Financial Management Systems: HUD Needs to Address Management and Governance Weaknesses That Jeopardize Its Modernization Efforts
Published: 2016-07-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: HUD is responsible for managing and reporting on the nearly $45 billion it spends annually for housing programs. The department has reported its reliance on outdated and costly-to-maintain systems used for financial management functions. In 2013, HUD initiated a modernization program called New Core, which involved migrating financial management capabilities to a federal shared service provider, with expected benefits to include reducing legacy systems costs, improving the data, and resolving weaknesses in its financial management systems. After spending about $58 million over 3 years, HUD decided to end New Core development in April 2016.
Congress included a provision for GAO to review the New Core program. This review (1) determined the financial management systems capabilities implemented through New Core and (2) evaluated HUD's implementation of key IT management practices applied to the program. GAO reviewed New Core plans and documentation to assess the capabilities delivered, compared HUD's implementation to recognized IT practices, and interviewed relevant agency officials.
section_title: What GAO Found
paragraphs: In October 2015, as part of its planned New Core financial management systems modernization efforts, the Department of Housing and Urban Development (HUD) completed transitioning 4 of 14 capabilities to shared service solutions. The implemented capabilities were for managing employee travel and relocation; recording time and attendance; performing core accounting functions such as general ledger accounting, producing financial reports, and processing salaries and expenses transactions; and managing procurements. As a result, the department reported that it fully replaced 4 systems, gained access to 7 shared service solutions, streamlined administrative services, and added efficiencies to the processing of financial management functions. For example, the systems used for core accounting and procurement were integrated to support the timely recording of commitments and obligations. However, while the 4 capabilities were transitioned as scheduled, none fully met the department's requirements or expectations. For instance, the department continues to execute programmatic transactions using costly and inefficient legacy systems that were expected to be replaced with New Core. HUD has begun other initiatives to deliver financial management systems capabilities and replace legacy systems that were not addressed under New Core. Detailed plans for these efforts are in development.
HUD's efforts to implement planned capabilities for New Core demonstrated weaknesses in the department's information technology (IT) management and governance practices. Key management practices include fully defining what a program is intended to accomplish; developing the program scope, schedule, and costs; and managing requirements. However, HUD's management of New Core had weaknesses in these areas. For example, the department did not:
outline operations for all planned capabilities or create a roadmap for transitioning to the desired modernized environment;
create comprehensive scope, schedule, and cost documentation; and
manage requirements to ensure they were fully documented and traceable from business needs to system implementation.
Effective governance and executive-level oversight also help ensure programs achieve expected results. Specifically, establishing governance control reviews and providing oversight through, among other things, sustained leadership and coordination among stakeholders can strengthen modernization efforts. However, during the effort to implement New Core, HUD's IT governance and oversight were not fully effective. For example, governance reviews did not raise concerns or require improvement plans for management weaknesses identified, such as the lack of a schedule with a valid critical path. Moreover, executive-level oversight did not ensure effective coordination among stakeholders.
With any further pursuit of new initiatives to modernize its financial management systems, it is critical that the department consistently apply key IT management practices and effective governance to ensure it does not jeopardize the success of these efforts.
section_title: What GAO Recommends
paragraphs: GAO is recommending that HUD address weaknesses in key IT management practices for future financial systems modernization efforts and take action to improve its governance and strengthen investment oversight. HUD neither agreed nor disagreed with GAO's recommendations, but stated it would improve management practices and governance for future efforts.

section_title: Letter
paragraphs: The Department of Housing and Urban Development (HUD) is  responsible for managing, distributing, and reporting on the approximately  $45 billion spent annually for its programs that support home ownership,  affordable rental housing, community development, and fair housing  opportunities across the nation. However, in working to fulfill these  responsibilities, the department has reported that it has relied on  antiquated and costly-to-maintain information technology (IT), including  financial management systems that have been identified as being at risk  of failure. In particular, the department has been reporting since the early  1990s that its financial management systems have contributed to the  misstatement of financial information.
To address system failure risks and improve its ability to accurately report  financial data, HUD has reported that it has invested approximately $330  million over the past 25 years on efforts intended to modernize its  financial management systems. In 2013, the department initiated the New  Core program to modernize its financial management systems using  shared service solutions.
The explanatory statement accompanying HUD’s fiscal year 2015  appropriation included a provision for us to review the New Core  program. Accordingly, our objectives for this review were to (1)  determine the financial management systems capabilities implemented  through New Core and (2) evaluate HUD’s implementation of key IT  management practices applied to the program.
To determine the financial management systems capabilities  implemented through New Core, we reviewed program artifacts such as  the charter, implementation plan, and scope statements, and identified 14  planned capabilities. We compared the planned capabilities with what  was implemented by reviewing key documents, including post- implementation reports, briefings, and HUD’s September 2015 Financial  Management Systems Plan. We also compared the features that were  delivered to the features that had been planned for each of the  capabilities implemented and reviewed documentation regarding the  department’s future modernization efforts. In addition, we reviewed the  systems used to support HUD’s financial management functions and  identified the systems that were targeted for replacement with New Core.
To evaluate HUD’s implementation of key IT management practices, we  assessed and compared them to HUD’s IT policies, standards identified  by the Project Management Institute, Inc. (PMI) and the Institute of  Electrical and Electronics Engineers, and GAO guidance in the areas of  program definition and planning, requirements management, and  governance. In doing so, we reviewed documentation, including the  program’s implementation approach and management plan; work  breakdown structures, schedules, and cost estimates; and IT investment  management and governance policies, as well as artifacts from meetings  about and reviews of New Core. For each objective, we also interviewed  cognizant officials. Additional details on our objectives, scope, and  methodology are contained in appendix I.
We conducted this performance audit from February 2015 to July 2016 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: HUD’s mission is to create strong, sustainable, inclusive communities and  ensure affordable housing. In carrying out its mission, the department  relies on IT to support managing financial data for its programs that offer  affordable rental housing opportunities for about 12 million residents;  work with state and local governments to revitalize over 8,850 localities;  help the homeless through community development; and provide  mortgage insurance for single-family housing, multifamily housing, and  health care facilities.
HUD programs are managed by six main offices:
Public and Indian Housing: Assistance to low-income families is  provided by this office through three programs aimed at offering units  for eligible tenants in properties generally owned and administered by  state and local public housing agencies; tenant-based rental  assistance that eligible households can use to rent houses or  apartments in the private housing market; and block grants and loan  guarantees to low-income families and tribal entities for housing  development and assistance and housing-related services. Using $27  billion annually to subsidize housing for approximately 3.3 million low- income families, this office provides housing assistance and supports  block grants and guarantee programs for Native American tribes. This  office also manages the Real Estate Assessment Center, which is  responsible for providing information on the condition of the  department’s housing portfolio and for identifying fraud, waste, and  abuse of resources.
Housing/Federal Housing Administration: Programs within this  office provide insurance on loans made by approved lenders for  single-family mortgages and multifamily projects, including  manufactured homes and hospitals. The Federal Housing  Administration managed an insured portfolio of almost $1.3 trillion, as  of the end of fiscal year 2015. The Office of Housing is also tasked  with regulating certain aspects of the housing industry and managing  project-based rental assistance programs. In addition, this office  provides support to a nationwide network of housing counseling  agencies and counselors.
Community Planning and Development: This office provides  financial and technical assistance to states and localities in order to  promote community-based efforts to develop housing and economic  opportunities. The Community Development Block Grant program is  managed by this office and is the federal government’s largest block  grant program for community development. This office engages in  partnerships with local governments, as well as the private sector and  nonprofit organizations; it also leads a number of efforts to combat  homelessness.
Fair Housing and Equal Opportunity: Complaints of housing  discrimination under the Fair Housing Act of 1968 (Title VIII of the  Civil Rights Act of 1968, as amended) are managed by this office. In  addition, this office administers the Fair Housing Assistance Program,  which provides funding annually to state and local agencies to enforce  fair housing laws that are substantially equivalent to the Fair Housing  Act.
