January 2001 Major Managem

Challenges and 

Program Risks

Department of Housing 

Urban Development

GAO-01-248

Page 1 GAO-01-248 

Letter 

Overview 

Major 

Performance 

and 

Accountability 

Challenges

Related GAO 

Products

Performance 

and 

Accountability 

Series
Page 2 GAO-01-248 HU
of th

Page 3 GAO-01-248 

United States General Accounting Office

Washington, D.C. 20548

January 2001

The President of the Senate

The Speaker of the House of Representati

This report addresses the major performa

accountability challenges facing the Depa

Housing and Urban Development (HUD) a

encourage homeownership, promote affo

housing, and revitalize communities. It inc

summary of actions that HUD has taken a

way to address these challenges. It also ou

actions that GAO believes are needed. Th

should help the new Congress and admini

out their responsibilities and improve gov

the benefit of the American people. This r

a special series, first issued in January 199

Performance and Accountability Series: M

Management Challenges and Program Ris

series, GAO advised the Congress that it p

reassess the methodologies and criteria u

determine which federal government ope

functions should be highlighted and which 

designated as “high risk.” GAO completed 

assessment, considered comments provid

publicly available exposure draft, and pub

guidance document, Determining Perform

Accountability Challenges and High Risks 

159SP), in November 2000.

This 2001 Performance and Accountabilit

contains separate reports on 21 agencies—

each cabinet department, most major inde

agencies, and the U.S. Postal Service. The 

includes a governmentwide perspective on 

and management challenges across the fe

government. As a companion volume to th
Page 4 GAO-01-248 HU

is issuing an update on those government op

and programs that its work identified as “hig

because of either their greater vulnerabilitie

fraud, abuse, and mismanagement or major c

associated with their economy, efficiency, or 

effectiveness.

David M. Walker

Comptroller General 

of the United States
Page 5 GAO-01-248 
Page 6 GAO-01-248 

The Department of Housing and Urban De

(HUD) encourages homeownership by pr

mortgage insurance through its Federal H

Administration (FHA) for about 7 million 

who otherwise might not have qualified fo

well as by managing about $508 billion in 

mortgages and $570 billion in guarantees 

backed securities. It also makes housing a

about 4 million low-income households by 

loans for multifamily rental housing and p

assistance. In addition, it has helped to re

4,000 localities through community develo

programs. To accomplish these missions, 

the performance and integrity of thousand

lenders, contractors, property owners, pu

agencies, communities, and others to adm

programs. Strong oversight and managem

to ensure that HUD’s reliance on these thi

results in the effective and efficient stewa

federal funds and the accomplishment of 

programs’ goals and objectives. 

In the late 1980s, various management def

to a number of widely publicized instance

fraud, abuse, and mismanagement at HUD

designated all of HUD’s major program are

because four major departmentwide defic

continued to undermine the integrity and 

of HUD’s programs. These deficiencies in

internal control weaknesses, such as a lac

data and management processes; (2) poor

ineffective, and generally unreliable inform

financial management systems; (3) organi

deficiencies, such as overlapping and ill-d

responsibilities and authorities between H

headquarters and field organizations, and 

lack of management accountability and re

and (4) an insufficient mix of staff with th
Page 7 GAO-01-248 

In 1997, HUD initiated its 2020 Managemen

to address these and other deficiencies. In 

1999 report on HUD’s management challe

program risks and our high-risk series upd

reported that HUD had made credible pro

overhauling its operations but that severa

in the early stages of implementation. Acc

concluded that HUD’s management defici

together, continued to place the integrity 

accountability of the Department’s progra

risk.

During the past 2 years, HUD has continu

progress in addressing these problems. To 

internal control weaknesses, HUD has sin

1999 implemented new early warning mon

including the first physical inspections an

assessments of the entire multifamily hou

Through a large-scale computer matching 

which linked income data reported by ten

housing and tax purposes, HUD also iden

letters to 211,000 households that may hav

underreported their incomes for housing 

thereby resulting in excess subsidy payme

by HUD at $3.1 billion over the last 4 year

To improve its information and financial m

systems, HUD has taken actions to develo

information technology investment manag

process to improve and strengthen the se

control, and evaluation of information tec

projects. In addition, HUD has reduced th

financial management systems that are no

compliance with federal requirements. 

1

Major Management Challenges and Program Risks: 

Housing and Urban Development (GAO/OCG-99-8, J

Risk Series: An Update (GAO/HR-99-1, Jan. 1999).
Page 8 GAO-01-248 HU

To strengthen organizational links between 

headquarters and the field, improve account

accomplish its missions more efficiently, dur

year 1999 HUD substantially completed its 

reorganization under the 2020 Management R

Plan. Staff and workload were transferred fr

to several new specialty centers, which are n

operating and have started to produce some 

example, the Homeownership Centers reduc

average time for processing single-family mo

loans from 4 to 6 weeks to 2 to 3 days and th

Enforcement Center relocated 427 families f

substandard housing and recovered $12.6 mi

property owners for ineligible costs. 

To ensure that it has the appropriate mix of s

the proper skills to carry out its missions, HU

new resource estimation and allocation proc

determine appropriate staffing levels. It also 

more training and travel funds for its staff. 

HUD has taken important steps toward addre

of its other management deficiencies. Its top 

management has given high priority to imple

Department’s 2020 Management Reform Plan

Department’s reorganization is substantially 

and the Department’s reform efforts have res

some improvements. Recognizing the progre

made and consistent with our criteria for det

high risk,2

 we are redefining and reducing the 

HUD programs deemed to be high-risk. Spec

because of the actions taken by HUD in resp

recommendations to improve its managemen

over its Community Planning and Developm

programs, we no longer believe this HUD pro

is at high risk. However, significant weaknes

2

Determining Performance and Accountability Challeng

Risk (GAO-01-159SP, Nov. 2000).
Page 9 GAO-01-248 

internal controls, information and financia

systems, organizational deficiencies, and 

problems) still persist in two of HUD’s ma

areas which remain at high-risk—single-fa

insurance and rental housing assistance. I

HUD needs to continue addressing manag

challenges in two other areas—informatio

financial management systems and human 

Single-Family 

Mortgage Insurance 

Programs

To reduce financial risks, HUD’s FHA nee

to improve its management over home mo

made by private lenders that it insures aga

losses. While various factors, including a 

economy, have resulted in the accumulati

reserves of about $16.6 billion on FHA-ins

loans valued at about $454 billion, we esti

lost about $1.9 billion during fiscal year 20

of foreclosed homes that it had insured. W

Inspector General have identified opportu

strengthen FHA’s single-family mortgage i

• Continued improvements needed to reduc

single-family insurance risk

• Continued improvements needed to ensur

rental housing assistance programs are us

effectively and efficiently

• Resolution needed for information and fina

management systems and human capital 
Page 10 GAO-01-248 HU

programs’ management and internal controls 

financial risks. These include:

• strengthening the integrity of the single-fa

origination process;

• promoting better monitoring of lenders, a

and property management and marketing 

contractors; and 

• ensuring that sufficient staff are available 

the skills needed to carry out FHA’s home 

mission. 

HUD also needs to resolve two material inte

weaknesses identified by its Inspector Gene

to FHA’s information and financial managem

systems—(1) fully reconciling accounting an

systems for loan guarantees to ensure that a

subsidy amounts are recorded properly and 

improving information systems to support b

processes more effectively. 

The Department has begun to address many 

recommendations and those of the Inspecto

but it has not completed actions to impleme

them. Because of the programs’ size, the var

management challenges FHA faces, and the 

liability FHA has assumed, these programs r

high-risk. To reduce the programs’ financial 

must continue its efforts to strengthen its co

monitoring. This includes completing action

recommendations, such as clarifying HUD’s 

hold FHA-approved lenders accountable for p

FHA single-family appraisals. HUD must also 

its efforts to resolve the programs’ two mate

control weaknesses and assess its staffing ne

Rental Housing 

Assistance Programs

Making decent, affordable rental housing ava

eligible low-income households is a top prio
Page 11 GAO-01-248 

HUD. However, HUD is able to serve fewe

the households who are eligible for assist

Consequently, it is essential that HUD ens

programs are used efficiently and effectiv

maximize the number of households it ca

the Department has made improvements, 

significant opportunities to (1) reduce exc

payments which have totaled about $3.1 b

last 4 years by ensuring that only eligible 

occupy housing units and that those famil

the correct rents; (2) ensure that provider

housing maintain housing that is decent, s

and in good condition; and (3) be certain 

the capital resources and controls it needs 

address problems that exist in its rental h

assistance programs. 

