GAO-03-447R HUD Systems Status 

United States General Accounting Office 

Washington, DC 20548 

April 9, 2003 

The Honorable Paul S. Sarbanes 

Ranking Minority Member, 

Committee on Banking, Housing and 

 Urban Affairs 

United States Senate 

The Honorable Jack Reed 

Ranking Minority Member, 

Subcommittee on Housing and 

 Transportation 

Committee on Banking, Housing and 

 Urban Affairs 

United States Senate 

Subject: Department of Housing and Urban Development: Status of Efforts to 

Implement an Integrated Financial Management System 

Weaknesses in the Department of Housing and Urban Development’s (HUD) financial 

management systems have been a long-standing challenge for the department and 

have contributed to our designating two of its major programs areas as high-risk and 

the financial management information systems in particular as a major management 

challenge. While some progress has been made, both we and the HUD Office of the 

Inspector General (IG) have reported extensively on weaknesses related to HUD’s 

financial management systems. In audits of HUD’s consolidated financial statements, 

the IG has consistently identified several material internal control weaknesses 

resulting from inadequate financial management systems. In recent audit reports, the 

HUD OIG also noted that the completion of the development of adequate financial 

management systems is the most critical need faced by HUD in improving its 

financial management control environment. Responsive financial management 

systems are particularly critical to HUD’s ability to meet its mission, deliver key 

services, and establish sufficient management control over its operations. 

In light of these issues, you asked that we (1) summarize HUD’s past efforts to 

implement an integrated financial management system, (2) identify the challenges 

HUD faces with its current financial management systems, and (3) determine the 

status of HUD’s current efforts to identify and address its financial management 

systems needs. 
Page 2 GAO-03-447R HUD Systems Status 

Results in Brief

HUD’s past efforts have not resulted in the implementation of a modern integrated 

financial management system to carry out its core accounting functions and meet 

other needs. HUD’s current Central Accounting and Program System (HUDCAPS), as 

implemented in fiscal year 1999, is the product of its Financial System Integration 

(FSI) effort, which began in 1991. While this effort did result in the development and 

deployment of various modules and systems to support several key programs and 

processes, it did not result in an integrated financial management system, which was 

a stated goal of the project. In 1998 we reported1 that even though HUD spent 

hundreds of millions of dollars, the FSI effort was not fully successful because of the 

lack of (1) adequate project management, (2) finalized project plans that provided an 

integration roadmap, and (3) adequate cost-benefit analyses that properly estimated 

the costs to achieve the objectives of the plan and how long it would take to achieve 

these objectives. 

HUD uses HUDCAPS as its core financial management and general ledger system. 

However, this system is not efficient, has become outdated, and has high annual 

maintenance costs. HUDCAPS requires numerous manual adjustments at year-end 

and cannot provide HUD managers with accurate, timely, and useful information to 

manage the agency on a day-to-day basis. HUDCAPS is not used across the 

department as originally intended by the FSI effort. The Federal Housing 

Administration (FHA) and the Government National Mortgage Association (Ginnie 

Mae) continue to maintain their own general ledger/financial management systems 

that are not integrated with HUDCAPS. HUD also continues to maintain the Program 

Accounting System (PAS), which it uses to perform funds control and other functions 

for the department. To help address ongoing deficiencies with its general ledger, 

FHA recently implemented the general ledger module of a commercial-off-the-shelf 

(COTS) software package that automates the interface with HUDCAPS. However, it 

is too early to determine whether this new general ledger system will address FHA’s 

reported deficiencies in this area. 

HUD is currently in the early stages of deciding whether to upgrade HUDCAPS or 

acquire and deploy a new financial management system. According to HUD officials, 

the department has submitted a procurement request for the initial study of the HUD 

Integrated Financial Management Improvement Project (HIFMIP). The study is 

expected to document and analyze business functions of the department and the 

feasibility, risks, and costs of core systems options. Since September 2002, HUD’s 

plans for awarding a contract to conduct a feasibility study have been postponed 

twice. The latest delay came with the recent hiring of an Assistant Chief Financial 

Officer for Systems (ACFO), who made a decision to broaden the scope of the Needs 

Statement to include the financial management needs of FHA and Ginnie Mae, which 

we view as a sound decision. Proper planning is an essential element to the success 

of the project and therefore to HUD’s effort to correct its long-standing financial 

management systems problems. HUD now plans to award the contract for the study 

 

