MANAGEMENT

CHALLENGES

Department of Housing

and Urban Development

Statement of Stanley J. Czerwinski, Associate Director, Housing and

Community Development Issues, Resources, Community, and Economic

Development Division

United States General Accounting Office

GAO Testimony

Before the Subcommittee on Housing and Transportation,

Committee on Banking, Housing, and Urban Affairs,

U.S. Senate

For Release on Delivery

Expected at

10:00 am

September 26, 2000

GAO/T-RCED-00-292
1

Mr. Chairman and Members of the Subcommittee:

We are here today to discuss the management challenges facing the Department of Housing and

Urban Development (HUD) as it tries to transform itself from a federal agency whose major

programs were designated as “high-risk” in our last High-Risk Series update in January 1999.1

 As

you know, HUD’s housing and community development programs directly or indirectly affect the

lives of millions of Americans. HUD is responsible for making housing more affordable for about

4.5 million low-income people by insuring loans for multifamily rental housing and providing

rental assistance. It is also helping to revitalize over 4,000 localities through community

development programs, encouraging homeownership by providing mortgage insurance for about

7 million homeowners who otherwise might not have been able to qualify for loans, and

managing about $508 billion in insured mortgages and $570 billion in guarantees of mortgagebacked securities. Given the magnitude of HUD’s responsibilities, congressional oversight of

HUD’s management becomes vital for ensuring that the Department carries out its mission

efficiently and effectively while maintaining the integrity and accountability of its programs and

activities at the highest possible level.

This hearing and our comments today are cast against the backdrop of the powerful statutory

framework that the Congress has put in place over the last decade to improve performance

management and the accountability of the federal government. Through the passage of major

management reform legislation such as the Government Performance and Results Act (GPRA),

the Chief Financial Officers Act, and the Clinger-Cohen Act, the Congress has provided federal

agencies with the tools for transforming themselves into high-performing organizations. While

 

1

High-Risk Series: An Update (GAO/HR-99-1, Jan. 1999).
2

the proper implementation of this framework holds much promise for promoting, creating, and

sustaining high-performing federal organizations, this transformation does not come easily or

quickly. Old ways of doing business must first be critically reexamined and new approaches

must be developed and institutionalized. This process takes time and sustained commitment by

all levels of management.

Our statement today will focus on (1) HUD’s progress in addressing the major management

challenges we have identified in the past and our plans for updating the risk status of HUD’s

programs; (2) issues HUD faces in ensuring that the reforms it has implemented are sustainable

and will result in its becoming a high-performing federal agency, including our plans for

monitoring HUD’s activities; and (3) the importance of congressional oversight in ensuring that

federal agencies like HUD, successfully manage for results in the 21st century. Our statement

draws from a large body of completed as well as ongoing GAO work, including our reviews of

various HUD programs, our reviews of HUD’s strategic and performance plans, and work we

have done across the federal government on management reform initiatives and performancebased organizations. In addition, it draws from reports issued by outside sources such as HUD’s

Inspector General, National Academy of Public Administration, and other consulting groups, as

well as information recently reported to us by HUD.

In summary:

• Since 1994, we have designated HUD and/or its programs as “high risk” because of four longstanding departmentwide management challenges: weak internal controls, inadequate

information and financial management systems, an ineffective organizational structure, and

an insufficient mix of staff with the proper skills. Since then, HUD has continued to address

its management challenges, most recently under the direction of its 2020 Management
3

Reform Plan which has guided the Department’s efforts for over 3 years. In January 1999, we

reported that HUD was making significant changes and had made credible progress in

overhauling its operations to correct these management challenges.2

 We are currently

assessing the results of HUD’s reform efforts and plan to report on its progress early next

year. One of the key questions that we will assess is whether the Department’s reform efforts

have demonstrated real and sustainable results.3

• In the future, HUD will have to resolve a number of issues if it is to continue the progress it

has made, achieve the goals it has set for itself, and fully realize the benefits that can be

derived from the performance management framework developed by the Congress. Some of

these issues include the need to ensure continued top leadership commitment to reform

efforts, thoughtful and rigorous planning for human capital and information technology

strategies, and greater employee involvement in reform initiatives. Moreover, as HUD moves

beyond its past management deficiencies and attempts to transform itself into a highperforming organization, it will face additional challenges, such as developing a true results

orientation and becoming an integrated organization that is outwardly focused on its clients’

and stakeholders’ needs. These are the issues that the Congress, executive branch

decisionmakers, and GAO will have to monitor to ensure HUD’s success. We plan to conduct

a significant body of work over the next 2 to 3 years that will explore the sustainability of

HUD’s management reforms as well as its progress towards becoming a high-performing

federal agency.