HUD is addressing these challenges as we

recommendations and those of the Inspec

However, its actions are not yet complete

their size and complexity and the opportu

assisted housing to more low-income hou

through better management, these progra

high-risk. HUD must continue to strength

controls by completing its efforts to ensur

rental housing subsidies are paid. It must 

actions on our recommendations aimed at 

quality of contractors’ physical inspection

condition of public and multifamily housi

includes revising its quality assurance act

ensure that they provide the timely, reliab

information needed for HUD to assess, am

things, compliance with inspection contra
Page 12 GAO-01-248 HU

Information and 

Financial 

Management Systems 

and Human Capital 

Issues

To become a high-performing organization, H

to resolve management challenges related to 

information and financial management syste

human capital. HUD has a variety of actions 

to address its information and financial man

systems and human capital challenges.

HUD has determined that its financial manag

systems, largely deployed under its Financia

Integration effort, do not meet all of its need

announced its intention to replace these syst

new plan is in the early stages of developme

soon to tell whether HUD will be successful i

attempt to deploy an integrated financial ma

system to upgrade the Department’s program 

financial management capacity. It is also too 

assess the effectiveness of actions HUD has 

address delays in the preparation of its cons

financial statements. After issuing an unqual

opinion on HUD’s fiscal year 1998 consolidat

statements, the Inspector General was unabl

an opinion the following year. This occurred 

the Inspector General reported in March 200

experienced problems implementing a new g

ledger system and could not prepare its fisca

consolidated financial statements in time for 

Inspector General to complete the audit by th

deadline. Whether HUD has resolved this pro

not be known until the fiscal year 2000 finan

statements audit is completed in the spring o

therefore critical that HUD, like most other f

agencies, continue to focus on improving its 

technology management processes to help e

success in these and other systems initiative

Department.

HUD must also resolve a number of human c

issues. First, it must make further adjustmen

workload. About half of the workload remai
Page 13 GAO-01-248 

transferred to the Financial Management 

workload of two other centers is less than 

HUD must finish transferring functions fr

the centers as planned. Second, it must co

actions to develop departmental systems 

work including considering whether the b

approximately 600 Community Builders it 

recent years are worth the costs of hiring 

them. Lastly, it must staff its programs ad

responding to a recent survey, HUD mana

centers and in the field told us they did no

staff. Field managers noted, for example, 

some of their former functions were shift

centers, other functions have not yet been 

planned, and new programs, regulations, 

management initiatives have increased th

responsibilities without increasing their s

To resolve these management challenges 

effectively manage its programs, HUD nee

(1) deploy a reliable financial managemen

meets its program and financial managem

complies with federal requirements, (2) c

develop a process to identify and justify it

resource requirements, and (3) ensure tha

available and have the skills needed to ca

work assigned. HUD’s human capital prob

seen as part of a broader pattern of huma

shortcomings that have eroded mission ca

across the federal government. (See High

An Update (GAO-01-263, Jan. 2001) for a d

human capital as a newly designated gove

high-risk area.)
Page 14 GAO-01-248 

y g

HUD has wide-ranging responsibilities−fr

homeownership to providing affordable r

to spurring economic development. HUD 

responsibilities generally by relying on the 

and integrity of thousands of diverse entit

administer its programs, making effective 

adequate information systems crucial to t

achievement of its objectives. In fiscal yea

about 10,000 lending institutions, in total, 

million FHA-insured single-family mortga

about $125 billion. Management and mark

contractors manage FHA’s inventory of ab

single-family homes at a 5-year cost to HU

$927 million. About 4,500 housing authorit

HUD’s public housing and tenant-based re

programs, which serve over 2.8 million ho

Section 8 contract administrators1

 will be 

half of HUD’s 22,000 project-based Sectio

covering about 993,000 multifamily housin

Over the years, we, HUD’s Inspector Gene

have documented problems with HUD’s p

and management and have recommended 

report summarizes our recent findings an

others on HUD’s efforts to (1) make mortg

more accessible to homebuyers; (2) provi

affordable rental housing; and (3) address 

management challenges that cut across H

programs. 

1

HUD contracts with private property owners to pro

rental assistance, called Section 8 project-based ass

of eligible low-income households. In the past, HUD 

managed most housing assistance contracts.
Page 15 GAO-01-248 

Continued 

Improvements 

Needed to Reduce 

HUD’s SingleFamily Insurance 

Risk

FHA administers several programs aimed 

mortgage financing more accessible to ho

particularly low-income and first-time hom

expand homeownership, FHA insures priv

against nearly all losses on mortgages tha

single-family homes. As of the end of fisca

FHA had insurance commitments on abou

mortgages with a value of about $454 billi

years, various factors, especially favorabl

conditions, have resulted in the accumula

reserves of about $16.6 billion and a natio

homeownership rate that has increased to 

high. 

FHA’s single-family mortgage insurance pr

undergone significant changes since HUD 

2020 Management Reform Plan. Specifica

consolidated its single-family operations (

carried out in 81 field offices) into four Ho

Centers, reduced its staffing in these oper

about 50 percent, began privatizing or con

most property disposition activities, and e

most loan-servicing functions by selling m

inventory of HUD-held mortgages. Throug

reforms, HUD expected to significantly re

staffing, cut insurance endorsement proce

improve underwriting and loss mitigation

more single-family loans to targeted popu

also expected the reforms to address prob

poor control and monitoring of its single-f

properties and inconsistent delivery of se

Our reviews since January 1999 indicate t

FHA have made considerable progress in 

2

FHA’s loss mitigation program seeks, among other t

losses resulting from foreclosure by using alternativ

such as loan modifications.
Page 16 GAO-01-248 HU

operations and making FHA’s single-family m

insurance programs more efficient. However

estimate that FHA continues to lose funds (a

billion during fiscal year 2000) on the sale of 

homes that it had insured. Our reviews and t

Inspector General also show that significant 

remain in FHA’s internal controls, human cap

strategies, and information and financial ma

systems. Because of these deficiencies, the s

mortgage insurance programs remain at high 

Internal Control 

Weaknesses Exist in 

Single-Family 

Operations 

Since 1999, we have identified a number of in

control weaknesses in the management and 

of FHA’s single-family insurance programs in 

loan origination, appraisals, and property dis

response to our recommendations and those 

Inspector General, FHA has initiated actions 

these issues. However, most of these correct

have not yet been completed, and some were 

recently to determine whether they will ultim

resolve the internal control weaknesses.

• In April 2000, we reported that HUD’s pro

granting FHA lenders direct authority to 

FHA-insured home loans provides limited 

that lenders receiving this authority are q

We also noted that HUD’s monitoring of le

not adequately focus on the lenders and l

pose the greatest insurance risk to the De

We made several recommendations to im

HUD’s processes for approving lenders to 

mortgages, target lenders and loans for q

control reviews, and take enforcement ac

against poorly performing lenders. 

3

Single-Family Housing: Stronger Oversight of FHA Len

Reduce HUD’s Insurance Risk (GAO/RCED-00-112, Apr. 
Page 17 GAO-01-248 

According to HUD, it began addressing so

recommendations in late 2000 and will im

actions in 2001. In addition, HUD reported 

Enforcement Center and Credit Watch an

Neighborhood Watch programs have help

monitoring of lenders.4

 HUD also reported 

increased monitoring resulted in referrals 

lenders to its Mortgagee Review Board,5

 w

sanctioned 61 lenders in fiscal year 2000, 

fiscal year 1997. Fifty of these lenders wer

of $3.3 million.

• In April 1999, we reported that HUD w

adequately monitoring the performanc

or holding appraisers accountable for 

their appraisals of single-family proper

insured by FHA.6

 When incomplete or 

appraisals result in overvaluations of p

may be exposed to greater financial ris

HUD’s four Homeownership Centers w

meeting a requirement to conduct on-s

of completed appraisals for not fewer 

percent of the appraisals in their jurisd

HUD did not field-review the work of t

appraisers who conducted 10 or more 

appraisals. We also found that few poo

appraisers were sanctioned. Officials a

Homeownership Centers attributed so

problems to a lack of staff, a lack of ad

funds, and gaps in documentation that 

4

Credit Watch and Neighborhood Watch are two pro

FHA to analyze trends in claim and default data by l

sanctions on problem lenders.

