. Status: Closed - Implemented

    Comments: HUD researched the questionable payments and found that in some cases the documentation was appropriate; however, in other cases, procedures were not followed consistently and documentation was not in a format that would enable an unrelated party to clear understand the transaction. As a result, Version 2 of HUD's Financial Control Manual, which became effective November 1, 2006, was revised to require that the Government Technical Managers (GTMs) and Government Technical Representatives (GTRs) closely review all payment transmittals to ensure that the support for all payment transactions is clearly documented. The GTMs and GTRs are also to verify the review performed by the support service contractors' staff, which require these staff to document on the payment transmittals that the goods and services being paid for are legitimate and accurate.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should establish policies and procedures over single-family payments to contractors and other vendors that will improve the effectiveness of HUD's oversight of contractor performance. These policies and procedures should identify the causes for these payments to occur and not be detected in the ordinary course of business.

    Agency Affected: Department of Housing and Urban Development

  21. Status: Closed - Implemented

    Comments: HUD completed its research of the $16,293,364 of questionable payments in November 2006 and provided us with a schedule that, among other things, identified the amount of questionable payments, the action taken by HUD to determine if each payment was a valid use of government funds, and the results of the review performed. HUD concluded that all of the payments were a valid use of government funds.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should establish policies and procedures over single-family payments to contractors and other vendors that will improve the effectiveness of HUD's oversight of contractor performance. These policies and procedures should follow up on each of the payments we identified as questionable or potentially fraudulent to determine if the payments are a valid use of government funds.

    Agency Affected: Department of Housing and Urban Development

  22. Status: Closed - Implemented

    Comments: HUD issued a revised Financial Control Manual in September 2006. This revised manual provides the minimum documentation that must be included with contractor payment requests, and describes who in HUD is responsible for reviewing and approving payment requests.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should establish policies and procedures over single-family payments to contractors and other vendors that will improve the effectiveness of HUD's oversight of contractor performance. These policies and procedures should establish consistent practices for single-family payment processes, to include the preparation of payment requests, review and approval of payment requests, and minimum supporting documentation standards for all payments, that will clarify what policies and procedures must be adhered to by headquarters and all homeownership centers.

    Agency Affected: Department of Housing and Urban Development

  23. Status: Closed - Implemented

    Comments: HUD included in version 2 of its Financial Control Manual, which became effective November 1, 2006, an addition to the Cost Allocation to Properties section. This addition requires that upon execution of any contract involving allocated expenses, a written memorandum will be prepared by the Government Technical Representative and delivered to the Director of the Office of Single Family Asset Management, identifying (i) the subset of properties subject to the allocation and (ii) the allocation percentage to each property within the subset. Any changes to the allocation will be documented in the same manner. In addition, if the expense is to be allocated is a non-contract expense and originated at the HUD single family housing, Homeowernership Centers (HOCs) or headquarters, the written allocation instruction must include approval by the appropriate official based on the dollar amount of the expense.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should establish policies and procedures over single-family payments to contractors and other vendors that will improve the effectiveness of HUD's oversight of contractor performance. These policies and procedures should establish specific guidelines for when single-family payments to contractors and other vendors may be classified as allocated costs.

    Agency Affected: Department of Housing and Urban Development

  24. Status: Closed - Implemented

    Comments: On September 26, 2007, HUD hired an independent public accountant (IPA) to develop standard standard metrics for conducting analytical reviews focused on comparison of property expenses, pass through expenses, and expense classifications. At the end of each quarter, the IPA is required to prepare a report for HUD management that identifies anomalies if any, and "red flags" items in specific expense categories for review by HUD managers.

    Recommendation: To improve internal controls over HUD's single-family property program, the Secretary for Housing and Urban Development should direct the Assistant Secretary for Housing-Federal Housing Commissioner to establish policies and procedures that create a positive control environment for all key steps in the single-family payment process. Depending on the type of payment, these polices and procedures should establish policies and procedures over single-family payments to contractors and other vendors that will improve the effectiveness of HUD's oversight of contractor performance. These policies and procedures should ensure the preparation and review of these metrics regularly to identify cost saving opportunities, unusual patterns that require attention, and potential instances of fraud, waste, and mismanagement.

    Agency Affected: Department of Housing and Urban Development

 

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