• Finally, the importance of congressional oversight in monitoring a federal agency’s

management improvement initiatives cannot be overstated. The Congress should monitor

 

2 Major Management Challenges and Program Risks: Department of Housing and Urban Development (GAO/OCG-99-8, Jan. 1999).

3

 We provided these criteria to HUD through our August 2000 exposure draft entitled Determining Performance and Accountability

Challenges and High Risk.
4

management improvement initiatives and provide the continuing attention necessary for these

initiatives to be implemented successfully. We believe that GPRA provides a framework to help

the Congress oversee an agency’s management reform efforts. For example, the information

generated through the act’s planning and reporting processes can help the Congress make more

informed decisions about such issues as whether an agency has the right mix of programs, is

pursuing and achieving the right goals, is achieving real results with positive outcomes, and is

effectively coordinating its programs to meet national needs.

HUD’s Progress in Addressing its Management Challenges

The four primary areas of concern that we identified at HUD in our January 1999 report are as

follows:

Weak internal controls: These include weak management of the Section 8 subsidy payment

process, which provides $18 billion in rental assistance; a lack of control and management of

staff resources to manage and monitor its real estate inventory, an inadequate early warning

system to prevent losses through defaults in its single-family and multifamily insurance

programs, and inadequate information or unreliable data.

Inadequate information and financial management systems: These systems, which HUD uses to

manage its programs, such as the Federal Housing Administration’s mortgage insurance

programs, were inadequate because they were poorly integrated, ineffective, and generally

unreliable. They neither satisfied management’s needs nor provided adequate control over

HUD’s programs.
5

An ineffective organizational structure: An ineffective organizational structure has also

contributed to management problems throughout HUD that cut across most of its housing and

community development programs. Organizational problems included overlapping and illdefined responsibilities and authorities between HUD headquarters and field organizations and a

fundamental lack of management accountability and responsibility.

An insufficient mix of staff with the proper skills: HUD lacked assurance that it had the right

number of staff with the proper skills to meet the needs of major program areas, such as the

monitoring of its multifamily property managers. Imbalances occurred when significant

reductions in HUD’s staffing levels during the 1990s were not accompanied by any reductions in

or consolidations of programs until after 1997. 4

In 1999, we reported that HUD had made credible progress in addressing many of its

management challenges, and since that time, we believe, the Department has continued to make

progress. For example, HUD has

• started to resolve several of the material internal control weaknesses identified by the

Inspector General, such as the weaknesses in early warning and loss prevention for insured

mortgages;

• developed and deployed several major financial management systems;

• through its Real Estate Assessment Center, completed the first-ever physical inspection of

nearly all of its assisted multifamily housing properties and public housing properties and

found most of these properties to be in satisfactory condition; and

 

4 High-Risk Series: Department of Housing and Urban Development (GAO/HR/95-11, Feb. 1995); High-Risk Series: Department of

Housing and Urban Development (GAO/HR/97-12, Feb. 1997); High-Risk Series: An Update (GAO/HR-99-1, Jan. 1999).
6

• changed its staffing by contracting for functions that it did not have sufficient capacity to

handle properly and significantly increasing the number of staff trained and the amount of

funds available for program and technical training.

Although we believe that progress is continuing at HUD, much remains to be done. For example,

we recently reported that HUD has had difficulty correcting the performance problems identified

through its monitoring of its new contractors, hired to manage and market HUD’s single-family

property inventory, and that the contractors continue to have difficulty with property

maintenance and security issues.5

 Similarly, HUD encountered serious problems in converting

to a new general ledger system, which prevented the Office of Inspector General from

completing its audit of HUD’s fiscal year 1999 financial statements by the mandatory deadline

and resulted in HUD’s receiving a disclaimer of opinion on its financial statements for that year.

HUD also needs to continue its efforts to (1) verify tenant incomes to ensure that subsidized

housing units are occupied by eligible families and that these families are paying correct rents

and (2) modernize its information and financial management systems and reduce its reliance on

older systems that do not meet its needs.