5

The Mortgagee Review Board is the entity within H

impose administrative sanctions against a lender, wi

authority to make FHA-insured loans, or both.

6

Single-Family Housing: Weaknesses in HUD’s Overs

Appraisal Process (GAO/RCED-99-72, Apr. 16, 1999)
Page 18 GAO-01-248 HU

during the consolidation of single-family 

insurance activities. 

Additionally, HUD has not aggressively enfor

policy to hold lenders equally accountable w

appraisers they select for the accuracy and 

thoroughness of appraisals. We reported tha

problem occurred because the staff for HUD

Mortgagee Review Board did not believe tha

the authority to hold a lender accountable fo

of an appraisal simply because the lender ha

the appraiser. Although HUD has begun impl

many of our recommendations to improve ap

and has a policy to hold lenders responsible 

quality of appraisals, it has not yet clarified t

circumstances under which and the actions 

the policy should be enforced. 

• In May 2000, we reported that most of the 

contractors hired by HUD to manage and 

single-family homes it had acquired follow

foreclosures were having difficulty maint

securing the properties.7

 During fiscal yea

HUD awarded contracts for managing and 

these single-family properties. The contra

increased the net recovery from sales (th

percentage of a property’s value that HUD 

after paying all costs associated with man

property) from 79.7 to 80.2 percent, as we

number of properties sold. 

7

Single-Family Housing: Stronger Measures Needed to E

Better Performance by Management and Marketing Con

(GAO/RCED-00-117, May 12, 2000).
Page 19 GAO-01-248 

However, we found that the contractors w

problems meeting their performance requ

stronger measures were needed to encour

performance by the contractors. During o

properties, we found evidence of vandalis

or inadequate security. A public accountin

identified weaknesses in FHA’s monitorin

management of its single-family property 

which resulted in an internal control defic

fiscal year 1999 financial statements audit

maintaining single-family properties have 

some time. We found similar problems wi

oversight of contractors during a similar r

when we reviewed the contractors mainta

single-family properties at that time.8

According to HUD, it (1) has begun to imp

measures to ensure that the new managem

marketing contractors are correcting prob

timely manner and (2) is negotiating contr

modifications that permit monetary penal

maintenance and rewards for excellent m

suggested by the Inspector General and o

• In June 1999, we reported that HUD ha

address the management problems ide

Inspector General and others in its 203

which provides loans for home rehabil

reported that these problems include c

the design of this program encourages 

deals and overstates property appraisa

homes are not being properly rehabilit

reported HUD was not ensuring that le

with the program’s guidelines or that h

8

Single Family Housing: Improvements Needed in H

Property Management Contractors (GAO/RCED-98-

9

Homeownership: Problems Persist with HUD’s 203(

Rehabilitation Loan Program (GAO/RCED-99-124, Ju
Page 20 GAO-01-248 HU

inspectors and consultants are properly t

monitored. The claims rate for loans end

fiscal year 1994 through fiscal year 1996 w

that for loans made under the other HUD 

family programs. 

According to HUD, the 203(k) program r

very small percentage of its single-family 

the Department has recently taken steps 

the program. Specifically, as of July 2000

mortgagees fully responsible for ensurin

inspections of rehabilitated homes are c

and for approving payments to contracto

Furthermore, consultants who are respo

designing and overseeing home rehabilit

have been required to register with HUD 

September 26, 2000, in order to continue 

participating in the program. 

Internal control weaknesses in FHA’s single-

mortgage insurance programs have also, at t

fraud, waste, and abuse. In its latest semiann

HUD’s Office of Inspector General stated tha

demonstrates a need for tighter internal con

FHA’s single-family mortgage insurance prog

Among other things, the Inspector General n

(1) 39 individuals involved in a $110 million f

loan scheme were indicted in a case involvin

“flipping” (single-family properties that are b

quickly resold at inflated prices based on fra

appraisal values) and (2) the use of fraudule

documentation to qualify borrowers for FHA

mortgages led to criminal indictments and co

in several communities. 

Human Capital Issues 

Remain

Both we and the Inspector General have fou

human capital issues remain a concern for H

single-family mortgage insurance programs. 

the single-family programs was reduced by a
Page 21 GAO-01-248 

percent after HUD implemented the 2020 

Reform Plan and consolidated the single-f

workload into the four Homeownership C

of staff and insufficient training and trave

were cited as reasons for some of the pro

identified in our reviews. Human capital i

surfaced in reviews performed by the Insp

and in the responses of HUD managers to 

recently conducted. Nevertheless, HUD re

substantial increases in productivity in so

result of the consolidations. For example, 

processing time for FHA single-family loa

endorsements has declined from 4 to 6 we

days, even though HUD reported a record 

loans were endorsed in fiscal year 1999. 

Between September and October 2000, w

HUD managers to obtain their views on st

workload issues after HUD implemented 

Management Reform Plan. This survey wa

one we conducted in 1996, before HUD im

2020 plan. In responding to our 2000 surve

the single-family managers reported that t

staff than necessary and their workload h

to increase. About 53 percent of the single

managers surveyed said they had fewer st

necessary to carry out the activities in the

responsibility, and about 58 percent said t

had increased over the last 2 years. In 199

of the single-family managers we surveyed 

fewer staff than necessary, and 50 percent 

workload had increased. 

On the other hand, most single-family man

they were satisfied with the skills of their e

recognized that those skills had improved 

recent years. About 89 percent of the sing

managers said they were satisfied with th

match between the skills of their staff and 

these staff needed to carry out their duties
Page 22 GAO-01-248 HU

percent said the skills of their staff had impro

over the past 2 years. However, about 79 per

advocated more training in technical skills re

responsibilities, and about 74 percent said tr

using information systems should be increas

results are consistent with those of our 1996 

although the percentage of managers who (1

greatly satisfied with skills of their staff and 

these skills had improved greatly over the pa

was much higher than in 1996. 

The following examples illustrate human cap

we identified in our reports on FHA’s single-f

mortgage insurance programs:

• In our April 2000 report on HUD’s oversig

lenders, Homeownership Center officials 

high-risk lenders were not always review

because of inexperienced staff. The offic

explained that many of the staff assigned 

lenders came from a pool of unassigned s

the reorganization and had no backgroun

monitoring and credit issues. To address 

problem, the officials said they provided 

classroom and on-the-job training to the n

• In our June 1999 report on the 203(k) mo

insurance program, we reported that HUD 

committed the resources needed to adequ

oversee the program. We reported that of

two Homeownership Centers told us they 

have staff qualified to do quality assuranc

for 203(k) home rehabilitation loans. Qua

assurance reviews are important because 

program involves multiple entities and co

estimates, including a HUD-approved con

determine the extent of work needed and 

estimates for this work and an inspector 

the progress of rehabilitation work. In ad

according to one official responsible for 

the center did not have sufficient travel fu
Page 23 GAO-01-248 

provide adequate oversight of any of it

programs, including the 203(k) progra

first quarter of fiscal year 1999.

• In our April 1999 report on HUD’s over

appraisers, officials at the Philadelphia 

Homeownership Centers told us that t

conducted evaluations of field review 

because they lacked sufficient staff an

resources.10 They neither tracked the p

each contractor’s work that received f

nor evaluated the contractor’s perform

result, HUD’s ability to assess the qual

appraisals used to support FHA loans w

HUD’s Office of Inspector General has als

concerns about the adequacy of FHA’s res

reports on HUD’s and FHA’s financial state

February 2000, the Inspector General repo

control weaknesses related to FHA’s staff 

administrative resources as a material int

weakness. The report on FHA’s fiscal year 

statements audit no longer reported these 

separate material weakness. Instead, the I

10HUD contracts with licensed appraisers to conduc

completed appraisals. About three-quarters of the 80

conducted in fiscal year 1998 were performed by fie

contractors. 