1

U.S. General Accounting Office, HUD Information Systems: Improved Management Practices 

Needed to Control Integration Cost and Schedule, GAO/AIMD-99-25 (Washington, D.C.: Dec.18, 1998). 
Page 3 GAO-03-447R HUD Systems Status 

in May 2003 and to complete the study by July 2004. Given the nature of HUD’s longstanding financial management systems problems and the importance of these 

systems to carrying out HUD’s mission and activities, we are recommending that 

HUD’s Secretary make the modernization and integration of its financial management 

systems a continuing top priority and to take the necessary actions to help ensure 

successful implementation. 

In commenting on a draft of this report, HUD agreed with our recommendation that 

the Secretary make the integration of the department’s financial management 

systems a continuing top priority and stated that it has already done so. HUD also 

discussed at length its current actions to address its financial management systems 

challenges and requested additional recognition of these actions in our report. While 

we recognize that HUD is presently taking action, much of this action has occurred 

only recently. Our report focuses on HUD’s historical efforts to improve its longstanding financial management systems deficiencies, which have been the subject of 

our reports for several decades. As stated in our report,2

 in 1984 we reported 

financial management problems that included systems that were inadequate, lacked 

internal controls, and failed to meet program managers’ needs. While HUD has 

recently begun to renew its efforts to address these deficiencies, sustained 

commitment from HUD’s management will be needed to completely address and 

eliminate these weaknesses. 

Background

HUD is the primary federal agency responsible for programs dealing with housing, 

community development, and fair housing opportunities. Its mission is to promote 

adequate and affordable housing, economic opportunity, and a suitable living 

environment free from discrimination. HUD pursues its mission through the 

programs offered by FHA, Ginnie Mae, the Office of Community Planning and 

Development, the Office of Public and Indian Housing, and the Office of Fair Housing 

and Equal Opportunity. FHA makes housing affordable through its mortgage 

insurance programs for multifamily and single-family housing. Ginnie Mae supports 

expanded affordable housing by providing an efficient government-guaranteed 

secondary market for mortgaged-backed securities. HUD is one of the nation’s 

largest financial institutions with responsibility for managing more than $550 billion 

in insured mortgages and $600 billion in guarantees of mortgage-backed securities. 

For fiscal year 2003, HUD’s budget authority was about $32 billion. 

The challenges HUD faces in improving its financial management systems are not 

new and have been the subject of GAO reports for several decades. For example, in 

1984 we reported financial management problems that included systems that were 

inadequate, lacked internal controls, and failed to meet program managers’ needs. In 

an effort to correct financial management systems deficiencies, in 1991 HUD initiated 

the FSI effort which, as discussed later in this report, was a departmentwide project 

 

2

U.S. General Accounting Office, Increasing the Department of Housing and Urban Development’s 

Effectiveness Through Improved Management, Vol.1, GAO/RCED-84-9 (Washington, D.C.: Jan. 10, 

1984). 
Page 4 GAO-03-447R HUD Systems Status 

to design and implement an integrated financial management system consisting of 

both financial and mixed systems.3

 HUDCAPS was a product of this effort. 

HUD currently uses numerous financial management and mixed systems to achieve 

its mission. HUD uses HUDCAPS as its core financial management and general 

ledger system. FHA used a Management Sciences Associates (MSA) system as its 

financial management system through fiscal year 2002. FHA now uses Peoplesoft, 

which was implemented on October 1, 2002, as its general ledger system. Ginnie 

Mae uses Macola, which provides for all of its financial accounting needs. In 

addition, there are 

• 19 legacy insurance systems that are interfaced with FHA’s new general ledger 

system; 

• PAS, which performs funds control and tracks transaction details for the 

department; and 

• Hyperion,4

 which supports the preparation of the department’s financial 

statements. 

HUD’s financial statement auditors have reported the department’s lack of an integrated 

financial management system that is in compliance with federal financial system 

requirements as a material internal control weakness since fiscal year 1991. In addition, 

HUD’s financial statement auditors have reported HUD as not being in substantial 

compliance with the requirements of the Federal Financial Management Improvement Act of 

1996 (FFMIA)5 since fiscal year 1997, when reports under the act were first required. HUD 

has been reported as not being in substantial compliance with FFMIA primarily because of 

deficiencies in FHA’s legacy general ledger system. This system did not support credit 

reform accounting nor did it comply with the U.S. Standard General Ledger (SGL) at the 

transaction level.6 In light of these issues, in 1999 FHA began the acquisition of a new 

financial management system. 

