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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. Our objectives were to express an opinion on the fair presentation of HUD’s consolidated financial statements and report on HUD’s internal controls over financial reporting and compliance with select provisions of applicable laws, regulations, contracts, and grant agreements. This report supplements our independent auditor’s report on the results of our audit of HUD’s consolidated financial statements for the fiscal year ending September 30, 2019.

We expressed a qualified opinion on HUD’s consolidated financial statements for fiscal year 2019 because of the significant effects of certain unresolved audit matters, which restricted our ability to obtain sufficient, appropriate evidence about HUD’s noncredit reform loans1 and other liabilities resulting from Ginnie Mae’s guaranty asset and guaranty liability. This report provides additional details on one material weakness, three significant deficiencies, and three instances of noncompliance with laws, regulations, contracts, and grant agreements. The most significant finding relates to instances in which HUD’s accounting did not always comply with Federal generally accepted accounting principles. We also identified (1) weaknesses in internal controls over financial reporting, (2) weaknesses in the financial management system and computing environment, (3) financial management governance deficiencies, and (4) three instances of noncompliance with laws and regulations. These findings occurred because of insufficient policies and procedures and limitations with HUD’s financial management systems.

Current recommendations are included after each finding, while outstanding prior-year recommendations are included in the Followup on Prior Audits section of this report. Most significant are those in which we recommend that HUD (1) improve its validation methodology for accrued grant liabilities and (2) develop, implement, and improve policies and procedures.

