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. This report supplements our independent auditor’s report on the results of our

audit of HUD’s principal financial statements for the fiscal years ending September 30, 2018 and

2017 (restated), related to HUD’s internal controls and compliance with applicable laws,

regulations, and governmentwide policy requirements and provisions of contracts and grant

agreements.

 

We issued a disclaimer of opinion on HUD’s consolidated financial statements for fiscal years

2018 and 2017 (restated) due to severe weaknesses in HUD’s internal controls over financial

reporting. This report provides additional details on three material weaknesses, three significant

deficiencies, and five instances of noncompliance with applicable financial management laws

and regulations. We also cited another matter that warranted attention by management. Details

of the results of our audit of HUD’s component entities, the Federal Housing Administration and

Government National Mortgage Association, can be found in separate audit reports.

Primarily, HUD (1) had errors in its fiscal year 2018 yearend financial statements provided for

audit and fiscal year 2017 financial statements and notes required restatement; (2) third quarter

financial statements and note disclosures were misstated and missing required information; (3)

inadequately accounted for assets, liabilities, and budgetary resources in accordance with U.S.

generally accepted accounting principles (GAAP); (4) lacked adequate financial management

systems to ensure accurate and reliable financial reporting; (5) continued to experience

shortcomings in financial management; and (6) reported significant amounts of invalid

obligations. These conditions were caused by (1) ineffective internal controls over financial

reporting, (2) continued reliance on legacy financial management systems that did not always

comply with the Federal Financial Management Improvement Act of 1996, and (3) continued

weaknesses in HUD’s financial management governance structure.

 

We recommend that HUD (1) properly account for all financial transactions in accordance with

GAAP, (2) improve internal controls over the financial reporting process, (3) develop and

implement policies and procedures, and (4) deobligate up to $113.4 million in invalid or inactive

obligations.

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