In 1994 we designated HUD a high-risk agency, in part because of inadequate financial 

management and information systems and slow progress in correcting fundamental 

management weaknesses. In our 2003 biannual performance and accountability series 

report,7 we identified two of HUD’s major program areas—single-family mortgage insurance 

and rental housing assistance—as high-risk. HUD’s challenges with programmatic 

and financial management information systems cut across both programs and 

contribute to its high-risk designation. Also, in fiscal years 2001 and 2003 we 

identified HUD’s financial management information systems as a major management 

challenge in our biannual performance and accountability series report. 

 

3

Mixed systems are those that support both programmatic and financial information needs. 

4

Hyperion is the software within HUDCAPS used to compile the general ledger information for 

reporting purposes and financial management consolidation. 

5

FFMIA requires the 24 major departments and agencies covered by the Chief Financial Officers Act of 

1990 (CFO Act) to implement and maintain financial management systems that comply substantially 

with (1) federal financial management systems requirements, (2) applicable federal accounting 

standards, and (3) the U.S. Government Standard General Ledger at the transaction level. 6

The SGL provides a standard chart of accounts and standardized transactions that agencies are to use 

in all of their financial systems. 

7

U.S. General Accounting Office, Major Management Challenges and Program Risk: Department of 

Housing and Urban Development, GAO-03-103 (Washington, D.C.: January 2003). 
Page 5 GAO-03-447R HUD Systems Status 

Scope and Methodology

To summarize the outcome of HUD’s past efforts to implement an integrated financial 

management system and to identify the challenges HUD faces with current financial 

management systems, we reviewed prior GAO and HUD OIG audit reports. We also 

interviewed officials at the HUD Office of the Chief Financial Officer (OCFO), Office 

of the Chief Information Officer (OCIO), Office of the Inspector General (OIG), FHA, 

and Ginnie Mae. To determine the status of HUD’s current efforts to identify and 

address its financial management systems needs, we interviewed HUD OCFO and 

OCIO officials. We obtained and reviewed HUD’s Statement of Work and Needs 

Statement for its currently planned feasibility study to upgrade or replace HUDCAPS 

and to determine if HUD’s identified needs were included in the Statement of Work. 

We conducted interviews with FHA officials to discuss their plans for the 

implementation of a new core accounting system and to determine whether this 

system would be integrated with HUDCAPS. We also conducted interviews with 

Ginnie Mae officials to discuss their financial management system and to determine 

whether the entity had plans for acquiring a new system that would be integrated 

with HUDCAPS. 

Our work focused on HUD’s core financial management systems, including 

HUDCAPS and the FHA and Ginnie Mae general ledger systems. We conducted our 

work in Washington, D.C. from July 2002 through November 2002 in accordance with 

generally accepted government auditing standards. 

HUD also suggested several technical comments, which we incorporated where 

appropriate. 

HUD’s Past Financial Management 

Systems Integration Efforts Have

Not Been Successful

HUD’s FSI effort, which was initiated in 1991, was intended, among other things, to 

implement an integrated financial management system that would provide timely and 

accurate information to managers and enable the department to properly manage its 

financial resources. While the project did result in the development and deployment 

of various modules and systems to support several key programs and processes, it 

did not achieve the primary goal of implementing an integrated financial management 

system. Rather, the project’s main focus was narrowed to improving HUD’s core 

financial management system. HUDCAPS evolved from this effort and continues to 

be HUD’s core financial management system today. 