Recommendation Status Date Issued Summary
2020-FO-0003-001-A Cerrado Febrero 07, 2020 Ensure that all of the sampled amounts used for extrapolation in OCFO grant accrual validation estimates are properly supported with documentation that substantiates the amounts certified in the surveys.
2020-FO-0003-001-B Cerrado Febrero 07, 2020 Implement a refined accrual validation methodology, to include more comprehensive review procedures to substantiate the amounts certified by the grantee.
2020-FO-0003-001-C Cerrado Febrero 07, 2020 Review CPD’s grant accrual estimation methodology to ensure that all assumptions and variables used are properly supported and verifiable with the validation procedure.
2020-FO-0003-001-D Cerrado Febrero 07, 2020 After PIH prepayment validations are completed, apply all corrections to CAM 1 codes and Voucher Management System (VMS) expenses to all of the data supporting the fiscal year 2019 beginning balance, and recalculate the fiscal year 2019 PIH prepayment estimate. Based on the recalculation, determine whether restatement is needed to the correct errors in the fiscal year 2019 estimate calculation to ensure consistency between comparative statements.
2020-FO-0003-001-E Cerrado Febrero 07, 2020 Revise its review of the PIH prepayment estimate calculations performed by contractors to ensure that the contractors are following the established methodology and any changes to the methodology are applied to the data supporting the beginning balance, if appropriate.
2020-FO-0003-001-F Cerrado Febrero 07, 2020 Review all duties currently assigned to action officials to determine which duties can be centralized within OCFO or its Federal shared service provider. For any duties that cannot be centralized, (1) provide an explanation as to why they cannot be centralized and (2) assign these duties to appropriate positions within the program offices. Further, update the Debt Collection Handbook to include any changes made as a result of the review.
2020-FO-0003-001-G Cerrado Febrero 07, 2020 Implement monitoring and control activities to ensure that all debt collection action officials perform their duties in accordance with the Debt Collection Handbook
2020-FO-0003-001-H Cerrado Febrero 07, 2020 In coordination with each program office, identify the possible debts that could arise from normal business and monitoring activities and create a listing of these scenarios. Based on this listing, implement control activities to ensure that all debts that result from these activities are considered in financial reporting, U.S. Department of the Treasury reporting, and debt collection activities.
2020-FO-0003-001-I Cerrado Febrero 07, 2020 Develop and implement a procedure that requires OCFO to identify and research all debts that are more than 120 days old to ensure (1) validity, (2) that proper debt collection efforts occur, and (3) that the status reported in the TROR is correct according to Treasury’s TROR requirements.
2020-FO-0003-001-J Cerrado Febrero 07, 2020 Review the 76 sustained audit receivables not under repayment agreement totaling $59.6 million to determine validity and ensure that debt collection procedures are followed if applicable, to include (1) issuing demand letters, (2) creating repayment agreements if appropriate, and (3) referring delinquent debt or initiating writeoffs as appropriate. For all receivables determined to be valid, ensure that they are accurately reported to Treasury in the quarterly TROR. For all receivables determined to be invalid, remove the receivables from HUD’s accounts receivable balance.
2020-FO-0003-001-K Cerrado Febrero 07, 2020 Develop and implement standard operating procedures for calculating and reporting HUD’s quarterly allowance for loss based on periodic evaluation of each type of HUD’s accounts receivables in accordance with GAAP. The procedures should also include steps to ensure proper note disclosure for significant classes of accounts receivables.
2020-FO-0003-001-L Cerrado Febrero 07, 2020 Reassess HUD’s SFFAS 50 implementation by correcting HUD’s IUS PP&E opening balance instead of the yearend balances and recognize capitalized IUS development, maintenance, and enhancement costs incurred during fiscal year 2019. If not reassessed, provide auditable documentation supporting the application of the methodology used supporting HUD’s assertion that the IUS zero balance valuation complies with SFFAS 50 and FASAB Technical Release 18 implementation guidance.
2020-FO-0003-001-M Cerrado Febrero 07, 2020 Reevaluate capitalization and useful life thresholds included in HUD’s PP&E policy to ensure that they are comparable based on HUD’s funding level and size of operations and in accordance with capitalization thresholds and useful life requirements for leasehold improvements according to SFFAS 6 PP&E.
2020-FO-0003-001-N Cerrado Febrero 07, 2020 Recognize unrecorded assets and liabilities related to leasehold improvements and make proper disclosures regarding HUD’s leasehold improvement liability in the financial statements and notes.
2020-FO-0003-001-O Abierta Febrero 07, 2020 Collaborate with OCFO to review methodologies used to produce grant accrual estimates, to include testing and verification of the resulting accrual estimates.
2020-FO-0003-002-A Cerrado Febrero 07, 2020 Implement a procedure to periodically, not less than annually, review HUD’s funds from dedicated collections to ensure that those funds fulfill the criteria established by FASAB. Additionally, update HUD’s financial reporting standard operating procedures with this new periodic review.
2020-FO-0003-002-B Cerrado Febrero 07, 2020 Collaborate with Treasury to correct the reporting type code for the funds associated with RAD to ensure that the reporting type code within HUD’s GTAS file reflects the correct reporting type.
2020-FO-0003-002-C Cerrado Febrero 07, 2020 Update all financial statement note checklists to include a review for completeness with the accounting standards and OMB Circular A-136.
2020-FO-0003-003-A Cerrado Febrero 07, 2020 Implement information security controls over the Section 108 loan guarantee database that prevent and detect unauthorized changes to program data (or implement an updated Section 108 loan guarantee database with information security controls that prevent and detect unauthorized changes to program data).
2020-FO-0003-004-A Cerrado Febrero 07, 2020 Develop a formal enterprise risk management policy for program offices’ risk owners, including guidance for completing the annual risk profile refresh, requirements for completing risk mitigation strategies, and reporting risk mitigation progress to the Risk Management Council
2020-FO-0003-004-B Cerrado Febrero 07, 2020 Execute system code requests, including new program-level class and code, CAM 1 codes, in accordance with internal OCFO system standard operating procedures. Specifically, the CFO system code coordinator should verify that OCFO budget officers and program budget officers provide adequate documentation showing that the new CAM1 code is covered by an approved funds control matrix or sufficient justification for not requiring a funds control matrix.
2020-FO-0003-004-C Cerrado Febrero 07, 2020 Develop and implement policy and procedures for the incremental obligation process used for project-based Section 8 funds, including documentation for determining the incremental amounts and controls to review the amounts for accuracy.
2020-FO-0003-004-D Cerrado Febrero 07, 2020 Assign independent, contract officers to review and certify the initiating contract buyer’s compliance with policies for initiating and authorizing interagency agreements and later modifications for all amounts in accordance with Acquisition Instruction 13-07, HUD Contracting Officers.
2020-FO-0003-004-E Cerrado Febrero 07, 2020 Ensure that contracting officers and OCPO field offices review and follow the records management policies and procedures, including completing and signing Forms 7600A and 7600B, to ensure consistency among contract officers approving interagency agreements in the procurement system of record.