We are currently conducting our biennial assessment of the progress made by agencies across

the federal government in addressing issues and programs that have been designated as high risk,

including those at HUD. In making our determination of high risk at HUD and other federal

agencies, we will consider the corrective measures that agencies have planned or have under

way to resolve their management challenges, as well as the status and effectiveness of these

actions. Some of the key factors we will consider in making our high-risk determination at HUD

include the extent to which HUD has

 

5

Single-Family Housing: Stronger Measures Needed to Encourage Better Performance by Management and Marketing Contractors

(GAO/RCED-00-117, May 12, 2000).
7

• demonstrated commitment to resolving its management deficiencies,

• strengthened controls to address its management deficiencies,

• proposed appropriate corrective action plans for its remaining management challenges,

• implemented effective solutions that will be substantially completed in the near term, and

• implemented solutions that will get to the root cause of its management deficiencies.

In considering whether HUD’s corrective actions will be substantially completed in the near

term, we will be looking for a high level of assurance that the actions will be completed within

the next 2 years. The agency will need to demonstrate concrete results to date, with a clear path

toward addressing any remaining problems. We have shared these criteria with HUD officials.

To conduct our assessment of high risk, we will use HUD’s strategic plans, annual performance

plans and reports, accountability reports, and audited financial statements. This information will

be supplemented by relevant GAO reports, Inspector General reports, and other independent

analysis. Finally, the ultimate determination will be based on the independent and objective

judgment of GAO.

 Sustaining Reform and Becoming a High-Performing Agency

Many of the management challenges that HUD is trying to address are of long standing. They

are complex and difficult problems that will not, and cannot, be easily or quickly resolved. Our

management reform work across the federal government has shown that several key elements

are often needed to implement and sustain major change initiatives such as HUD has
8

undertaken, to ensure that these initiatives genuinely take root and resolve the problems they

are intended to fix.6

 These elements include

• demonstrated leadership commitment to and accountability for change,

• the integration of management improvement initiatives into programmatic decision-making,

• thoughtful and rigorous planning to guide decisions, especially those involving human capital

and information technology,

• employee involvement to elicit ideas and build commitment and accountability, and

• organizational alignment to streamline operations and accountability.

Based on our work to date, several of these elements appear to be present in HUD’s management

reform efforts. At the same time, we have not yet completed our work. In any event, we believe

that vigilant monitoring of these issues will be critical over the next several years. Strong and

continuing congressional leadership and oversight, and monitoring by HUD’s Inspector General

and GAO, will be necessary to ensure that the changes the department is trying to achieve are

sustained and result in real reform.

However, sustaining change should not be HUD’s final goal, but rather a means to achieve the

end result of becoming a high-performing federal agency. Looking across the federal government

we have found that changing a federal agency into a high-performing organization is not an easy

task and often requires a cultural transformation under which

• hierarchical management approaches yield to partnerial approaches,

• process-oriented ways of doing business yield to results-oriented ones,

 

6 Management Reform: Elements of Successful Improvement Initiatives (GAO/T-GGD-00-26, Oct.15 1999).
9

• siloed organizations--overburdened with overlapping functions, inefficiencies, and turf

battles—become integrated organizations, and

• internally focused organizations start to focus externally in order to meet the expectations of

their clients and stakeholders.

Our work has shown that high-performing organizations consistently strive to ensure that they

have clearly defined and well-communicated organizational missions, values, and goals and that

these values and goals drive their day-to-day activities to achieve expected results. When

organizations transform their cultures so that achieving results becomes the driving concern of

their daily operations, fundamental performance improvements occur, thereby helping the

organization to deliver the products and services at the cost and with the quality that the

American people expect of their government.

At HUD, as at other agencies across the federal government, we believe that a considerable

amount of work still needs to be done to ensure that the department’s commitment toward

ongoing reforms ultimately translates into the efforts necessary for HUD to become a highperforming organization. In this regard, we are working with the cognizant congressional

committees, to develop a significant body of work that we anticipate undertaking over the next 2

to 3 years. This work will explore the sustainability of HUD’s management reforms as well as

HUD’s progress toward becoming a high-performing federal agency. Some of these reviews

include assessments of HUD’s

• human capital management strategies, such as workforce planning,

• information systems to ensure that they provide managers and employees with the

information they need to meet key program objectives,
10

• procurement processes to determine whether the agency gets contracted services delivered,

on time, and at the agreed costs, and

• service delivery plans to determine whether the services provided will meet clients’ needs.

Managing for Results and the Importance of Congressional Oversight

The challenges we have discussed today are not exclusive to HUD. Rather, they are common to

all government agencies attempting to meet the expectations and needs of the nation in the 21st

century. The performance and accountability of these agencies needs to be enhanced to get the

most out of the available federal resources and forge effective approaches to both new and longstanding national problems. GPRA provides the impetus for improving the effectiveness of

federal programs by shifting the focus of management and decision-making from a

preoccupation with staffing and activity levels to a broader focus on the results or outcomes of

federal programs. GPRA has the potential to help the Congress and the executive branch ensure

that the federal government provides the results that the American people expect and deserve. It

also has the potential, if properly implemented, to help improve the public’s respect for and

confidence in their government.