The CFO Act calls for agencies to develop and maintain an integrated accounting and 

financial management system that complies with federal requirements and provides 

for (1) complete, reliable, consistent, and timely information that is responsive to the 

financial information needs of the agency and facilitates the systematic measurement 

of performance, (2) the development and reporting of cost information, and (3) the 

integration of accounting, budgeting, and program information. In addition, the 

Office of Management and Budget (OMB) Circular A-127, Financial Management 

Systems, requires agencies to establish and maintain a single integrated financial 
Page 6 GAO-03-447R HUD Systems Status 

management system that conforms with functional requirements published by the 

Joint Financial Management Improvement Program (JFMIP).8

 

In its 1991 FSI plan, HUD acknowledged that inadequate and nonintegrated financial 

management systems rendered it unable to properly manage its programs and 

financial resources. The FSI plan included specific objectives to establish sound 

financial management controls, correct material weaknesses, improve financial 

management, provide timely and accurate information to managers to enable them to 

meet their organizational objectives, meet the goals of 31 U.S.C. § 3512 (d) commonly 

referred to as the Federal Managers’ Financial Integrity Act (FMFIA) of 1982,9

 and 

comply with OMB Circular A-127, Financial Management Systems.

HUD’s strategy for achieving the FSI objectives was to replace about 100 of its 

financial and mixed systems with 9 new standard integrated systems including a core 

financial management system.10 This strategy was based on an analysis which 

concluded that HUD did not have the basic financial management systems to serve as 

the foundation for an integrated systems environment. The design of the 1991 FSI 

plan required that 8 financial systems be integrated with the new core accounting 

system. Once the 9 systems were deployed, program offices were to use them to 

support their business operations. 

In 1993, HUD revised its initial FSI plan in response to (1) slow progress in 

implementing systems integration, (2) the need to comply with revisions to OMB 

Circular A-127, and (3) senior management’s serious doubts about the viability of 

creating nine new fully integrated systems and having program offices adapt their 

business operations to meet the requirements of these systems by September 1998, 

which was the FSI plan’s original target date. The 1993 plan included the same 

primary objectives as the 1991 plan but also included new objectives such as 

eliminating the department’s financial management systems from OMB’s list of highrisk areas for management improvement, being consistent with HUD’s then current 

reform plan,11 and meeting the requirements of the Government Performance and 

Results Act of 1993.12 Under the 1993 plan, the CFO’s office was required to complete 

the core financial system project initiated under the 1991 plan and program offices 

were required to develop (1) new systems that would support program management 

priorities, financial and management information needs, and business needs, and (2) 

integrate these systems with the core financial system. Plans for the remaining eight 

standard systems called for in the 1991 plan were cancelled. In 1997, HUD revised its 

 

8

JFMIP is a joint and cooperative undertaking of OMB, the Department of the Treasury, the Office of 

Personnel Management (OPM), and GAO working with executive agencies to improve financial 

management practices throughout the government. 

9

Section 4 of FMFIA requires agencies to report whether their accounting systems conform to the 

accounting principles and standards mandated by the Comptroller General of the United States. 10The initial nine systems in the 1991 FSI plan were the (1) core accounting system, (2) mortgage 

insurance system, (3) administrative accounting system, (4) mortgage-backed securities system, (5) 

grants management system, (6) debt collection/management system, (7) notes/loan servicing system, 

(8) project/recipient monitoring system, and (9) management information system. 11In 1994, the HUD Secretary announced the HUD Reinvention Blueprint Plan, intended to reinvent and 

transition the department from a “lumbering bureaucracy to a streamlined partner with state and local 

governments.” 

12The Government Performance and Results Act of 1993 requires agencies to set goals, measure 

performance, and report on their accomplishments. 
Page 7 GAO-03-447R HUD Systems Status 

FSI plan again, extending the date for fully deploying the core financial management 

system from September 1998 to October 1999 and incorporating the development and 

deployment of additional new systems required to meet the department’s latest 

management reforms and organizational changes.13 

In our 1998 report, we identified several challenges regarding HUD’s 1997 FSI plan. 

These challenges included inadequate project management oversight, lack of 

finalized project plans, and outdated cost-benefit analyses. Specifically, we reported 

on how the department had spent hundreds of millions of dollars on its effort to 

develop an integrated financial management system without having the appropriate 

project management processes in place and without knowing how much it would 

cost or how long it would take to complete the objectives of the FSI effort. Title 40 

U.S.C. § 11312, commonly referred to as the Clinger-Cohen Act of 1996, requires 

agencies to establish a process to assess the value and risks of information 

technology (IT) investments, including specific quantitative and qualitative criteria 

for comparing and prioritizing alternative IT projects. In response to the 

recommendation in our 1998 report, HUD has established an IT investment 

management program to select, control, and evaluate investments throughout their 

lifecycle. In this regard, HUD has routinely assessed and scored proposed projects 

against departmentwide project selection criteria and used the program to select IT 

projects. 

