Consider grant recipients’ feedback on challenges with (1) capacity, (2) multiple other sources of funding, and (3) subrecipient monitoring as part of CPD’s risk assessments.

Collaborate with the Deputy Chief Financial Officer to work with grantees in identifying where improper and unknown payments could occur in the CPD-HIM program throughout the payment cycle, to include the risks associated with subgrantee billing, and document this analysis.

Collaborate with the Deputy Chief Financial Officer and use the analysis developed in 3A to ensure that HUD’s improper and unknown payment testing procedures are (1) designed to test the full payment cycle and (2) include the review of documentation that supports that final beneficiaries were eligible, goods and services were received, and payments went to the correct final beneficiaries and were for the correct amount.

Work with the Office of Community Planning and Development’s Chief Risk Officer and grantees to better identify the risks of improper and unknown payments throughout the payment cycle, to include the risks associated with grantees and subgrantees, and consider these risks when performing the CDBG and Homeless Assistance Grant risk assessments.

Work with the Deputy Chief Financial Officer to develop and design a process to ensure that each attribute evaluated during the PIIA risk assessment is evaluated at all levels of the full payment cycle.

Provide support for the reimbursement to its housing program of $107,036 from non-Federal funds if justification cannot be provided to support that the overhead and profit amounts paid to the contractors were reasonable.

Perform a review of the remaining 453 contracts and any additional contracts issued under the old invitations to bid to ensure that overhead and profit amounts charged by contractors were reasonable. The State should either provide justification or support for the reimbursements to its housing program from non-Federal funds for the unsupported amounts.

Update policies and procedures to ensure that a cost reasonableness assessment is performed on all cost elements, including the overhead and profit percentages charged by contractors for future contracts.

Develop and implement procedures to ensure the execution of newly developed policies that require contractors that work on multiple programs to provide adequate support to distinguish the proper amount of time and cost spent on each program. The State should also be required to provide procedures that implement the policy changes.

Train staff to ensure that expenditures, including payments made to contractors, are classified to the proper project activity in the DRGR system and provide support for training conducted.

Require lenders to provide evidence of sufficient flood insurance or execute indemnification agreements for the 21 loans in our statistical sample that did not have sufficient flood insurance at the time of our audit to put nearly $1.1 million to better use. (See appendix A.)

Develop a control to detect loans that did not maintain the required flood insurance to put $1.5 billion to better use by avoiding potential future costs to the FHA insurance fund from inadequately insured properties.

Corrective Action Taken

In November 2022, FHA published the Acceptance of Private Flood Insurance for FHA-Insured Mortgages final rule (Docket No. FR-6084-F-02) in the Federal Register and issued Mortgagee Letter 2022-18, Acceptance of Private Flood Insurance for FHA-Insured Mortgages (ML 2022-18). These policy changes not only strengthened Single Family’s Mortgagee requirements regarding flood insurance, but they also introduced the ability for borrowers and Mortgagees to purchase private flood insurance. In January 2023, the sections in ML 2022-18 that pertain to HUD’s forward mortgage programs were superseded by the FHA Single Family Housing Policy Handbook (Handbook 4000.1), adding a requirement that the Mortgagee review all FHA-insured properties annually to determine if the property is located within a Special Flood Hazard Area (SFHA). For properties located within a SFHA, the Mortgagee must ensure flood insurance is in force for the life of the mortgage and that the property has sufficient flood insurance coverage. To ensure compliance with the policy requirements, the Mortgagee must include updated flood insurance information for properties where flood insurance is required in the Servicing and Claims File. In addition, Handbook 4000.1 includes flood insurance servicing policy updates. HUD submitted a revised management decision reflecting this action on June 22, 2023.

Consult with the Office of General Counsel to review the language in the statutes, regulations, and handbooks and if warranted, make adjustments to the forward mortgage handbook to ensure consistency with the statute.

Consult with the Office of General Counsel to review the language in the statutes, regulations, and handbooks and if warranted, make adjustments to the HECM handbook to ensure consistency with the statute and regulation.

Develop and implement policies and procedures to ensure that subgrantee agreements are executed in a timely manner, effective monitoring is performed, and subgrantees maintain an emphasis on using their CoC funds, thereby preventing similar occurrences of $3.5 million (see appendix D) in CoC funding going unused.

Develop and implement strategies to address capacity and organizational problems or obtain technical assistance to address these issues.

Develop and implement procedures and controls to clearly define and update point-of-contact staff for subgrantees.

Work with HUD and subgrantees to reevaluate its CoC program’s performance goals and set targets that help to ensure that funds for future CoC grants are fully and effectively used to advance the goal of ending homelessness.

Adequately support the eligibility of payroll costs or repay its CoC grants $824,302 from non-Federal funds.

Adequately support the eligibility of rent costs or repay its CoC grants $55,545 from non-Federal funds.