However, our work has consistently shown that integrating GPRA into an agency’s operations

does not come quickly or easily. It has been almost 3 years since the requirements of GPRA were

implemented across the executive branch, and although substantial efforts have been undertaken

and progress has been made, much of the act’s potential remains unrealized. For example, our

reviews have shown that much more progress is needed to link agencies’ performance goals to

their budget presentations, so that the performance consequences of budget decisions can be

clearly understood. Similarly, most agencies’ plans have not sufficiently addressed how the

agencies will use their human capital to achieve results.
11

Our work has found that fully integrating GPRA into agencies’ operations requires dedicated and

persistent leadership. Managers must use goals and performance data as a basis for their

organizations day-to-day operations and for holding units and individuals accountable for results.

It requires leadership on the part of the Office of Management and Budget to ensure that

performance data are used to make informed budget decisions and that agencies take the

implementation of GPRA seriously. Finally, it requires the Congress in its various capacities—

oversight, authorization, appropriation, and confirmation of political appointees—to use GPRA in

its efforts. For example, the Congress, in its oversight role, can monitor federal management

improvement initiatives to ensure that they do not become hollow, paper-driven exercises that

are not integrated into the agencies’ day-to-day activities. In particular, the concepts, practices,

and products associated with GPRA can help the Congress in its decision-making and strengthen

its oversight in the following areas:

Attacking activities at risk of fraud, waste, abuse, and mismanagement: The annual planning

process of GPRA provides an excellent tool to help address high-risk functions and programs and

to ensure that clear accountability for progress is established. For example, our work has shown

that precise and measurable goals for resolving mission-critical management problems are

important to ensuring that agencies have the institutional capacity to achieve their more resultsoriented programmatic goals.

Improve the economy and efficiency of federal programs: In many federal programs areas, such

as housing, a range of service delivery mechanisms and program tools are used to deliver

programs and services. GPRA provides the opportunity to examine these program structures

and strategies to ensure that the agencies have the best, most cost-effective mix in place to meet

their goals. Such an examination can also help identify opportunities to improve performance

and reduce costs.
12

Reassess what the federal government does: GPRA is perfectly suited to help the Congress and

the executive branch identify and address programs that may have outlived their usefulness.

Performance goals that focus on the results of programs and performance reports that show

what has been accomplished can provide the Congress with critical information on the value of

continuing certain programs.

Redefine the beneficiaries of federal programs: GPRA can also help the Congress as it considers

redefining program beneficiaries. By examining agencies’ goals and progress made in achieving

those goals, congressional decisionmakers can determine where federal benefits could be better

targeted to improve results and/or cut costs.

Rationalize crosscutting program efforts: Virtually all of the results that the federal government

strives to achieve require the concerted and coordinated efforts of two or more agencies. If

GPRA is implemented properly, the Congress will receive new information on crosscutting

programs. This information can help the Congress identify agencies and programs with similar

missions, and consider the associated policy, management, and performance implications of

crosscutting programs.

Build the capacity to gather and use performance information: Under GPRA, agencies are to

communicate to the Congress how they will verify and validate the performance information that

they will use to show whether goals are being met. The Congress can then use the information

provided by the agencies to obtain a clearer picture of their contributions to improvements in

citizens’ lives.

- - - - -
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In conclusion, Mr. Chairman, the management challenges that HUD faces today have developed

over decades and will certainly take some time to be fully resolved. We believe that the agency is

making credible progress in overcoming its management challenges consistent with its 2020

Management Reform Plan. However, HUD’s ultimate success will depend on its ability to sustain

the efforts that it currently has underway. This sustainability is critical if HUD is to complete the

transformation into a high-performing federal agency and be in a position to deliver the programs

and services that the American people expect and deserve from their federal government.

The Congress has provided HUD and other federal agencies with the tools they need to focus on

results. It is now up to these agencies to implement these tools properly and deliver the

expected results. However, only the Congress, in its various capacities of oversight,

authorization, appropriation, and presidential appointee confirmation, can ensure that the

transformation to performance-based organizations is completed successfully and that federal

agencies are held accountable for results. Our goal is to continue to help and support the

Congress in these efforts.

Mr. Chairman, that concludes our prepared statement. We would be happy to answer any

questions that you or Members of the Subcommittee may have.

(385877)
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