As a result of the FSI effort, several modules and systems initiated under the 1993 and 

1997 plans were implemented including HUDCAPS and systems to support the 

department’s Section 8 financial and program management functions, community 

planning and development grants, and procurement process. HUDCAPS, as HUD’s 

core financial management system, was initially intended to replace the general 

ledger systems at FHA and Ginnie Mae as well as HUD’s PAS. However, HUDCAPS 

has not replaced these systems. Both FHA and Ginnie Mae have continued to 

maintain their own general ledger systems, and HUD continues to maintain PAS. 

HUDCAPS functions as the department’s financial management system, receiving 

data from FHA’s and Ginnie Mae’s general ledger systems on a periodic basis. 

Current Financial Management Systems 

Are Outdated and Continue to 

Have Deficiencies 

In January 2003, for the twelfth year in a row, the HUD OIG cited the lack of an 

integrated financial management system in compliance with federal financial system 

requirements as a material weakness in its audit of the department’s financial 

statements. In addition, as acknowledged by HUD officials, HUDCAPS uses outdated 

technology and is a version of a COTS software package that is no longer available. 

HUD is totally dependent upon the vendor for software modifications, maintenance, 

and enhancements because the vendor owns the source code for the system. As a 

 

13The “HUD 2020 Management Reform Plan” issued in 1997 included, as one of its reforms, the 

development and implementation of an integrated financial management system that is accurate, 

reliable, and timely. In his confirmation hearing, Secretary Cuomo stated that his top priority was to 

put HUD's management systems in order and to restore effective management and financial 

accountability at HUD. This plan established an October 1999 deadline for fully deploying an 

integrated core financial system. 
Page 8 GAO-03-447R HUD Systems Status 

result, HUD will have to continue to pay the vendor for support of any new 

modifications or upgrades to HUDCAPS. Further, as recognized by HUD officials, 

HUDCAPS is neither a robust nor efficient system. For example, it cannot be 

modified to account for multiyear monies at year-end, resulting in extensive manual 

effort to reclassify dollars from 1-year accounts to multiyear accounts. This is one 

reason that HUD has to rely on extraordinary manual efforts to prepare its financial 

statements. 

To promote more timely financial reporting and to discourage the costly manual 

efforts that many agencies have used to obtain unqualified opinions of financial 

statements without addressing their underlying systems problems, OMB accelerated 

audited financial statement reporting dates by 1 month for fiscal years 2002 and 2003 

and by 31⁄2 months for fiscal year 2004. OMB also requires the preparation of 

unaudited quarterly financial statements. HUD has been able to issue its audited 

financial statements by the required due dates (most recently February 1, 2003) for 

the last 3 fiscal years. HUD has also received unqualified opinions on these 

statements since fiscal year 2000. However, because the department’s current 

financial management systems are outdated, inefficient, and require extensive manual 

intervention, HUD will be increasingly challenged to meet these reporting dates as 

they are further accelerated. 

HUD’s financial statement auditors have also reported weaknesses in FHA’s financial 

management system for several years. As discussed earlier in this report, until 

October 1, 2002, FHA used MSA as its financial management system. MSA is an old 

version of a COTS software package that did not (1) comply with governmental 

accounting standards, (2) have funds control or budgetary modules, and (3) comply 

with federal credit reform accounting. In the fiscal year 2002 financial statement 

audit report, the HUD OIG reported HUD as not being in substantial compliance with 

FFMIA primarily because FHA’s systems did not comply with the SGL at the 

transaction level. FHA’s 19 legacy insurance systems that fed transactions to its 

commercial general ledger system lacked the capabilities to process transactions in 

the SGL format. Therefore, FHA provided only consolidated summary-level data to 

HUDCAPS. To do this, FHA used several manual processing steps, including the use 

of personal-computer-based software to convert the summary-level commercial 

accounts to government SGL and transfer the account balances to HUDCAPS. This 

process did not comply with JFMIP requirements that the core financial system 

provide for automated month and year-end closing of SGL accounts and roll-over of 

the SGL account balances. 