11HUD’s Inspector General contracts with independe

accountants to audit the financial statements of HUD

Inspector General’s report on HUD’s consolidated fi

audit includes the material internal control weaknes

the independent public accountants at FHA, as well 

weaknesses identified by the Inspector General at H

Inspector General is responsible for the FHA audit a

FHA’s and HUD’s material weaknesses, this report re

of material weaknesses as material weaknesses iden

Inspector General in its audits of HUD. See U.S. Dep

Housing and Urban Development Attempt to Audit t

1999 Financial Statements, Office of Inspector Gene

0003, Mar. 1, 2000) and Federal Housing Administrat

Fiscal Year 1999 Financial Statements, Office of Insp

FO-131-0002, Feb. 29, 2000) (prepared by KPMG LLP 

Inspector General).
Page 24 GAO-01-248 HU

General reassessed the problems in light of 

improvements HUD made in addressing its r

issues. The Inspector General recategorized 

weakness as a cause contributing to other re

conditions. However, the Inspector General 

significant problems remain with HUD’s reso

and that it is critical for the Department to c

addressing the previously identified problem

completing ongoing plans. 

Lastly, the National Academy of Public Admi

(NAPA) also reported in October 1999, in a p

proposed resource estimation methodology, 

was insufficient for the processing and unde

functions of the Office of Housing’s single-fa

mortgage insurance program at both headqu

the Denver Homeownership Center.12 This p

to HUD’s initiating a resource estimation and 

study departmentwide. The first phase began 

2000, and the entire study is expected to be f

about 18 months. 

Information and 

Financial 

Management Systems 

Concerns

Public accounting firms, in auditing FHA’s fin

statements, have since 1993 found that the s

were presented fairly, in all material respects

conformity with generally accepted account

principles. However, the auditors have cited 

internal control weaknesses related to FHA’s 

and information systems. These weaknesses

to the Inspector General’s March 2000 report 

financial statements, were that (1) FHA’s bud

financial accounting controls must be impro

12Aligning Resources and Priorities at HUD: Designing a 

Management System, A Report by a Panel of the Nation

Public Administration for Congress and the Departmen

and Urban Development (Oct. 1999).
Page 25 GAO-01-248 

FHA’s information systems must be enhan

effectively support FHA’s business proces

In October 2000, we reported that HUD ha

under way or planned to address these we

including (1) fully reconciling accounting 

systems for loan guarantees to ensure tha

subsidy amounts are recorded properly an

continuing to modernize FHA’s informatio

management systems and reduce the agen

on older systems.13 We concluded that FH

should help it continue to make progress 

these and other material weaknesses. FHA 

undertaken extensive efforts to improve i

reporting and has developed plans to obta

current commercially available financial m

system. (For more information, see our di

this report of HUD’s information and finan

management systems and human capital i

Key Contact Stanley J. Czerwinski, Director

Physical Infrastructure

(202) 512-7631

czerwinskis@gao.gov

Continued 

Improvements 

Needed to Ensure 

That HUD’s Rental 

Housing Assistance 

Programs Are Used 

Effectively and 

Efficiently

HUD encourages the development of affo

housing through a wide range of assistanc

incentives. Specifically, it provides (1) mo

insurance through FHA for the constructi

rehabilitation of multifamily development

based rental assistance to owners of insur

uninsured projects, (3) grants for the deve

multifamily housing, (4) operating subsidi

13HUD Management: Status of Actions to Resolve Se

Control Weaknesses (GAO-01-103, Oct. 16, 2000).
Page 26 GAO-01-248 HU

housing agencies, and (5) tenant-based vouc

eligible households to use in securing privat

housing. 

HUD’s rental assistance programs are admin

about 4,500 housing authorities, as well as u

contracts covering about 22,000 privately ow

properties. The assistance provided under th

contracts is called Section 8 project-based as

HUD, often working through third parties, is 

for ensuring that the properties remain in go

and financial condition and that the househo

receiving rental assistance meet eligibility re

and obtain the proper amount of assistance. 

In fiscal year 1999, HUD provided about $19 

rental subsidies to make housing affordable 

estimated 4 million households. Under HUD

programs, about 1.4 million households rece

based vouchers and 1.3 million households r

project-based housing for which HUD contra

directly with housing providers. HUD also pr

funds for 1.2 million units of public housing a

FHA, insured about 15,450 multifamily mortg

an unpaid principal balance of nearly $53 bil

the end of fiscal year 1999. 
Page 27 GAO-01-248 

Despite the magnitude of the assistance it 

HUD is able to serve fewer than half of th

eligible for assisted housing. In its current 

HUD reports that in 1997, a record 5.4 mil

households experienced worst-case housi

including 2 million families with children 

elderly households.14 At the same time, ab

of all households and 15 percent of very-l

renters lived in housing with severe or mo

physical problems. 

HUD faces considerable challenges in clo

between the number of households needi

assistance and those that presently receiv

Furthermore, the fact that this gap exists 

increased importance on HUD having inte

that ensure that (1) existing housing subs

received only by eligible households and h

receive no more than the amounts to whic

entitled and (2) housing providers receivi

assistance payments from HUD comply w

standards for housing that is decent, safe, 

in good repair. Our reviews and those of t

General show that significant deficiencies 

these areas as well as in human capital str

Because of these deficiencies, the rental h

assistance programs remain at high risk o

abuse, and mismanagement. 

Actions to Improve 

Internal Controls 

Over Rental Housing 

Subsidies Need to Be 

Completed

HUD estimates that it paid about $935 mil

subsidies in its rental assistance program

1999. Moreover, HUD estimates that the p

excess subsidies it paid has increased in r

This overpayment occurred because tenan

14Worst-case housing needs are defined as the needs 

very-low-income renters who pay more than half of 

housing or live in severely substandard housing. 
Page 28 GAO-01-248 HU

underreported or failed to report their incom

of HUD’s consolidated financial statements, 

Inspector General has since fiscal year 1995 

a material internal control weakness that HU

improve its efforts to ensure that it is paying 

rental subsidies. 

To address this issue, HUD undertook a larg

computerized comparison of the income dat

tenants reported to housing authorities or pr

owners and to the Internal Revenue Service 

Social Security Administration (SSA). This e

designed to identify households that underre

income to housing authorities or property ow

Underreporting is a problem for HUD becau

increases the government’s subsidy payment

the number of families who may be assisted, 

result in ineligible families’ retaining subsidi

Table 1 presents the amount of assistance an

rental subsidy paid for fiscal years 1996 thro

Table 1: Estimated Excess Subsidy Payments, Fiscal Years 1996-99

a

The estimated excess subsidy payments are reported in 

HUD’s annual financial statements for HUD fiscal years 

September 30 of each year; however, the estimates are c

data for the preceding calendar year.

b

HUD’s Inspector General concluded, in the audit of HU

1996 financial statements (97-FO-177-0003), that HUD’s 

estimate of excess subsidies was understated because H

include Supplemental Security Income in the computer 

addition, the Inspector General expressed concern abou

completeness of HUD’s tenant databases. HUD reported 

Fiscal year reporteda

Estimated excess

subsidy payments Program expenditures

Percent

1996 $538b $19,257 

1997 804 18,069 

1998 857 18,600 

1999 935c 18,606 
Page 29 GAO-01-248 

subsequent analysis shows that underreported SSI i

nominal effect on the estimate of excess subsidies.

c

Although HUD’s Inspector General disclaimed on o

fiscal year 1999 financial statements (00-FO-177-000

the disclaimer did not relate to HUD’s estimate of its 

payments. 

HUD’s Real Estate Assessment Center (RE

responsibility for the income-matching pr

identified a potential universe of tenants w

as reported to IRS or SSA, exceeded the t

by the computer-matching program. Durin

and fall of 2000, HUD sent letters to about 

tenants who continued to reside in assiste

notifying them of possible discrepancies i

data they had reported to the public hous

and IRS or SSA. Although the Department 

send the letters out in October 1999, conc

tenants and industry groups delayed the m

May 2000, and the mailing was not comple

October 2000. The delays in implementing 

mean that limited information is available 

whether this effort will result in improved 

ensuring that correct rental subsidies are 

eligible tenants. 
Page 30 GAO-01-248 HU

While this process is a significant step towar

that correct rental subsidies are paid, there a

in some of the data systems used for income 

The income verification process used two H

sources for the tenant income information—

Multifamily Tenant Characteristics System fo

housing residents and the Tenant Rental Ass

Certification System (TRACS) for Section 8 p

based renters. In a September 2000 report, th

General stated that TRACS has data inaccura

decrease the effectiveness of HUD’s income 

efforts.15 The Inspector General recommende

ensure that planned actions to upgrade TRA

followed through and that TRACS data are u

cost-efficient. If these results are not possibl

alternatives should be pursued and TRACS d

according to the Inspector General. 