Government National Mortgage Association (Ginnie Mae): As a  HUD-owned corporation, this office provides support for affordable  housing by bringing global capital into the housing finance market  while seeking to minimize risk to the taxpayer. While Ginnie Mae does  not issue loans or mortgage-backed securities, it guarantees investors  timely payment and interest on mortgage-backed securities supported  by federally insured or guaranteed loans.
Policy Development and Research: Responsibilities of this office  include maintaining current information on housing needs, market  conditions, and existing programs, and conducting research on priority  housing and community development issues. Using in-house staff and  contractors, it is the primary office responsible for data analysis,  research, program evaluations, and policy studies to inform the  development and implementation of programs and policies across  HUD. This office is also in charge of sponsoring major surveys to  provide information about housing markets.
HUD also relies on various support offices. These include the Office of  the Chief Financial Officer (CFO) and the Office of the Chief Information  Officer (CIO). Specifically, the Office of the CFO is responsible for the  execution and oversight of the department’s budget, as well as its  financial management systems. The Office of the CIO is responsible for  the department’s IT environment, providing project management  guidance, and identifying opportunities to replace or retire redundant or  inefficient systems. A simplified view of the department’s organizational  structure is provided in figure 1.
During fiscal year 2015, $44.1 billion (96.8 percent) of the department’s  $45.4 billion total gross discretionary budget authority was allocated to  programs managed by the six main offices. An additional $1.5 billion (3.2  percent) was dedicated to salaries for HUD’s nearly 8,300 employees and  expenses to support the department’s daily operations. The allocation of  the department’s fiscal year 2015 budget is shown in figure 2.
subsections: section_title: Overview of HUD’s Financial Management Systems Environment
paragraphs: HUD performs financial management functions for core accounting  activities that include maintaining its general and subsidiary ledgers,  budget execution and funds control, accounts receivable and collections,  and accounts payable. The department records financial transactions and  monitors its commitments, obligations, and payment activities. HUD also  manages its budget from initial apportionment and allotment through  allocation. Such activities support the department’s ability to regularly  generate balances of its funds and produce financial statements. Other  aspects of the department’s financial management functions include  tracking the cost of resources allocated across programs and accounting  for assets, including equipment and property.
In order to execute these functions, the department relies on IT systems  that are used by its program and support offices. Specifically, systems are  used for maintaining financial records, processing transactions, making  payments, and distributing funds. To ensure the completeness of financial  information, HUD uses IT systems to track spending for daily operations,  including travel, employee time, and contract support. These financial  management systems assist HUD by storing records and providing  analytical tools that support financial reporting and decision making by the  department’s budget officers, program managers, financial analysts,  accountants, and auditors.
Toward this end, as of July 2016, HUD reported that its financial  management functions were supported by 46 systems. Comprising a mix  of legacy and modernized technologies, these systems are operated and  maintained by the department and external entities. Notwithstanding the  systems that have been modernized, HUD and its Office of Inspector  General reported in November 2015 that the department’s IT systems  have not been sufficient to effectively support financial management  needs. The department attributed this condition to the fact that its  financial management systems employ antiquated technology,  necessitate manual workarounds, are costly to maintain, and are not fully  compliant with federal requirements. Furthermore, as a result of system  weaknesses, the department has been unable to reliably track and report  the detailed costs of its programs. The financial management systems  supporting the department are identified in appendix II.
HUD’s Fiscal Year 2015 Financial Management Plan, reports issued by  the Office of Inspector General, and other documentation describe the  following limitations in the department’s financial management systems:
Antiquated technology. Approximately 60 percent of HUD’s financial  management systems were deployed before the year 2001. These  systems are increasingly at risk of failure due to aging technology and  reliance on applications that are no longer supported by vendors. This  limits the department’s ability to deploy updates or make adjustments  to ensure the systems support mission needs. For example, the HUD  Centralized Accounting and Program System (HUDCAPS) supports  the processing of financial data for one of the department’s largest  programs, but it relies on outdated technology. In March 2016, HUD’s  Inspector General stated that, as the volume and complexity of the  department’s work continues to grow, it becomes increasingly difficult  to respond to market conditions using legacy systems that are 15 to  30 years old.
Manual processes. A number of HUD’s financial management  functions require manual processing due to gaps in the functionality  offered by its legacy systems. For example, in order to distribute  program grants for which funding has been appropriated over several  years, employees are required to make manual adjustments in  HUDCAPS to ensure that funding is available from one year to the  next.
High Operations and Maintenance Costs. HUD’s continued reliance  on aging legacy systems has resulted in costly, labor-intensive, and  inefficient operations for performing financial management functions.  For fiscal year 2016, the department estimated its annual cost of  operating and maintaining financial management systems to be  approximately $70 million. According to the department, until these  systems are fully modernized, it will be difficult and expensive to  support increased workloads.
Non-compliance with financial management requirements. For  fiscal year 2015, HUD received a disclaimer of opinion on its financial  statements, in part due to financial management system  weaknesses. Among these weaknesses, the department lacked  compliance with the Federal Financial Management Improvement Act  of 1996, which is a law designed to improve financial management  systems in order for managers to routinely have access to reliable,  useful, and timely financial-related information. Highlighted in the  auditor’s report on HUD’s financial statements are the weaknesses of  Ginnie Mae’s financial management systems, which employ poor  accounting and record-keeping practices, and require manual work  arounds. In addition, the department and its auditor reported in 2015  that a material weakness first identified in 1993 regarding the lack of  data to perform managerial cost accounting had not yet been  addressed.
section_title: HUD Has a Long History of Financial Management Systems Modernization Efforts
paragraphs: Recognizing the need to modernize its financial management systems,  HUD has initiated three major efforts since 1991 that were aimed at  enabling the department to properly manage its financial resources.  These efforts were envisioned to deliver integrated financial management  systems that would provide timely and accurate information to managers  and comply with federal financial management system requirements. In  addition, HUD expected that the modernization efforts would allow for the  replacement of costly, unstable legacy systems that did not meet the  department’s financial management needs. Figure 3 depicts a timeline of  HUD’s financial management systems modernization efforts from  November 1991 to April 2016.
HUD undertook the Financial Systems Integration project in November  1991, with the intent of delivering integrated financial management  systems and replacing costly legacy systems, such as the Line of Credit  Control System and the Program Accounting System. By November  2000 and after experiencing significant changes in cost, schedule, and  scope, the department had spent approximately $240 million on  implementing systems that did not achieve the project’s vision.  Specifically, as a part of the Financial Systems Integration project, the  department implemented HUDCAPS as its core accounting system, but  this system was not used across the department as planned. The system  also introduced additional manual processing, could not provide accurate  and timely information to managers, was not fully compliant with federal  requirements, and did not replace legacy systems as expected.  Furthermore, both the Line of Credit Control System and the Program  Accounting System remained in use and, as of June 2016, continued to  be relied on for financial management functions.