To help address deficiencies with its legacy general ledger system, as a first step in 

upgrading its overall financial management system FHA implemented the general 

ledger module of a COTS software package on October 1, 2002. This module 

automates the monthly interface of summary-level balances with HUDCAPS. The 

project plan for FHA’s new system includes full implementation of other FHA 

financial modules, such as cash management and funds control, and the modification 

or replacement of various insurance systems by fiscal year 2007. Although the COTS 

software that FHA purchased has been tested and certified as being compliant with 

JFMIP requirements, it is too early to determine whether the new general ledger 

module will meet all of FHA’s identified needs and fully address the deficiencies that 

have hampered FHA’s compliance with FFMIA. 
Page 9 GAO-03-447R HUD Systems Status 

Ginnie Mae has used its current general ledger and financial management system for 

the last 10 years and has no plans to replace it. In addition, Ginnie Mae has received 

unqualified opinions for many years, and its financial statement auditors have not 

reported any material weaknesses or reportable conditions since 1995. However, as 

previously mentioned, because Ginnie Mae’s system is not integrated with HUDCAPS, 

it may ultimately need to be modified or replaced to achieve full financial 

management systems integration at HUD. 

HUD Is in the Early Stages of 

Assessing its Current Financial 

Management System Needs 

HUD is currently in the early stages of deciding whether to upgrade HUDCAPS or acquire 

and deploy a new integrated system that would better meet its needs. While in August 2000 

HUD developed a financial vision to implement a new integrated financial management 

system,14 actions on the financial management systems vision of 2000 were largely deferred. 

For the past 2 years, HUD’s management has focused its attention on stabilizing and 

enhancing the existing financial management systems operating environment in order to 

enable the preparation of auditable financial statements and address internal control 

weaknesses reported in the HUD OIG annual financial statement audit reports. These efforts 

were instrumental in helping HUD achieve unqualified audit opinions for the last 3 years. 

However, serious internal control weaknesses related to HUD’s financial management 

systems remain. 

In May 2002, HUD submitted a procurement request for the initial study of the HUD 

Integrated Financial Management Improvement Project (HIFMIP). This study is expected to 

document and analyze the department’s business functions and the feasibility, risks, and costs 

of core system options, to include modifying existing systems, COTS implementation, and 

outsourcing opportunities. HUD’s plans for awarding a contract for the initial study and 

completing the contract have changed several times since the initial procurement request. 

For example, HUD initially expected to award a contract by the end of September 2002 for 

work to be completed by April 2003. However, with the recent hiring of an ACFO for 

Systems, HUD’s plans were delayed from September 2002 to December 2002 so that the 

scope of the Needs Statement could be broadened to include the financial management needs 

of FHA and Ginnie Mae, which we view as a sound decision. HUD currently plans to award 

a contract for the study by May 2003 and to update the financial management systems vision 

by January 2004. HUD also plans to complete a contracted study of core systems options for 

management decision making under the HIFMIP by July 2004. 

Conclusions

In the past, HUD has not sufficiently planned for the implementation of a 

departmentwide integrated financial management system or provided the necessary 

direction, oversight, and sustained attention needed for a successful project. While 

HUDCAPS was an improvement over HUD’s earlier core financial management 

 

14This document described HUD’s plans, at that time, for developing and implementing an integrated 

financial management system. 
Page 10 GAO-03-447R HUD Systems Status 

system, it fell far short of HUD’s goal to develop a departmentwide integrated 

financial management system. As a result, long-standing financial management 

deficiencies, including the availability of timely, reliable data to support decision 

making, remain a challenge and HUD’s ability to meet accelerated financial reporting 

requirements is made much more difficult. HUD management has recently renewed 

its efforts to address the department’s systems deficiencies. Sustained commitment 

will be needed to successfully complete these efforts. 

 

Recommendation

To help ensure the success of future systems implementation efforts, we recommend 

that the Secretary of the Department of Housing and Urban Development make the 

modernization and integration of the department’s financial management systems a 

continuing top priority and direct the Chief Financial Officer to take the following 

steps: 

• work collaboratively with the directors of the department’s components, 

• acquire a qualified and experienced project manager, 

• obtain stakeholder involvement, 

• develop and maintain milestones, and 

• establish measurable performance indicators. 