Actions to Improve 

Internal Controls 

Over Housing Quality 

Need to Be 

Completed

To address concerns about the quality of its 

housing and to ensure that it is subsidizing o

housing, HUD contracted for physical and fi

assessments of assisted and insured multifam

public housing projects. During fiscal year 2

REAC oversaw physical inspections of HUD

multifamily assisted housing and public hou

inventory, conducted according to a standar

physical inspection process. As of April 2000

contractors had conducted baseline inspecti

26,528 multifamily properties and over 3,100 

housing authorities with 13,607 properties. T

represent about 92 percent of the multifamily 

and all of the public housing properties that 

intended to include in the baseline inspectio

results of the first physical inspections indic

15Housing Subsidy Payments Office of Housing, Office o

General (00-KC-103-0002, Sept. 29, 2000).
Page 31 GAO-01-248 

most properties are in satisfactory condit

concerns remain about the quality of thos

In our July 2000 report on HUD’s new phy

inspection system,16 we found that (1) wh

assurance staff performed on-site follow-u

assess the adequacy of completed inspect

found that the inspections were often not 

consistently with REAC’s requirements an

exist in REAC’s quality assurance procedu

the inspections. Specifically, when the rev

accompanied the contract inspectors to ju

performance, they found that 12 percent o

inspections did not meet REAC’s standard

Furthermore, about 35 percent of another 

inspections that received follow-up review

the standards. We also accompanied REA

assurance reviewers on 10 follow-up revie

each of the 10 reviews, the reviewer deter

original inspection did not meet REAC’s s

required that a new inspection be perform

Because these reviews were not performe

and the effects of the problems on the ins

cannot be readily determined, it is unclea

extent problems with the inspections affe

overall inspection results. REAC officials 

that the percentage of inspections identifi

meeting standards was unacceptable, alth

tolerance level had not been established t

reliability of the inspections. 

Our report noted that although REAC dese

establishing quality assurance procedures

gaps or weaknesses in some of these proc

16HUD Housing Portfolios: HUD Has Strengthened P

Inspections but Needs to Resolve Concerns About T

(GAO/RCED-00-168, July 25, 2000).
Page 32 GAO-01-248 HU

substantially limited their effectiveness. For 

REAC did not have procedures for ensuring 

assurance reviews were performed systemat

that the identified problems were resolved q

appropriately. Moreover, REAC did not alwa

the results of its quality assurance reviews to 

contractors in a timely manner, and REAC d

the systems and records needed to ensure th

corrective actions were taken after problem

identified. While HUD has taken steps to add

recommendations concerning its quality assu

activities, it is too soon to determine whethe

steps are sufficient to ensure the accuracy an

of REAC’s physical inspection scores.

We also reported in July 2000 that despite th

preponderance of satisfactory scores, a subs

number of properties were cited during the i

for exigent (life-threatening) health and safet

For example, almost one-third of the multifa

public housing properties received health an

citations for defects that REAC categorizes a

threatening.” Examples of such defects, acco

REAC documents, include missing or inoper

detectors, electrical system problems, hazar

fire extinguishers, and the presence of securi

properties were referred to field offices for i

follow-up for urgent health and safety issues 

Departmental Enforcement Center for enfor

action. 

The purpose of HUD’s Departmental Enforce

Center is to ensure that effective enforcemen

occurs, including follow-up on the most seri

violations found as a result of physical inspe

multifamily and public housing projects. The 

among other things, addresses problems of m

properties that have failed physical inspectio

financial assessments or require corrective a

owners, lenders, and management agents wh
Page 33 GAO-01-248 

compliance with HUD’s program guidance

September 30, 2000, the center had, amon

• relocated 427 families from substandar

identified nearly $43 million in ineligib

project costs and expenses and obtain

million in recovery repayments, 

• negotiated $26.7 million in proposed o

investments to repair physical problem

multifamily properties, and 

• secured another $14.2 million from pro

replacement reserves to repair physica

multifamily properties.

Recently, in a December 2000 report on H

housing, NAPA also reported on HUD’s pr

monitoring and overseeing assisted housi

found that HUD is moving in a positive di

improving the quality of HUD-assisted hou

HUD’s new quality assurance system has 

deficiencies and barriers to effective impl

Among its principal concerns, NAPA repo

certain quality assurance elements were n

developed, particularly internal quality as

procedures and the appeals process, and 

housing providers, including HUD, lack th

staffing, automated systems, and technica

and training capacity to effectively manag

implement the Department’s quality assur

The report recommended that HUD modi

quality assurance system significantly, ma

urgent operational improvements in the s

now being used, and continue to refine th

achieve greater flexibility and results. Spe

NAPA’s recommendations included

17Evaluating Methods for Monitoring and Improving 

Housing Programs, National Academy of Public Adm

2000).
Page 34 GAO-01-248 HU

• finalizing and implementing the appeals p

public housing agencies; 

• enhancing HUD’s capacity to administer t

including improving telephone and electr

communications between housing provid

HUD’s REAC and program offices; and

• upgrading the capacity of housing provid

new training opportunities and improved 

capacity. 

Finally, in a November 2000 report on the pe

of the public housing program,18 we noted th

to be held accountable for the performance o

housing program, it must first hold housing a

accountable for providing safe and decent h

protecting the federal investment in their pro

HUD provides assistance to public housing a

spending nearly $7 billion annually to develop 

housing for low-income households. We repo

HUD needed to better ensure that it is accur

measuring the performance of all housing ag

that it can reward high performers and hold 

and substandard agencies accountable. We 

recommended that HUD (1) verify housing a

management operations certifications of maj

systems for accuracy and completeness and 

that it uses adequately verified housing agen

performance information as the basis for pla

performance bonuses and bonus points on a

for competitive grants.

Human Capital 

Weaknesses

Under the 2020 Management Reform Plan, H

implemented significant organizational chan

contracted out substantial portions of the ren

assistance programs’ workload. But weakne

18Public Housing: HUD Needs Better Information on Hou

Management Performance (GAO-01-94, Nov. 9, 2000).
Page 35 GAO-01-248 

HUD’s ability to oversee its multifamily an

housing properties have eroded mission c

In responding to our recent survey of HUD 

about 51 percent of the multifamily mana

that they have fewer staff than needed to 

activities. In addition, about 57 percent of 

multifamily managers reported that the w

their staff has increased over the past 2 ye

percent attributed workload increases to n

and about 83 percent cited new regulation

Managers in the Office of Public and India

which oversees public housing agencies, e

similar concerns. About 86 percent of the

told us that they have fewer staff than they 

out the programs and activities in their ar

responsibility. About 86 percent of these m

that the workload had increased over 2 ye

86 percent attributed this increase to new 

97 percent cited new regulations and initi

In our November 2000 report on measurin

performance of public housing agencies, w

reported that over 80 percent of HUD’s pu

directors believed they have a less or muc

adequate number of field office staff to pr

assistance to the housing agencies. When 

HUD has the tools and resources (numbe

expertise; and training, travel, and contra

ensure the accuracy and completeness of 

operations certifications for major housin

percent said HUD probably or definitely d

As we also reported in November 2000, pu

field officials told us they believe they are 

adequately prepared to assist housing age

of insufficient field office staff, increasing 

lack of staff qualifications and training, an

training and technical assistance funds. H
Page 36 GAO-01-248 HU

headquarters acknowledged that the field off

additional training, in part because of the su

turnover in staff in recent years and in part b

numerous new and revised program requirem

resulting from recent public housing reforms

begun providing additional training, but the 

face resource constraints. HUD officials told 

doubt they will be able to increase field offic

and, as a result, HUD is evaluating the field o

workload, focusing on reducing or eliminatin

responsibilities that may no longer be necess

In addition, to ease staffing shortages caused 

reductions and streamlining under the 2020 

Management Reform Plan, HUD awarded co

fiscal year 2000 for third-party contractors to 

about 22,000 project-based Section 8 housing 

payments contracts, estimated to cost about 

million annually. By contracting for this wor

planned to free its staff for other functions, s

monitoring the multifamily portfolio. Howev

awarded these contracts later than planned b

delays in announcing the request for proposa

the summer of 1999 and in reviewing the pro

result, the first contracts were not awarded u

February 2000, and as of November 2000, ab

contracts had not yet been transferred to the 

Management Center. Consequently, field offi

still performing some of the tasks HUD had p

shift to the Section 8 contractors. 