Our prior reviews have noted that the Financial Systems Integration  project was not fully successful due, in part, to weaknesses in IT  management disciplines. Specifically, we reported in 1998 and 2003 that  the project had suffered cost increases and schedule delays due to  changes in strategy and inadequate project management, including an  unreliable schedule and cost estimate and inadequate planning.  Accordingly, we recommended that HUD address these deficiencies by  preparing complete and reliable cost estimates and finalized detailed  project plans. The department agreed with our recommendations and  took steps to complete a cost-benefit analysis for the Financial Systems  Integration project, as well as pursued actions to finalize a detailed project  plan before ending the program in 2000.
subsections: section_title: HUD Integrated Financial Management Improvement Project (2003–2012)
paragraphs: In January 2003, HUD began work on a second initiative—the HUD  Integrated Financial Management Improvement Project—which was  expected to integrate the department’s financial management systems by  implementing an enterprise resource planning system. The project was  also expected to replace HUDCAPS, the Program Accounting System,  and portions of the Line of Credit Control System that related to core  accounting functions. After initial planning activities, a contract for  development was awarded in November 2008. However, this contract  award was successfully protested, and due to changes in requirements,  the new contract was not awarded until September 2010. The new  contract established a completion date of May 2012 for the project.  Subsequently, as the completion date drew near, HUD sponsored an  operational assessment conducted in February 2012 by subject matter  experts from the department and multiple government agencies to  evaluate the status of the project. The assessment found that the project  was at increased risk of failing to meet its completion date. After  determining that a course correction was not a viable option, the  department canceled the project in March 2012 after spending $35  million.
According to HUD’s assessment and the department’s Office of Inspector  General report, the failure of the project was due to management  weaknesses, including an unreliable schedule and cost estimate,  inadequate planning, inadequate requirements management, and an  ineffective governance structure.
section_title: New Core (2013–2016)
paragraphs: In April 2013, HUD began work on the New Core program, which was  intended to move the department forward with modernizing its financial  management systems and processes. Using a phased approach, the  program was expected to deliver capabilities that would enable the  replacement of 17 legacy systems (including HUDCAPS, the Line of  Credit Control System, and the Program Accounting System) with  modern, integrated financial management systems that would more  effectively support the department’s financial management needs.  Further, the department identified expected benefits such as  reduced costs associated with operating, maintaining, and upgrading  legacy systems; automated processing, reducing the need for manual processing due  to gaps in the functionality of its legacy systems;  improved timeliness and accuracy of the department’s financial data  for enhanced decision making; and  the resolution of weaknesses that led to compliance issues with  federal financial management system requirements in accordance  with the Federal Financial Management Improvement Act of 1996,  including the lack of reliable, useful, and timely financial-related  information.
Toward this end, the New Core program charter identified 14 financial  management systems capabilities that would have to be delivered with  the program in order to meet HUD’s financial management needs,  replace legacy systems, and achieve the expected benefits (these  capabilities are summarized in table 1).
As a way to obtain these capabilities, HUD planned to pay for financial  management services, including the use of systems, from a shared  service provider instead of acquiring or developing systems in-house.  HUD’s decision to adopt this approach was consistent with an Office of  Management and Budget’s (OMB) memorandum that directed federal  agencies to consider migrating to federal shared service providers for  modernizing their financial systems. In our prior work, we have  supported and called for shared service initiatives to standardize and  streamline common systems when appropriate, which can reduce costs  and, if done correctly, also improve accountability.
The charter also outlined responsibilities for the program and identified  HUD’s CIO, CFO, Chief Procurement Officer, and Chief Human Capital  Officer as business owners with authority to identify and provide subject  matter experts from across the department. As business owners, their  role was to ensure that, among other things, the program would meet the  department’s requirements and support business processes. The CIO  also served as the executive sponsor of the program and, at times,  shared this responsibility with the department’s CFO.
The executive sponsor(s) was charged with ensuring that the program  was reviewed by appropriate governance boards and received centralized  IT funding and support from staff in the Office of the CIO, including an IT  program manager. The New Core program was led by an Executive  Director and Deputy Director with the support staff from the Office of the  CIO, Office of the CFO, contractors, and staff who were detailed to HUD  from the shared service provider. Subject matter experts were also  provided from the Office of the Chief Procurement Officer and the Office  of the Chief Human Capital Office.
In July 2013, HUD signed an interagency agreement with the  Administrative Resource Center (ARC), a federal entity designated by  OMB and the Department of the Treasury to offer federal agencies  financial management shared services. With this agreement, HUD  became the first cabinet-level agency to commit to adopting a federal  financial shared services solution for its core accounting. According to this  agreement, the initial phase of New Core would allow HUD to begin using  ARC’s services and systems for four planned New Core capabilities— travel and relocation, time and attendance, core accounting, and  procurement—by October 1, 2014. The estimated implementation costs  for HUD and ARC were $38 million and the estimated annual operational  costs were $32 million. The implementation costs included program  management activities, enhancing systems to meet HUD-specific  requirements, migrating data to ARC systems, testing features of the  system and interfaces, and training HUD employees.
Following implementation of the four capabilities, HUD would pay fees to  ARC for operation and use of its systems, which could be accessed via  Internet-based applications. In addition, the department would begin  paying ARC for services including entering financial transactions into the  core accounting system, assisting in the preparation of HUD’s financial  statements, supporting financial audits, coordinating application upgrades  and fixes, and assisting end users through a help desk. Other services for  employee travel and relocation and overseeing processing of time and  attendance were also expected to be provided by ARC.
In April 2014, the implementation approach was revised to incorporate  additional HUD-specific requirements, prepare employees for business  process changes, and align with OMB guidance, which calls for agencies  to reduce costs and risk by dividing programs into smaller segments,  such as phases and releases. To this end, the original agreement was  modified by HUD and ARC to transition four financial management  systems capabilities over a period of three releases. With the revised  approach, the expected HUD and ARC implementation cost increased to  a total of $68 million, with estimated operational costs decreasing by $1  million. During 2014 and 2015, the four capabilities were delivered on the  respective release dates provided in table 2.
For each release, HUD and ARC worked in partnership to execute  activities in preparation for the delivery of these capabilities. Specifically,  they collaborated on developing and executing project plans; gathering,  validating, and testing requirements; extracting and preparing department  data for migration to ARC’s systems; system and user testing; aligning  the department’s business processes to the shared service solutions; and  training HUD employees.
Following the completion of release 3 in October 2015, HUD’s Deputy  Secretary stated that the department would continue to use ARC’s  systems and services for the capabilities that had already been delivered,  but that the department would continue to evaluate its needs for other  financial management capabilities. In late April 2016 the department  completed close-out activities for the program.
section_title: New Core Partially Delivered Financial Management Systems Capabilities; Other Initiatives Are Under Way for Remaining Capabilities
paragraphs: By October 2015, HUD had completed transitioning 4 of the 14 planned  financial management systems capabilities to shared service solutions  provided by ARC. This enabled the department to fully replace four  systems and gain access to seven of ARC’s systems. In addition, ARC  became responsible for processing portions of the department’s financial  management functions and transactions related to travel and relocation,  time and attendance, and core accounting. ARC also began providing  system services in support of HUD’s procurement-related transactions.
Each of the 4 capabilities was delivered by the scheduled date and  provided standard features of the shared service solutions offered by  ARC. As of July 2016, the department continued to use these capabilities  to support its financial management functions.
Notwithstanding the work completed, the 4 implemented capabilities did  not fully meet HUD’s requirements and expectations, although the  department has begun pursuing other initiatives for remaining capabilities.
Travel and relocation. HUD began accessing ARC’s travel and  relocation systems via a web page on October 1, 2014. The  systems allowed employees to make reservations, authorize travel  requests, access relocation forms, request reimbursements, and open  travel card accounts. According to New Core officials, with the use of  ARC’s systems the department was able to avoid costs that may have  been incurred with the legacy travel system, which was not compliant  with the General Services Administration’s Federal Travel  Regulation.
Although the transition to ARC’s travel system allowed HUD to shift to  a system that was compliant with the Federal Travel Regulation, one  of HUD’s requirements for improving the automation of travel and  relocation processing was not completely met. HUD had a  requirement for a bi-directional interface between ARC’s travel and  core accounting system that would provide real-time automated funds  control. The requirement was based on the department’s need to  ensure that budgetary resources were available for immediate travel  in the event of an emergency. This interface was not part of ARC’s  standard solution and, therefore, instead of a system performing an  automated check of the availability of travel funds, HUD adopted  ARC’s standard business process to perform a manual check to  ensure funds availability prior to approving travel requests. According  to ARC officials, a technical solution that is intended to provide this  functionality is scheduled for implementation in January 2017.