Agency Comments and

Our Evaluation

In written comments (reprinted in app. I) on a draft of this report, HUD generally 

agreed with our recommendation but suggested that we recognize the actions the 

department has already taken to implement the recommendation. While we 

recognize that HUD has already taken some actions to implement the 

recommendation in our report, the thrust of our recommendation is for sustained 

management commitment in order to ensure the success of its modernization and 

integration efforts. Because this systems implementation will be a long-term effort 

for the department, it will need to achieve a disciplined effort consistent with 

recognized best practices referred to in our recommendation. Our prior experiences 

in reviewing major systems acquisitions have shown that failure to establish and 

enforce key processes outlined in legislation and expanded on in best practices 

developed by GAO and others is a salient factor for efforts that end up costing more 

and taking longer than estimated and that fall short of performance expectations. 

Many of these best practices were not present in HUD’s past systems implementation 

effort and will be a challenge for the department in future efforts. 

Regarding financial management systems integration requirements, HUD stated that 

our report incorrectly implies that it is required to have one departmental financial 

management system encompassing FHA, Ginnie Mae, and all other HUD program 

activity. Our report does not say this or even imply this. Rather, we state that HUD’s 

past FSI effort did not result in an integrated financial management system, which 

was a stated goal of the project that began in 1991. We also state that HUD’s existing 

financial management system is not efficient, has become outdated, and has high 

annual maintenance costs. HUD’s letter acknowledges all of these issues. Federal 

financial management system requirements state that systems should be planned, 
Page 11 GAO-03-447R HUD Systems Status 

managed, and linked together electronically in an efficient and effective manner to 

provide departmentwide financial system support necessary to meet the agency’s 

financial management needs. As was reported by the HUD OIG in its report on 

HUD’s fiscal year 2002 financial statements, the agency’s systems do not comply with 

these requirements. 

We are sending copies of this report to the Honorable Mel Martinez, Secretary of the 

Department of Housing and Urban Development, Angela Antonelli, the Chief 

Financial Officer, and other interested parties. We will make copies available to 

others upon request. 

If you have any questions about this letter, please contact me at (202) 512-9508 or by 

email at calboml@gao.gov. Key contributors to this assignment were Rosa R. Harris, 

Debra S. David, David Gill, and Estelle Tsay. 

Sincerely yours, 

Linda M. Calbom 

Director, Financial Management 

 and Assurance 
Page 12 GAO-03-447R HUD Systems Status 

Appendix I 

Comments from the Department of Housing and Urban Development 

See comment 1. 

See comment 2. 

See comment 1. 
Page 13 GAO-03-447R HUD Systems Status 

Appendix I 

See comment 3. 

See comment 4. 
Page 14 GAO-03-447R HUD Systems Status 

Appendix I 

See comment 1. 

See comment 4. 

See comment 5. 
Page 15 GAO-03-447R HUD Systems Status 

Appendix I 

See comment 6. 

See comment 1. 
Page 16 GAO-03-447R HUD Systems Status 

Appendix I 
Page 17 GAO-03-447R HUD Systems Status 

Appendix I 

The following are our comments on HUD’s letter received on March 11, 2003. 

GAO Comments

1. See “Agency Comments and Our Evaluation” section of this report. 

2. HUD provided additional technical suggestions which were incorporated as appropriate. 

3. Our report does not advocate or imply that achieving a 12-year-old project design is a 

prerequisite for HUD’s compliance with current federal financial management systems 

requirements. Our report discusses why HUD’s past systems implementation effort had 

not been successful so that past mistakes would not be repeated in future systems 

implementation projects. The recommendations made in our 1998 report were 

conceptual in nature and would be applicable to any systems development initiative that 

HUD chooses to pursue. 

4. Our report acknowledges HUD’s unqualified opinions on its financial statements as well 

as its ability to issue these statements by the required due dates for the last 3 fiscal years. 

Our point is that HUD’s current process for producing financial statements is not efficient 

because its current financial management systems are outdated and require manual 

intervention. Further, these systems do not provide timely, reliable, and useful 

information to manage the agency on a day-to-day basis, which is the end goal of the 

CFO Act and a prerequisite to good financial management. 

5. The objective of our report was to convey the nature of HUD’s financial management 

systems needs rather than to identify specific weaknesses. These specific weaknesses are 

clearly outlined in the OIG’s recent audit report on the fiscal year 2002 financial 

statements. 

6. We agree that planning is essential to the success of any systems implementation project, 

which is clearly stated in our report. 

(190065)