Finally, as discussed in the section on HUD’s 

family mortgage insurance programs, HUD’s 

contractors and other entities, such as lende

suffered because of limits on the experience

qualifications, and number of HUD staff avai

monitoring and other oversight functions. In 

future, we plan to look at HUD’s capacity to 

contractors.
Page 37 GAO-01-248 

Key Contact Stanley J. Czerwinski, Director

Physical Infrastructure

(202) 512-7631

czerwinskis@gao.gov

Resolution Needed 

for Information and 

Financial 

Management 

Systems and 

Human Capital 

Issues

To improve its management, HUD needs t

number of challenges related to its inform

financial management systems and its hum

HUD needs to deploy a reliable financial m

system that meets its program and financ

management needs and complies with fed

requirements. Moreover, in the human cap

needs to ensure that (1) its organizational 

efforts are achieving the efficiencies envis

continues to develop a process to identify 

staffing requirements, and (3) staff are av

have the skills needed to carry out the wo

HUD’s human capital problems can be see

broader pattern of human capital shortco

have eroded mission capabilities across th

government. (See High-Risk Series: An Up

263, Jan. 2001) for a discussion of human 

newly designated governmentwide high-ri

HUD Needs to 

Continue Efforts to 

Resolve Problems 

Related to 

Information and 

Financial 

Management Systems

Since January 1999, HUD has initiated sev

improve its information technology mana

information and financial management sy

include preparing a cost-benefit analysis o

strategy to complete its Financial Systems 

(FSI) effort and using this analysis to defin

scope and completion date, establishing a 

part of an information technology investm

management process, implementing impr

correct material internal control weaknes

systems, and continuing efforts to bring it

management systems into compliance wit

requirements.
Page 38 GAO-01-248 HU

Although the Department has made progress

continues to have problems. For example, H

have determined that the financial managem

systems, developed under the recently comp

effort, do not meet all of its needs. As a resu

Department plans to replace the financial ma

systems, raising uncertainty as to whether th

be successful and timely. In addition, HUD e

difficulties in implementing a departmentwid

ledger system, and as a result, the Inspector 

could not complete the fiscal year 1999 finan

statements audit within the statutory deadlin

HUD Has Taken 

Action to Address 

Information and 

Financial 

Management Systems 

Problems

HUD’s FSI effort, which involves the replace

about 100 information and financial manage

systems, dates back to 1991. As we reported 

December 1998, HUD revised its strategy to 

the FSI project in 1993 and again in 1997. Ho

because this effort was not supported by tho

analysis and did not receive adequate manag

oversight, costs rose, and implementation w

Moreover, HUD did not know when the effor

completed, or at what cost, because it had n

detailed project plans or cost and schedule e

all components of the 1997 strategy.19 We rec

that HUD prepare an estimate of the life-cyc

benefits of the overall 1997 FSI plan. In Marc

Arthur Anderson, LLP, completed a cost-ben

for the revised 1997 FSI strategy. The Chief F

Officer (CFO) used this analysis to redefine 

objective and scope of the FSI project, and H

completed the redefined project on Novemb

19HUD Information Systems: Improved Management Pra

to Control Integration Cost and Schedule (GAO/AIMD-9

1998).
Page 39 GAO-01-248 

HUD has coordinated with the Office of M

and Budget (OMB) and with us to establis

information technology investment manag

process that is expected to conform with 

practices and legislative requirements. Ma

oversight problems hampered the FSI effo

HUD did not have a disciplined, data-driv

select, control, and evaluate its informatio

investments. Furthermore, its process wa

conformance with industry best practices 

requirements of the Clinger-Cohen Act of 

Paperwork Reduction Act of 1995. The De

developed selection procedures and crite

established the Technology Investment Bo

Committee, which selected projects and m

decisions for fiscal years 2000 and 2001. Th

also recently developed control procedur

established a project management board, 

begun to review information technology p

are under way. Finally, to complete its inv

management process, HUD is beginning t

evaluation procedures to determine whet

information technology investments are a

expected benefits and to identify opportu

further improvement. 

HUD has taken actions to address three sy

material internal control weaknesses iden

Inspector General’s March 2000 audit repo

financial statements. Two of these materia

weaknesses—FHA’s budgetary and financ

controls must be improved and FHA’s info

systems must be enhanced to more effect

FHA’s business processes—are related to 

and were discussed in this report in the se

single-family mortgage insurance program

material weakness is that HUD’s financial 

not fully compliant with federal financial 

requirements. In our October 2000 report 

of HUD’s actions to resolve serious intern
Page 40 GAO-01-248 HU

weaknesses, we reported that HUD had actio

way or planned to bring its core financial sys

compliance with federal financial systems re

We concluded that HUD’s strategy should he

continue to make progress in resolving all th

material weaknesses.

In addition to those mentioned previously, so

most significant improvements in HUD’s dev

financial management systems since March 

according to HUD CFO officials, include the 

• HUD completed the implementation of th

Central Accounting and Program System 

(HUDCAPS) as the departmentwide gene

and budget execution system.

• HUD implemented the prototype of the 

Empowerment Information System and d

warehouse using selected Community 20

financial data.20

HUD also completed in October 2000 its late

departmentwide effort to evaluate whether i

conform with federal financial systems requ

HUD reported that the number of nonconfor

systems continues to decline and that at the e

year 2000, 12 of its 66 systems were nonconf

In January 1999, we reported that, according 

had completed all of its year 2000 renovation

mission-critical and non-mission-critical syst

20Community 2020 is a Geographic Information Systems 

software, with a database of 640 Census data elements, 

where tax dollars are being spent in the community. Ac

HUD, the program was designed to facilitate citizens’ in

the process of local community development.

21OMB Circular No. A-127 prescribes policies and stand

executive departments and agencies to follow in develo

operating, evaluating, and reporting on financial manag
Page 41 GAO-01-248 

March 1, 2000, HUD had experienced min

disruptions from the millennium rollover, 

systems failed, according to the Inspector 

Some Systems 

Problems Persist

After significantly revising the scope of its 

HUD now plans to replace its financial ma

systems, creating some uncertainty about 

when HUD will have a more modern, com

reliable financial management system. Th

narrowed the objective and scope of the F

completing a core general ledger that is co

federal financial systems requirements. O

components of the FSI project, specificall

Departmental Grants Management System 

Enterprise Data Warehouse, were remove

no longer a part of the FSI project. Becau

truncated the FSI project, as of November 

considered the project complete and the c

ledger system substantially compliant wit

financial systems requirements. The effec

actions taken by HUD will not be known u

year 2000 financial statement audit is com

spring of 2001.