Time and attendance. On February 8, 2015, HUD employees began  accessing ARC’s time and attendance system via a web page to  complete their timecards, submit leave requests for supervisory  review and approval, and donate leave. In addition, ARC employees  became responsible for managing and updating data entered by HUD  employees into the system and ensuring the timely completion of  payroll processes. ARC also responds to time and attendance–related  information requests from the department and provides appropriate  reports and/or data. In addition, the new system includes default  codes that link employees’ time and attendance data to their assigned  program or support office. According to a June 20, 2016,  memorandum from HUD’s Deputy CFO, this has improved the  accuracy and timeliness of payroll processing.
However, HUD employees do not have the ability to link their time and  attendance to specific activities and projects. This was a critical  feature that the department identified as needed for better  understanding and improving its allocation of resources, forecasting  payroll expenditures, and tracking costs by activities and projects.  While ARC’s time and attendance system supports the tracking of  employee work activities and projects, the department is using this  feature on a limited basis because the implementation of  requirements for the managerial cost accounting capability was  planned for a future New Core phase. The inclusion of this feature  was a prerequisite for addressing a material financial management  system weakness regarding the lack of a system to perform  managerial cost accounting that, according to HUD Office of the  Inspector General officials, had been identified as early as 1993.
Core accounting. On October 1, 2015, HUD began relying on ARC’s  core accounting system and services for the management of its  budget and general ledger. To this end, ARC hired 70 new staff to,  among other things, manage entries to the general ledger, ensure that  a complete set of the department’s financial transaction records is  available for generating financial statements, and maintain the core  accounting system. An interface—the New Core Interface Solution— was also established to ensure transactions made in legacy systems,  such as HUDCAPS, the Line of Credit Control System, and the  Program Accounting System, would be recorded in the shared service  provider’s core accounting system. HUD employees also gained  access to the shared service provider’s reporting tool that allows them  to view the department’s financial data and produce reports such as  financial statements, trial balances, and transaction histories.  According to a June 20, 2016, memorandum from HUD’s Deputy  CFO, the tool is also compliant with Department of the Treasury  financial reporting requirements.
To manage HUD’s budget, department employees send transactions  establishing or amending the budget via e-mail to ARC staff, who  upload the data to the core accounting system. Synchronizing these  budget data with other financial data in HUD’s legacy systems can  result in up to a 48-hour delay. Notwithstanding the delay, HUD  officials noted that employees can access up-to-date data via the  reporting tool implemented and emphasized that the shared service  provider’s core accounting system includes controls that decrease the  risk of funds being obligated when they are not available.
ARC’s system and services also execute transaction processing to  the general ledger for HUD’s salaries and expenses funds. This  includes making payments to vendors and federal employees,  generating bills, and collecting payments. However, HUD is not yet  using ARC’s shared services for executing transaction processing for  its program funds, as originally expected. This is particularly  significant because HUD directed 96.8 percent of its total gross  discretionary budget authority toward its programs during fiscal year  2015. As a result, the department continues to execute programmatic  transactions using costly and inefficient legacy systems. In June 2016,  senior HUD officials, including the Deputy CFO and CIO, stated that  the decision to not migrate transaction processing for program funds  to ARC was made due to the lack of fully defined requirements and a  shift in the department’s priorities.
Further, the reporting tool associated with ARC’s core accounting  system has yet to produce detailed status of funds reports, which are  critical to HUD’s understanding of the current amount of available IT  funds at any given time. Specifically, officials from the Office of the  CIO stated that a report that provides details on available IT funds and  cannot be produced on-demand by the core accounting system to  their satisfaction. As a result, HUD employees spend at least 2 days  manually creating a report that meets their needs—a product that the  department’s legacy reporting tool had produced on-demand—by  consolidating, manipulating, and verifying in spreadsheets data that  are taken from ARC’s core accounting system as well as the  department’s legacy systems. According to New Core officials, this  report must be manually created because HUD decided not to migrate  relevant historical data to ARC’s system or include the accounting  fields needed to produce an automated version of the report. Senior  department officials stated that they are revisiting these decisions and  may implement changes in fiscal year 2017.
Procurement. On October 1, 2015, HUD employees were provided  access to ARC’s procurement system for activities including contract  writing and procurement tracking; electronic routing, review, and  approval of invoices; and the reporting of procurement data to a  federal procurement data system. The department also gained  access to a system for reconciliation and approval of purchase card  transactions, and to a government-wide invoice processing platform of  approved federal government suppliers. A notable feature of ARC’s  procurement system is that it is integrated with the core accounting  system to provide real-time contract processing, which is intended to  support the timely recording of commitments and obligations and  prevent the department from creating contract obligations when  funding is not available. The migration to ARC’s invoice processing  platform also allowed the department to adopt new controls and a new  electronic payment process for managing contracts and payments to  commercial vendors. In addition, the department shifted to ARC- managed processes for purchase cards, including issuing cards to  HUD employees, and to an electronic process for receiving,  approving, and paying invoices.
Nevertheless, the features of ARC’s procurement system did not offer  all of the features that existed in the department’s legacy system; and  to fill these gaps, employees devised and adopted manual processes.  For example, HUD agreed to adopt ARC’s standard procurement  system with the understanding that a requirement for processing  contracts that are funded by more than one entity within the  department would not be met. This agreement was made because  of the costly and lengthy system enhancement that would be needed  to add the feature.
To address the requirement, the department adopted ARC’s standard  business process change that, according to HUD and ARC officials,  has increased the level of effort and complexity of creating and  managing these contracts. Moreover, challenges with converting data  from HUD’s legacy procurement system to ARC’s system were  encountered. These challenges continue to adversely impact the  department’s ability to process and manage contracts. Between  October 2015 and January 2016, HUD users of ARC’s procurement  system reported instances in which data were missing or inaccurate.
According to senior officials, this required procurement actions to be  processed manually outside of the system and then entered into the  system after data issues were resolved. In June 2016, HUD officials  reported that, although progress had been made toward resolving  these issues, additional work is needed to ensure that contract data  are correct.
On November 4, 2015, HUD’s Deputy Secretary stated that the  department would not develop additional capabilities as part of the New  Core program. According to the New Core Executive Director, this  decision allowed the department to refocus its efforts on evaluating  options and identifying the optimal solution for modernizing its approach  to grants management. The department’s decision to end further  implementation of the program was made prior to, but was consistent  with, a December 2015 directive to have no other New Core releases in  fiscal year 2016. After spending at least $58 million over a period of 3  years, in April 2016 the department officially completed development  close-out activities for the New Core program.
Although HUD ended further implementation of the New Core program  before all of the planned capabilities were implemented, HUD officials,  including the Deputy Secretary, stated that the migration to a shared  service provider allowed the department to streamline administrative  services, promote innovation, and gain efficiencies by transitioning  responsibilities to ARC. According to a June 20, 2016, memorandum,  HUD’s Deputy CFO reported that the migration also resulted in  improved internal controls, such as real-time checks with the  documents in the procurement system for recording commitments and  obligations;  increased discipline in financial activities, including the use of  delegated authority for purchases;  improved compliance with laws and regulations; better data quality due to ARC’s core accounting system ensuring that  budget funds control balances are the same as balances in the  general ledger;  strengthened funds-control process because of, among other things,  improvements in the accuracy of payroll costs and improved  procedures for accounts receivable; and  increased confidence in controls and configurations employed on  systems used for purchase cards, processing invoice payments,  procurement management, and employee time and attendance.
