Unsupported Yearend Obligations Overstate the Progress of Assisted Housing

PSAD-80-41: Published: Apr 30, 1980. Publicly Released: May 1, 1980.

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GAO believes that a substantial portion of the yearend obligations reported by the Department of Housing and Urban Development (HUD) since fiscal year 1976 for the "Annual Contribution for Assisted Housing" appropriation account have been invalid because they did not meet the statutory test of legal sufficiency. In a subsequent year, HUD deobligated many of the invalid obligations of prior years and reobligated the amounts involved. GAO was unable to determine how much was deobligated from each year prior to fiscal year 1979, but agency officials indicated that they expected several billion dollars in deobligations in the current fiscal year.

GAO found that HUD had a $16.5 billion surge in obligation in the last month of fiscal year 1978 in the assisted housing account. HUD recorded obligations when in reality there was no legal obligation on the part of the Government. Subsequently, a portion of the reported obligations were deobligated and reobligated providing HUD with significant amounts of obligational authority in excess of that indicated by its financial reports. Obligations for the account were based on notification and reservation letters which advised housing project sponsors that their projects were tentatively selected for funding. GAO believes that the letters are not legally sufficient to constitute obligations and that HUD could have misled Congress on its needs for additional budget authority by understating the balance available for obligation. The practice gives the impression that HUD has carried out its mission by actually contracting for assisted housing to a greater extent than it has. HUD maintains that the extent of the deobligations in relation to obligations is not nearly as high as is implied by the data, and that less than 10 percent of the obligations fail to result in contracts with the intended parties. It advises that the method is used because it believes that it could be liable to a recipient of a reservation letter if the recipient incurred costs in relation to the project and HUD later withdrew the reservation. GAO believes that, because the document clearly states that it is not a legal obligation, the HUD procedure serves only to inflate the amount of reported obligations.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of HUD should direct that: (1) a complete review be made of this account from fiscal year 1976 to the present to determine valid obligations based on contracts; (2) the HUD Inspector General's office validate the results of the review; (3) HUD record obligations on the basis of executed contracts; and (4) a cumulative (including fiscal years 1976, 1977, and 1978) corrected Yearend Closing Statement be prepared for fiscal year 1979 and certified to by the responsible HUD officer as required by law.

    Agency Affected: Department of Housing and Urban Development


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