While HUD considers its FSI project comp

current financial management systems do 

HUD’s needs because they create burdens

reconciliation activities, increase the com

cost of maintenance, could cause diminis

control and integrity, and have inefficient 

interfaces, according to HUD’s Financial M

Vision statement. Accordingly, HUD now 

replace its financial management systems

developed under the FSI effort, with a new 

new plan is still in the early stages, and it 

vision of developing a new integrated fina

management system, but it leaves uncerta

and when HUD will finally implement a sy

meet its program and financial manageme
Page 42 GAO-01-248 HU

After issuing an unqualified opinion on HUD’

1998 consolidated financial statements, the I

General was unable to issue an opinion the f

year. The Inspector General reported in Marc

this was because HUD’s fiscal year 1999 con

financial statements were not ready in time f

Inspector General to complete the audit by th

deadline. A new departmentwide general led

implemented in fiscal year 1999, rejected or 

posted numerous transactions, which then h

manually researched and corrected. Further

was no software to help reconcile the genera

cash accounts with the Department of the Tr

account balance. According to the Inspector 

these implementation problems delayed HUD

reconciliation processes and resulted in num

adjustments to make HUD’s general ledger b

agree with Treasury’s records. The Inspector 

said there were 42 adjustments totaling abou

billion to adjust the fiscal year 1998 ending b

242 adjustments totaling about $59.6 billion t

fiscal year 1999 activity balance. 
Page 43 GAO-01-248 

As a result of these problems, HUD was u

prepare auditable financial statements an

disclosures in a timely manner, and the In

General could not complete the audit with

statutory time frames. The Inspector Gene

that the Department’s core financial syste

comply with federal financial systems req

because the departmental general ledger, 

was not updated with data from FHA each 

the data entry process was not timely or e

has since taken actions to correct these p

according to HUD officials. For example, 

studies aimed at resolving factors that con

disclaimer, including its procedures for po

corrective adjustments during the year an

for reconciling the funds balance with the 

of the Treasury’s records. HUD officials al

us in May 2000 that they had completed th

1999 reconciliation of funds balance with 

Treasury. In addition, the Inspector Gener

that a number of technical difficulties wit

between key transaction systems had bee

The effectiveness of the actions taken by 

be known until the fiscal year 2000 financ

audit is completed in the spring of 2001.

A key component of HUD’s FSI strategy w

Departmental Grants Management System 

departmentwide mixed management and 

information system that HUD expected to 

July 2000. HUD has experienced problem

development of this system, which was in

support the Department’s mission to resto

trust by implementing a processing system 

consolidate all information on grants. HUD 

22Statement of Susan Gaffney, Inspector General, U.

Housing and Urban Development, Tuesday, Sept. 26

Subcommittee on Housing and Transportation, U.S. 
Page 44 GAO-01-248 HU

system to provide it with up-to-date informa

competitive and entitlement grants and allow 

clients more efficiently. However, HUD susp

system’s development in June 2000 because 

concerned that delays in correcting software 

well as the software development approach, 

consistently meet all of the Department’s nee

needs of its business partners. HUD is recom

DGMS project. According to the Inspector G

million had been budgeted for the developm

DGMS in fiscal year 1999 and $6.3 million in 

2000.

In addition, the Inspector General reported in 

1999 that the initial efforts to develop DGMS 

cost-effective. In particular, the Inspector Ge

reported that the option selected was the co

riskiest of the alternatives considered in the 

feasibility study. Moreover, the choice of this 

to the simultaneous development of another 

departmental system−the Integrated Disburs

Information System (IDIS). The Inspector Ge

concluded that this duplicative approach to 

grants management would lead to higher dev

costs and greater risks of failure.
Page 45 GAO-01-248 

DGMS was intended to serve as a departm

information system that would be used to 

HUD’s 51 grant programs, including its Co

Planning and Development (CPD) grants 

communities’ operations. CPD’s informati

financial management system—IDIS— wa

provide HUD’s CPD operations with accur

and timely information on grantees’ expen

program performance. We reported in Ap

these goals were not being achieved beca

significant problems.23 Specifically, (1) the 

establishing and maintaining grant activity 

was time-consuming and cumbersome an

ample opportunity for major data entry pr

major data entry problems were difficult t

IDIS, (3) IDIS did not readily enable grant

accurately report income generated by gr

revolving funds (program income), and (4

found it difficult to produce comprehensi

reports using IDIS. The Inspector General 

May 2000 that several changes were being 

improve the IDIS software, but the change

implemented without adequate testing.24 A

additional programming errors were bein

preventing CPD from achieving its goals.

In addition, in reviewing the decline in the 

systems that do not conform with federal 

systems requirements, the Inspector Gene

March 2000 that the CFO primarily relies 

program offices to certify the systems’ co

does not require in-depth reviews of syste

23Community Development: Weak Management Con

Integrity of Four HUD Grant Programs (GAO/RCED

1999).

24Integrated Disbursement and Information System, O

General (00-DP-166-0003, May 11, 2000).
Page 46 GAO-01-248 HU

reclassifying them from nonconforming to c

As a result, according to the Inspector Gener

were improperly classified as compliant and 

deficiencies were not identified. The Departm

intends to use a compliance review guide in 

2001, which provides substantially more deta

assessment criteria than were used in the pa

Finally, like many other federal agencies, HU

continue to focus on improving its informati

technology management processes. HUD ha

its efforts to address the long-standing, fund

management issues we raised in 1994 and 19

issues involve (1) developing, integrating, an

maintaining processes for strategic business 

information resources management planning

architecture, and information technology inv

management to routinely meet the Departme

and (2) establishing sufficient security over t

Department’s sensitive information and syste

Resolving these issues is essential to achievi

improvements in the management of inform

technology and achieving consistently super

for HUD’s programs and operations. 

25HUD Information Resources: Strategic Focus and Imp

Management Controls Needed (GAO/AIMD 94-34, Apr. 1

HUD Information Systems Improved Management Pract

Control Integration Cost and Schedule (GAO/AIMD-95-2

1998).
Page 47 GAO-01-248 

HUD Needs to 

Continue Efforts to 

Resolve 

Organizational and 

Staffing Problems

In the past, we reported that an ineffectiv

organizational structure and an insufficien

staff with the necessary skills limited HUD 

performing essential functions and contri

designation of HUD’s programs as high ris

HUD began to reorganize by function, foll

Management Reform Plan, rather than co

operate strictly within individual program

the previous sections on HUD’s single-fam

insurance and rental housing assistance p

transferred many staff from its field office

hubs, program centers, and specialized an

centers. HUD has substantially completed 

and implemented its organizational realig

extent that it has begun to achieve some r

also implementing a new process to impro

estimation of resource needs and allocatio

it has made additional funding available fo

travel. However, even before it began its s

allocation process, HUD created the posit

Community Builder to provide hands-on s

outreach to communities. HUD currently 

Community Builders, even though, as we 

September 1999,26 the Department has not 

program’s costs and benefits to determine 

benefits are worth the costs of hiring and 

Community Builders.

However, not all of the results envisioned 

plan have yet been realized. Problems rem

the operations of some of the reorganized 

particularly in terms of workload. Moreov

staffing and limited travel funds continue 

in carrying out its mission. Our recent tele

26HUD’s Fiscal Year 2000 Budget Request: Additiona

Justification Needed for Some Programs (GAO/RCE

1999).
Page 48 GAO-01-248 HU

of HUD managers indicated that they believe 

have enough staff and that their workload ha

rather than decreased as expected.

HUD Has Taken 

Action to Address 

Staffing Problems

As of September 2000, HUD had 8,951 full-tim

employees administering its programs and fu

somewhat below its fiscal year 2000 authoriz

9,300 full-time employees. HUD requested ad

staff in its budget submissions for fiscal year

2001, but the Congress declined to provide a

resources, in part because of concerns that H

reliable resource management system to det

appropriate level of staff. In its annual perfor

for fiscal year 1999, submitted to the Congre

1998, HUD noted that it lacked departmental 

measuring work and reporting time and that 

single integrated system to support resource 

The absence of this capability concerned the 

which requested that NAPA examine HUD’s 

for estimating human resource needs. For th

years, NAPA and HUD have worked together 

and pilot-test a methodology for a resource m

system. In August 2000, HUD began to imple

new process in three phases, the last of whic

scheduled to be completed in December 200
Page 49 GAO-01-248 

Since January 1999, HUD has also taken s

to ensure that its employees have the skil

knowledge to carry out their functions. D

year 2000, HUD greatly increased its expe

technical and management training, spend

million compared with $1.7 million in fisc

According to our telephone survey of HUD 

most were satisfied with the training avai

and their staff.27 Almost three-quarters of 

rated HUD’s current training as excellent 

said the training was better now than it w

Overall, the managers responding to our c

as well as our 199628 survey expressed sat

their staff’s skills. The vast majority in the 

survey (89 percent) said they were very sa

generally satisfied with their staff’s skills, 

(95 percent) said their staff’s skills had im

or somewhat. In the current survey, a high

of the managers rated their staff’s individu

excellent or good, and a smaller proportio

their staff’s skills as fair or poor. The ratin

interpersonal skills, knowledge of new pr

knowledge of information systems, techn

knowledge of existing and new regulation

results are particularly noteworthy becau

27We conducted a telephone survey of managers of H

programs in selected field offices and in six specialt

survey, conducted during September and October 20

managers for their views on current staffing skills, t

workload in their areas of responsibility. The survey 

office managers in three major program areas (mult

community planning and development, and public h

offices. It also included 45 managers in six specialty 

Homeownership, REAC, Troubled Agency Recovery

Financial Management, and Grants Management—to 

current organization.