HUD officials, including the Deputy Secretary, also stated that other new  initiatives were under way to deliver financial management systems  capabilities and replace legacy systems that were not addressed under  New Core. In this regard, the department is seeking $12 million for fiscal  year 2017 to support planning, design, and development activities for two  efforts referred to as the Voucher Management System/HUDCAPS  Decommissioning and the Enterprise Data Warehouse initiatives. Initial  documentation for these initiatives discusses delivering 5 of the remaining  10 planned New Core capabilities—data warehousing, grant accounting,  grant and loan management, loan accounting, and Public and Indian  Housing Section 8 accounting.
Related briefings and other early planning documents call for these two  initiatives to result in the replacement of the department’s legacy financial  reporting system—known as the Financial Data Mart—as well as  HUDCAPS, the Line of Credit Control System, New Core Interface  Solution, and the Program Accounting System. Specifically, the  department expects to replace and decommission the New Core Interface  Solution by June 2017 and to begin activities that would enable the  decommissioning of the remaining systems by the end of fiscal year  2018. These documents also acknowledge the need for HUD to re- engage with ARC to ensure that its core accounting system will enable  the processing of transactions for HUD’s program funds. According to  ARC officials, including the Director for the Office of Shared Services,  doing so would require a new interagency agreement and additional  implementation costs. As of June 2016, the department was still working  on developing detailed plans for these two initiatives.
Further, in commenting on a draft copy of this report in July 2016, HUD  provided updated information regarding the status of the other 5  capabilities that would not be addressed through new initiatives.  Specifically, the department stated that the capability for budget  formulation would be met through existing systems, with improvements to  be considered at a future date. The department also stated that it would  no longer pursue modernization for the Housing/Federal Housing  Administration accounting, Ginnie Mae accounting, managerial cost  accounting, and property management capabilities. In regard to  Housing/Federal Housing Administration accounting and Ginnie Mae  accounting, the department said it had re-evaluated its legacy systems  and concluded that modernized capabilities were not required. For  managerial cost accounting, the department reported that it would be  focusing on enhancing processes and procedures instead of  implementing the capability originally planned. Additionally, HUD stated  that the implementation of the Federal Asset Management Enterprise  System in 2016 had met its needs for the property management  capability.
section_title: Implementation of New Core Demonstrated Weaknesses in HUD’s IT Management and Governance
paragraphs: Our experience with IT-related programs has shown that disciplined  management practices can help agencies plan, manage, and oversee  modernization efforts. The success of such efforts often depends on  agencies’ possessing the ability to effectively implement practices for  defining programs, developing adequate plans, and managing  requirements. As we and others have reported, governance and  executive-level oversight are also among the disciplined practices  important to the success of IT programs. Since 2009, we have reported  on HUD’s capacity to modernize its IT environment and made several  recommendations aimed at improving management and governance  practices.
The New Core program demonstrated weaknesses in HUD’s  implementation of key IT management and governance practices.  Management practices including program definition, planning, and  requirements had deficiencies that were consistent with those we have  identified for other departmental modernization efforts. For instance,  HUD did not fully define the program, inadequately planned for the  program’s cost and schedule, and did not effectively manage  requirements—practices that in 2013 we recommended the department  improve. We also identified limitations in the department’s governance  and executive oversight of the program. Specifically, HUD’s IT  governance practices and oversight of New Core were ineffective, in part,  due to leadership changes, lack of coordination among key stakeholders,  and alignment of the program with other modernization efforts. Until HUD  fully addresses these persistent IT management and governance  weaknesses, the department will continue to be at an increased risk of  jeopardizing future modernization efforts.
subsections: section_title: HUD Did Not Fully Define the New Core Program
paragraphs: Effective organizations often begin programs like New Core by defining a  long-term direction and activities needed to achieve a modernized future  state. Program management disciplines promulgated by the Project  Management Institute (PMI) and the Institute of Electrical and Electronics  Engineers call for a concept of operations that outlines how users will  interact with systems in the future environment, along with a roadmap for  executing associated activities. Typically, developing the future  operating state helps to provide a high-level description of the IT systems,  describe the operations that must be performed and who must perform  them, and explain where and how the operations are to be carried out.  We have also previously reported on the benefits of developing the  concept for future operations. Fully defining a program also involves  creating a roadmap that can help justify continuing investments in  modernization efforts. An effective program roadmap consists of, among  other things, a graphic depiction of the program’s intended future state, a  high-level view of milestones, and dependencies that help identify the  chronology for work, as well as reveal or explain gaps.
HUD policy and guidance call for programs to develop a concept of  operations to provide a mechanism for users to describe their  expectations of the solution and recommend that one be developed for  modernization efforts that are of high mission criticality or cost to the  department. Further, the department’s guidance states that when  implementing a program that contains multiple projects (i.e., phases or  releases), a concept of operations is expected to be produced at the  program level to show how the entire system and its parts would operate.
To implement New Core financial management systems capabilities,  HUD developed planning documents for a series of specific activities  including an implementation plan, which partially described the IT  systems at a high level. For example, the plan documented the scope of  systems affected by the first three planned releases and also explained  that, in addition to implementing the shared services provider’s solutions,  HUD planned to develop the New Core Interface Solution to crosswalk  budget and general ledger data between HUDCAPS and ARC’s core  accounting system. For understanding operations at a high level through  the first three releases, the department relied upon documentation  outlining standard operations for customers using ARC’s services and  systems. The New Core program also mapped out how the  department’s processes would need to be altered to align with the  standard shared service processes.
HUD also took action in late September 2015 to develop standard  operating procedures focused on the core accounting and procurement  capabilities provided through the shared service provider’s systems and  services. For instance, the program developed transitional standard  operating procedures for budget execution, transition mission support,  and payroll review and correction. The procedures outlined, for example,  how budget staff in the Office of the CFO and program offices would  submit templates via e-mail to the shared service provider’s employees,  who would set up the initial budget and allocate it to specific activities and  programs. The procedures described how HUD employees could verify  that ARC had processed payroll corrections accurately. In addition, the  department partially developed a program roadmap for New Core  consisting of delivery dates for the first three releases and a graphic of  the future modernized IT systems planned through fiscal year 2017. In  particular, the roadmap outlined that HUDCAPS and the Program  Accounting System would be replaced by shared service systems as a  result of implementing the planned capabilities.
Although these planning documents and activities assisted with the  operations related to transitioning to ARC’s services and systems,  documentation that outlined future operations for all of the planned New  Core capabilities was not developed. For the documentation that was  developed, it was limited because it did not clearly describe, from a HUD  user’s perspective, the users’ needs and what operations must be  performed, who must perform them, and whether shared service solutions  and/or HUD systems would be used to carry out the operations. For  instance, while the department developed training materials and job aids  prior to the delivery dates, processes and tasks had not been fully  determined for the operational changes needed for 54 identified user  roles. Similarly, while the department began developing standard  operating procedures during the summer of 2015, the procedures were  narrow in scope and focused on implementing daily operations to align  with ARC’s processes—instead of providing a comprehensive overview of  the operations users would perform. In addition, the department  acknowledged that activities to align procedures to positions was  incomplete and identified additional procedures that need to be  developed after implementation that were not originally part of New Core  plans.
The partial roadmap that HUD developed also did not fully depict a  comprehensive view of the planned modernized environment and it did  not outline future dates for delivering the remaining 10 planned  capabilities. For instance, the roadmap did not account for when or how  the department would replace other systems identified to be replaced with  the program and fell short of clearly outlining what needed to occur to  achieve expected benefits such as reducing the costs of legacy systems.  Moreover, New Core program documentation did not provide information  regarding dependencies among the 14 capabilities or the priority or  chronological order in which the capabilities needed to be implemented.  Establishing dependencies would have allowed for HUD to identify and  understand gaps in planning or optimize the sequencing of the planned  capabilities during implementation.
In June 2016, HUD officials, including the New Core program Executive  Director, acknowledged that the department had focused on planning  activities for the first three releases associated with migrating to ARC’s  shared service solutions and did not fully define the program up front  because they were taking an iterative approach to planning for future  releases. The Deputy Director also noted that HUD’s lack of maturity in  effectively planning the level of effort needed to implement all of the  intended capabilities was among the reasons the department did not  develop a comprehensive concept of operations. ARC Officials, including  the Director for the Office of Shared Services, further explained that the  time required to complete the work needed was underestimated due to  the challenges and resource constraints encountered. In commenting on  our draft report, HUD officials acknowledged that they had relied on an  OMB definition of a concept of operations from the early 1990s. In doing  so, the department determined it was better to leverage ARC’s  documentation that described the system from a user’s perspective  instead of developing a concept of operations in accordance with its own  guidance, which calls for one to be created at the program level. As a  result of these early planning decisions and a desire to implement the four  capabilities by October 2015, the program went forward without a  comprehensive concept of operations and roadmap that defined a long- term direction and activities needed to achieve a modernized future state.
As HUD proceeds with new initiatives aimed at financial management  systems modernization, it is important that a concept of operations and  roadmap, or something similar, be developed to guide its efforts. Without  a guide for the long-term direction, the department will be at an increased  risk of repeating these program management weaknesses and  jeopardizing its continued investment in future modernization efforts.
section_title: HUD Program Planning for New Core Was Inadequate
paragraphs: To aid in successful planning, management disciplines promulgated by  PMI and described in federal guidance call for organizations to, among  other things, plan for the scope of work needed to execute the program,  establish and manage a schedule for completing the needed work, and  estimate and manage the cost of completing the planned work. Planning  a program’s scope involves developing a program-level work breakdown  structure that defines in detail the work activities necessary and capturing  all the relevant information to support the development of associated  schedules or cost estimates.
Building upon the planned scope, developing an effective program  schedule entails establishing an integrated master schedule that identifies  when and how long work will occur. This is a fundamental management  tool that, when adequately created, defines a valid critical path to help  gauge progress and identify and resolve potential problems. Lastly,  planning for and establishing a credible cost estimate is important for  determining budget requests and understanding the total monetary value  invested in modernization efforts. Such estimates should be based on  current data and updated to increase the quality of the estimates and  create a means for effective program and cost control. HUD’s project  planning and management policy also requires that these program plans  be developed for IT investments, including modernization efforts.
HUD executed activities aimed at planning the New Core program,  including practices to develop its scope, schedule, and cost. To establish  the scope, the department developed work breakdown structures with  associated dictionaries that outlined the scope of 3 out of 14 planned  financial management systems capabilities and used them to manage the  planning and implementation of releases. For instance, the April 2015  work breakdown structure for the third New Core release identified tasks  within eight high-level categories, including planning, requirements and  analysis, and development and testing. Individual schedules were also  established and managed for the 4 capabilities delivered through October  2015. The individual schedules outlined specific tasks within the  categories that had been defined in the work breakdown structures. For  example, planning tasks within the schedule for the third release included  time for updates needed to the charter and program plans. Finally, HUD  developed a cost estimate for the program in 2013 that was based on the  original assumption that the first 4 capabilities would be implemented at a  single point in time—October 2014.
However, we identified shortcomings in HUD’s management of program  planning practices. Regarding scope, the department did not develop a  comprehensive program-level work breakdown structure for New Core  that encompassed the high-level work activities relative to all 14  capabilities. For example, while work breakdown structures for 3  capabilities had been defined and developed, work activities related to  delivering the remaining 11 capabilities, such as managerial cost  accounting, were not defined in work breakdown structures or outlined in  New Core documentation.
While the department created individual schedules, it did not develop a  program-level integrated master schedule to define when and how long it  would take to deliver the 4 capabilities with identified delivery dates or any  of the remaining 10 planned capabilities. The individual New Core  schedules that had been developed lacked valid critical paths to identify  key activities that, if not completed when planned, could delay the  implementation of the capabilities. For example, our assessment of the  schedule for capabilities delivered on October 1, 2015, found that the  critical path was not continuous, contained both hard and soft  constraints, and had long duration activities that did not represent  measurable work. In addition to developing individual schedules, briefings  were developed to guide senior management and stakeholder review of  New Core’s progress. These slides identified certain major program  activities including development and testing. However, according to New  Core’s Deputy Director, these briefings were used to report on major  activities that were of interest to management and stakeholders and were  not representative of New Core’s critical path.
Moreover, the cost estimate for New Core was based on outdated  information that did not accurately reflect the cost of the entire program.  Specifically, when the department decided in April 2014 to shift from a  single implementation to a phased implementation beyond October 2014,  the department did not take action to revise the original estimate or create  a new one to reflect the estimated costs of delivering capabilities over a  longer duration of time. Although the department continued to identify  budgetary resources needed for the program, those costs were not  derived from a credible estimate.
According to New Core officials, including the Deputy Director, efforts to  establish a program-level work breakdown structure and an integrated  master schedule were limited because the scope of all planned  capabilities had not been defined. In June 2016, the department provided  information regarding the reason a comprehensive work breakdown  structure had not been developed that encompassed high-level work  activities; it stated that this was a lesson learned and that in hindsight the  individual schedules should have been integrated for the program. In its  comments on our draft report, HUD also stated that because it was the  first cabinet-level agency to migrate to a shared service provider, the  department had relied on ARC’s experience and processes for program  planning practices. Further, the New Core officials stated that, while an  updated cost estimate had been drafted in early 2015, the information  used for the estimate had not been validated and the estimate was not  finalized.
By adequately executing program planning practices, including creating  comprehensive scope, schedule, and cost documentation, HUD would be  better positioned to implement the remaining capabilities and have  reasonable assurance that investing in new initiatives would achieve  desired benefits.
section_title: Requirements Were Not Effectively Managed on New Core
paragraphs: Requirements establish what the system is to do, how well it is to do it,  and how it is to interact with other systems. Program management  disciplines established by PMI and the Software Engineering Institute  outline practices that include documenting “as-is” processes to aid the  organization in defining and managing requirements. These disciplines  also stress the use of requirements traceability matrixes to ensure that  agreed upon requirements can be traced back to business needs, criteria  used for evaluating and accepting requirements, and design and testing  documentation. Further, clearly identifying the attributes of a requirement  on the matrix, such as the disposition of the requirement and any  associated testing that was performed, can provide program officials and  decision-makers with key information about each requirement.
Prior to signing the interagency agreement in September 2013, HUD  identified high-level requirements for the New Core program and  documented these requirements in traceability matrixes. Following a  determination that ARC was the best fit for HUD, more detailed  requirements were created. To this end, the shared service provider, in  conjunction with the New Core program staff, held requirements working  sessions with relevant subject matter experts from program offices and  support offices managed by the CFO, CIO, Chief Procurement Officer,  and Chief Human Capital Officer. These sessions were intended to define  and document detailed requirements specific to each of the 4 planned  capabilities. During these sessions, 15 traceability matrixes were created  that documented 923 requirements for the program. These matrixes  included the identification of requirements that would be met by or require  enhancements to the shared service provider’s standard solutions and  requirements that would need alternative solutions outside of the shared  services provided. According to the department and ARC officials, further  definition of the high-level requirements gathered for the remaining 10  planned capabilities was not completed because the capabilities were not  part of the April 2014 revised implementation approach or included in the  interagency agreement.
Nevertheless, limitations existed in HUD’s implementation of these  requirements management practices. Efforts to define and trace  requirements were limited because the level of detail needed was not fully  defined during requirement gathering sessions. For example, the  department did not document its “as-is” processes to aid in defining and  managing requirements. As a result, the department limited its ability to  assess and explain the impact of the New Core requirements on existing  processes. While HUD identified new requirements throughout the  duration of the program, these requirements were not added to the  matrixes or managed by the department. Alternatively, they were  documented in various files and not tracked with the originally identified  requirements.