28HUD: Field Directors’ Views on Recent Manageme

(GAO/RCED-97-34, Feb. 12, 1997). In 1996, we condu

survey of 155 HUD field office managers. Specialty c

exist at that time. 
Page 50 GAO-01-248 HU

reported in January 1999, field office manage

then that some newly placed staff lacked the 

program knowledge necessary to do their job

our current survey shows that 91 percent of 

office managers were satisfied with their sta

Between fiscal year 1998 and fiscal year 2000

overall travel budget increased from about $

to about $22 million. The majority of the prog

or areas experienced increases, although a f

experienced decreases. Despite increases in 

funds, HUD field offices continue to report t

lack sufficient travel resources, as noted in t

on HUD’s single-family mortgage insurance p

Some Organizational 

and Staffing 

Problems Persist 

According to reports that we and the Inspect

have issued, our recent audit work, and the r

our telephone survey, HUD’s reorganization 

proceeded exactly as planned, and imbalanc

workload have occurred at several specialty 

in some of the field offices.29 In addition, ins

staffing and the need to increase training con

affect HUD’s ability to carry out its mission e

and effectively. The managers we surveyed re

training and staff skills have generally impro

managers also believe that training should b

The workload in the related field offices rem

than planned, in part because some responsi

remain to be transferred to the centers and i

because the field offices have acquired new 

responsibilities. In addition to handling work

has not moved to the centers as soon as plan

field offices have acquired additional work a

programs, regulations, and management init

29The telephone survey and specialty center workload is

described in the overview section and program sections
Page 51 GAO-01-248 

created new responsibilities. The field off

received additional staff to carry out thes

responsibilities. About 79 percent of the H

managers we surveyed reported increases 

workload over the last 2 years. 

In addition to workload imbalances, HUD 

field offices have experienced problems r

insufficient staffing. Our recent telephone 

HUD managers found that most managers 

at the centers and field offices believe the

enough staff to carry out their programs a

higher proportion of field office managers 

than center managers (48 percent) said th

sufficient staff to carry out programs and 

1996 survey, conducted before HUD imple

reform actions, found that 77 percent of t

believed they lacked sufficient staff to car

programs and activities effectively. Figure 

HUD managers’ views on the adequacy of 

levels.
Page 52 GAO-01-248 HU

Figure 1: Field Office and Specialty Center Manage

Adequacy of Staffing Levels

Source: GAO’s 2000 survey of HUD managers.

Although the majority of the managers repor

satisfied with the training HUD provides, ma

both the centers and field offices agreed that 

should increase training in several areas. Spe

managers stated that training should be incre

areas of information systems (75 percent), p

regulations and changes (72 percent), techni

skills (71 percent), and interpersonal skills (

Percent of managers

Staff more

than needed

Enough

staff

Staff le

than nee

Field

Centers

0

10

20

30

40

50

60

70

80
Page 53 GAO-01-248 

Center managers were more critical of HU

then were field office managers. About 59 

center managers rated HUD’s training as e

good, compared with 80 percent of field o

managers. In addition, 47 percent of cente

stated that HUD’s training is better than it 

ago, compared with 81 percent of field off

We believe this difference in managers’ vi

training is consistent with the fact that the 

fairly new and center staff may require mo

learn the specialized skills needed to do th

Key Contact Stanley J. Czerwinski, Director

Physical Infrastructure

(202) 512-7631

czerwinskis@gao.gov

Linda Koontz, Director

Information Technology

(202) 512-6240

koontzl@gao.gov

Linda M. Calbom, Director

Financial Management and Assurance 

(202) 512-9508

calboml@gao.gov
Page 54 GAO-01-248 

Public Housing: HUD Needs Better Inform

Housing Agencies’ Management Performa

(GAO-01-94, Nov. 9, 2000).

HUD Management: Status of Actions to R

Internal Control Weaknesses (GAO-01-103

2000).

Benefit and Loan Programs: Improved Da

Could Enhance Program Integrity (GAO/H

Sept. 13, 2000).

Mortgage Financing: Financial Health of t

Housing Administration’s Mutual Mortgag

Fund (GAO/T-RCED-00-287, Sept. 12, 2000

HUD Housing Portfolios: HUD has Streng

Physical Inspections but Needs to Resolv

About their Reliability (GAO/RCED-00-168

2000).

Observations on HUD’s FY 1999 Annual P

Report and FY 2001 Annual Performance 

(GAO/RCED-00-211R, June 30, 2000).

Single-Family Housing: Stronger Measure

Encourage Better Performance by Manag

Marketing Contractors (GAO/RCED-00-11

2000).

Single-Family Housing: Stronger Oversigh

Lenders Could Reduce HUD’s Insurance R

(GAO/RCED-00-112, Apr. 28, 2000).

Status of GAO’s Recommendations Relate

Issues at the Department of Housing and 

Development (B-284624, Mar. 10, 2000).
Page 55 GAO-01-248 

HUD’s Loan Origination and Foreclosed P

Management Processes (GAO/AIMD-00-41

1999).

HUD’s Fiscal Year 2000 Budget Request: A

Analysis and Justification Needed for Som

(GAO/RCED-99-251, Sept. 3, 1999).

Multifamily Housing: HUD Missed Opport

Reduce Costs on Its Uninsured Section 8 

(GAO/RCED-99-217, July 30, 1999).

Homeownership: Information on Single-F

Sold by HUD (GAO/RCED-99-145, June 15 

Homeownership: Problems Persist with H

Home Rehabilitation Loan Program (GAO

June 14, 1999).

Community Development: Weak Managem

Compromise Integrity of Four HUD Grant 

(GAO/RCED-99-98, Apr. 27, 1999).

Single-Family Housing: Weaknesses in HU

of the FHA Appraisal Process (GAO/RCED

Apr. 16, 1999).

Major Management Challenges and Progr

Department of Housing and Urban Develo

(GAO/OCG-99-8, Jan. 1999).

High Risk Series: An Update (GAO/HR-99-

Major Management Challenges and Progr

Governmentwide Perspective (GAO/OCG

Jan. 1999).
Page 56 GAO-01-248 

Major Management Challenges and Progr

Governmentwide Perspective (GAO-01-24

Major Management Challenges and Progr

Department of Agriculture (GAO-01-242)

Major Management Challenges and Progr

Department of Commerce (GAO-01-243)

Major Management Challenges and Progr

Department of Defense (GAO-01-244)

Major Management Challenges and Progr

Department of Education (GAO-01-245)

Major Management Challenges and Progr

Department of Energy (GAO-01-246)

Major Management Challenges and Progr

Department of Health and Human Service

(GAO-01-247)

Major Management Challenges and Progr

Department of Housing and Urban Develo

(GAO-01-248)

Major Management Challenges and Progr

Department of the Interior (GAO-01-249)

Major Management Challenges and Progr

Department of Justice (GAO-01-250)

Major Management Challenges and Progr

Department of Labor (GAO-01-251)

Major Management Challenges and Progr

Department of State (GAO-01-252)
Page 57 GAO-01-248 

Major Management Challenges and Progr

Department of Transportation (GAO-01-25

Major Management Challenges and Progr

Department of the Treasury (GAO-01-254)

Major Management Challenges and Progr

Department of Veterans Affairs (GAO-01-2

Major Management Challenges and Progr

Agency for International Development (G

Major Management Challenges and Progr

Environmental Protection Agency (GAO-0

Major Management Challenges and Progr

National Aeronautics and Space Administ

(GAO-01-258)

Major Management Challenges and Progr

Nuclear Regulatory Commission (GAO-01

Major Management Challenges and Progr

Small Business Administration (GAO-01-2

Major Management Challenges and Progr

Social Security Administration (GAO-01-2

Major Management Challenges and Progr

U.S. Postal Service (GAO-01-262)

High-Risk Series: An Update (GAO-01-263
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