Furthermore, requirements outlined in the matrixes did not trace back to  documentation that described criteria to be used to evaluate and accept  these requirements. The matrixes also did not identify the dates of  completion for the requirements or indicate the disposition of the  requirements. For example, several requirements were listed in testing  documentation as “dropped as a requirement,” “untestable,” or “deferred.”  Yet this information was not listed on the matrix, nor did the matrix  provide an explanation for why a requirement was dropped or deemed  untestable or indicate who approved the changes. The absence of such  information impeded the traceability of requirements from matrixes  through to test cases and results. Moreover, when the decision to move  forward with implementing core accounting and procurement capabilities  for release 3 was made, the final disposition or status of requirements  could not be confirmed by HUD or ARC officials.
New Core officials acknowledged that requirements had not been  consistently documented early in the program at a detailed level to help  ARC understand and appropriately capture the department’s business  needs. These officials also stated that a requirements management tool  had been planned for use to trace requirements throughout the life cycle  of the program; however, the tool was not fully available and was only  partially used. According to ARC officials, gathering requirements took  more time than anticipated due to the New Core program challenges in  identifying and producing knowledgeable staff for requirements sessions,  who had the requisite background and understanding of HUD’s financial  management functions, processes, and requirements.
As HUD moves forward with initiatives to modernize its financial  management systems, ensuring that requirements are effectively  managed and traced will be essential to ensuring that final solutions  effectively support the department’s business needs.
section_title: HUD’s IT Governance and Executive-Level Oversight for New Core Were Not Fully Effective
paragraphs: GAO’s guide to effective IT investment management emphasizes the  importance of applying effective disciplined, repeatable governance  processes for selecting and re-selecting, controlling, and evaluating  investments to ensure mission needs are met. After IT investments are  selected and work on them has been initiated, effective control processes  include monitoring and taking corrective actions for approved  investments. HUD policy, issued by the Office of the CIO, also calls for  similar processes in project planning and management guidance. The  guidance outlines the role of a technical review subcommittee to  authorize a program to proceed through one control gate to the next if it  has met an established set of criteria. These criteria include reviewing  requirements and approving planning documents (such as the program  management plan), an assessment of the readiness of the system or  service, and evaluating closeout activities to end a program. During  2015, HUD also implemented a process for conducting health  assessments biweekly or monthly to evaluate the overall scope,  schedule, and costs of IT investments.
The department’s Office of the CIO applied two governance IT investment  control mechanisms for monitoring New Core—technical review control  gates and health assessments. In general, both types of control  mechanisms focused on assessing whether required program planning  documents, such as schedules for each release, were developed and  submitted for review.
First, technical review control gates of New Core were performed for the 4  capabilities delivered during 2014 and 2015. Specifically, the decision to  initiate planning for New Core was made through the first review in July  2013. Subcommittee members specializing in privacy, enterprise  architecture, and IT security, among others, approved the requirements  and operational readiness for the first and second releases in September  2014 and January 2015, respectively. Continued work on release 3 of the  program was approved through four additional reviews in 2015 and 2016.  In particular, a baseline review of the plans and requirements, a review of  the operational readiness of the release, an additional review of the  interface HUD developed to support its use of ARC’s shared service  solutions, and a closeout review were performed.
For the second governance control mechanism, HUD conducted two  health assessment reviews for New Core in June 2015 and March 2016  that, among other things, looked at the scope, schedule, and cost of the  core accounting and procurement capabilities. For example, the review  in June noted that the schedule was on target overall, but that specific  activities on the schedule had been behind their expected completion  dates and a “get well” plan had been established. However, New Core  received a high score for its schedule and the assessment did not require  follow-up to ensure the get well plan yielded the intended results.
Neither of these governance control activities was fully effective in  monitoring the program and ensuring corrective action was taken when  needed. Specifically, although the governing entities reviewed the same  New Core program artifacts we assessed, HUD’s reviews did not raise  concerns regarding the management weaknesses we identified during the  course of our review and did not require improvement plans for known  deficiencies. For example, action to ensure New Core developed a  schedule with a valid critical path as defined by best practices before  moving forward was not taken despite the fact that concerns were raised  in reports issued by the department’s Office of Inspector General and an  independent validation and verification contractor.
Furthermore, decisions made about the timing of control reviews limited  the effectiveness of New Core governance. HUD combined the technical  reviews for planning and readiness for release 1 and 2 of New Core and  delayed control gates until nearly 2 weeks before deployment. This was a  deviation from the status quo of conducting sequential control gate  reviews that warranted a waiver from the department’s Office of the CIO.  Department officials stated that the risk of combining reviews had been  knowingly accepted and asserted there was no adverse impact. However,  this in effect did not give technical reviewers the opportunity to provide  input or recommend corrective action for implementation plans and  requirements before the team had already executed activities against  them, as the process was intended.
In response to our draft report, the department also stated that it did not  agree that the technical reviewers’ perspectives were the most  fundamental purpose of the control reviews, but that the success of New  Core falls on holding program managers accountable. While we agree  that holding managers accountable is important, we maintain that the  approach taken in combining the reviews for New Core was a deviation  from the department’s established processes. Specifically, according to  the department’s guidance, the project planning and management  process is intended to involve progressive steps that help ensure proper  management review and approval. Further, guidance on control reviews  calls for approval gates to be held at each stage of a program’s life cycle.  By not holding a distinct review at the end of the New Core planning, the  department did not effectively ensure program managers received the  independent review the guidance was intended to provide. Specifically,  the technical reviewers were not positioned to formally validate and  baseline the program’s planned cost, scope, schedule, and requirements  or identify any deficiencies that needed to be addressed before managers  proceeded to act upon those plans.
Our prior work also has shown the importance of executive-level  oversight and the role CIOs play as critical to the success of IT  investments. More directly related to our prior work on financial  management systems modernization efforts, we have emphasized that a  partnership between executives is critical to ensuring that systems are  effectively modernized. Specifically, our work has found the importance  of a CFO in leading financial management efforts and the role of a CIO to  ensure successful implementation of IT investments. Along with strong  leadership, federal and HUD guidance call for coordination among  stakeholders and the alignment of programs with other IT investments by  identifying subject matter experts and ensuring that IT investments are  composed of an efficient mix of programs that best utilized resources.
HUD’s Deputy Secretary, CFO, and CIO, as well as the Executive  Director and Deputy Director of New Core, provided executive-level  oversight for the program and were involved in key decisions for the  program. For example, the CFO, CIO, and Executive Director of the  program approved the charter that, as of March 2015, confirmed the  department’s plans to implement the 14 capabilities. These leaders  worked to establish a program sponsor, business lead, and teams to  manage each release, as well as identify key subject matter experts to be  involved with activities such as testing and training. In addition, HUD’s  Deputy Secretary was involved in weekly status meeting and also  assisted with reprioritized funding for all IT investments in order to sustain  adequate funding for the program.
However, the effectiveness of the program’s executive-level oversight  was limited in part by challenges HUD faced with sustaining leadership,  coordinating among stakeholders, and ensuring alignment with other IT  programs.
Significant changes to key New Core leadership positions between  2013 and 2014 impacted the approach used in implementing the  planned capabilities. After turnover occurred in the key positions of  HUD Deputy Secretary, CIO, CFO, and program director, significant  changes were made to New Core. For example, the key senior  officials who originally assessed and evaluated New Core alternatives  and made the decision to move forward with ARC for financial  management shared services did not remain in those leadership  positions to sustain the effort. As a result, instead of implementing all  four capabilities at one time as planned, the new leaders opted to  implement the capabilities through a series of releases. According to  program documentation, this option had not been selected by the prior  Deputy Secretary due to it being more costly and requiring a longer  period of time to implement. In commenting on our draft report, HUD  noted that after the change in leadership, there was a consensus to  change the approach because advantages outweighed the risks.
Critical decisions regarding the scope of New Core were not  coordinated with important stakeholders in a timely manner. Of  particular note, HUD’s acting Chief Procurement Officer reported that  his office was not involved in the decision made by the Deputy  Secretary at the start of New Core in 2013 to change procurement  management system approaches and migrate to ARC’s procurement  system. At that time, the acting Chief Procurement Officer was still  working to finish customization of the new in-house procurement  system the department had implemented during 2012. Additionally,  although the need for a data warehouse had been established early in  the program, HUD did not take action to ensure this capability was  delivered in time to support the first four capabilities implemented.  Specifically, New Core officials determined actions were needed to  make alternative plans because the data warehouse would not be  ready for the October 2015 release date as expected. Toward this  end, the Office of the CIO also recognized the need to establish an  enterprise data warehouse capability that would satisfy broader needs  of the department and took initial steps to start the Enterprise Data  Warehouse initiative. Because the department did not deliver that  capability when intended, financial data continue to be accessed and  stored in a legacy warehouse system that was expected to be  replaced by New Core.
While the department had other IT modernization efforts aimed at  delivering budget formulation tools, it is unclear how or to what extent  those efforts would be incorporated into or aligned with the New Core  program’s capabilities for budget formulation. Plans were not made to  ensure that New Core was aligned with other department IT  modernization efforts delivering similar capabilities related to budget  formulation. Specifically, at the same time New Core was  implemented, budget formulation tools were also being built by other  department offices. HUD’s Office of the CIO has also implemented a  tool to support formulation of the department’s IT budget. Yet,  program officials could not provide evidence that requirements or  dependencies among these efforts had been evaluated.
HUD’s Deputy CIO acknowledged in March 2016 that IT governance  practices needed to be updated to reflect the challenges associated with  shared services projects. He noted that lessons learned from New Core  would be used to document tailoring guidance for shared service projects  in the future. In addition, according to program officials, adequate time  was not invested to assess whether New Core had achieved its identified  benefits. This was in part due to the program’s focus on implementing the  four capabilities by an established deadline.
Concerning executive-level oversight, in February 2016 HUD officials  noted in describing lessons learned that several leadership transitions at  the initiation of the New Core program had resulted in a lack of strategic  direction and consensus around decision-making. The department’s CIO  also acknowledged that processes needed to improve executive-level  oversight and decision-making and allow the department to avoid  duplication in modernization efforts had not yet been fully implemented.
Until HUD addresses weaknesses in IT governance practices and  strengthens executive-level oversight for financial management systems  modernization efforts, the department’s capacity to manage and control  successor efforts may be limited.
section_title: Conclusions
paragraphs: Over the past two decades, HUD has undertaken modernization efforts  aimed at improving its financial management systems and ensuring that it  can accurately and efficiently carry out financial functions. With New  Core, the department transitioned 4 of 14 planned capabilities to shared  service solutions. In doing so, the department added efficiencies and  integrated systems that support the processing of financial management  functions. However, the program ended further development efforts  before delivering the remaining 10 planned capabilities. As a result, the  department has been unable to follow through with its plans to replace a  number of its legacy financial management systems through New Core  and continues to maintain those systems while seeking other new  initiatives to address aspects of the remaining capabilities.
HUD’s efforts to modernize its financial management systems have been  hindered by weaknesses in implementing key IT management practices.  Specifically, the department did not fully define and plan the program by  outlining the future operational state, establishing the scope and  estimating the schedule and cost for all planned capabilities, or effectively  managing requirements. While HUD’s senior leaders, including the CIO,  ensured that IT governance processes were applied and the program  received executive-level oversight, limitations existed with both.  Specifically, the governance process was not fully effective in recognizing  and addressing challenges as they arose, including those identified with  the scope, schedule and costs of the program. Further, HUD faced  challenges with sustaining leadership, coordinating among stakeholders,  and aligning New Core with other IT modernization efforts. Going forward,  it will be critical for the department to address these management and  governance weaknesses in order to help ensure that the success of  subsequent modernization efforts is not jeopardized.
section_title: Recommendations for Executive Action
paragraphs: To address weaknesses in the department’s financial management  systems modernization efforts, we recommend that the Secretary of HUD  direct the Chief Financial Officer to work with the Chief Information Officer  to take the following three actions with regard to managing subsequent  initiatives: define a high-level depiction of the IT systems anticipated in the future  state, a description of the operations that must be performed and who  must perform them, and an explanation of where and how the  operations are to be carried out; develop comprehensive plans for scope, schedule and cost; and ensure requirements are fully documented and traceable.
We also recommend that the Secretary direct the Deputy Secretary to  ensure that the Chief Information Officer takes action to  improve IT governance control activities used for monitoring programs  and identifying needed corrective actions, and  strengthen investment oversight by improving coordination with  stakeholders and alignment among IT modernization efforts.
section_title: Agency Comments and Our Evaluation
paragraphs: We received written comments on a draft of this report from HUD and  Treasury. HUD’s comments are reprinted in appendix III. In its comments,  HUD neither agreed nor disagreed with our recommendations, but noted  that it plans to improve management practices and IT governance for  future modernization efforts. Specifically, the department stated that it  would continue to improve its practices for project planning,  implementation, and monitoring.
Related to New Core planned capabilities, HUD stated that all were not  expected to be delivered at this time, particularly given funding  constraints; instead, new initiatives would address additional capabilities  for modernizing its financial management systems. The department  stated that it considers the approaches taken for planning, schedule, and  cost activities to be aligned with OMB’s guidance on dividing programs  into smaller segments, such as phases and releases. The department  also noted that New Core provided many lessons learned that are being  incorporated into its IT governance and that review processes would be  enhanced. The comments elaborated on the external entities that  provided governance and leadership for the New Core program beyond  the department’s internal structure. For example, HUD explained that it  held regular briefings with ARC, the Department of the Treasury’s Office  of Financial Innovation and Transformation, and OMB.
While we support HUD improving its management practices and  enhancing IT governance processes, we continue to stress the  importance of taking action to implement our recommendations to ensure  the success of subsequent initiatives aimed at modernizing the  department’s financial management systems. This is particularly  significant for the two initiatives under way that are intended to replace  and decommission legacy systems that have been long-identified as at  risk of failure, and have contributed to the misstatement of financial  information. Furthermore, augmenting oversight through external entities,  as noted in HUD’s comments, does not eliminate the need for the  department to apply rigor and discipline in its IT management and  governance.
Treasury’s comments are reprinted in appendix IV. In its comments, the  department noted its appreciation for HUD being the first cabinet-level  agency to transition to its shared services provider. Further, Treasury  stated that HUD had demonstrated a commitment to standardization and  working collaboratively through challenges which had hindered previous  modernization efforts. Treasury also stated that the migration had  resulted in HUD reducing enterprise risks and costs, compliance with  federal initiatives and mandates, standardization of information, and  improvements in the timeliness of information available for decision- making.
HUD and Treasury provided technical comments on the draft report,  which we have incorporated as appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of the Department of Housing and Urban  Development, the Secretary of the Treasury, and other interested parties.  In addition, the report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-6304 or melvinv@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The explanatory statement accompanying the Consolidated and Further  Continuing Appropriations Act, 2015 directed GAO to review New Core,  the Department of Housing and Urban Development’s (HUD) financial  management systems modernization effort. Our specific objectives for  this review were to (1) determine the planned financial management  systems capabilities implemented through New Core and (2) evaluate  HUD’s implementation of key IT management practices applied to the  program.
To determine what financial management systems capabilities had been  implemented through New Core, we reviewed artifacts such as the New  Core Program Charter, New Core Implementation Plan, interagency  agreements between HUD and ARC, and release scope statements, and  identified 14 capabilities that were planned for delivery through the  program. After determining that 4 capabilities had been implemented, we  identified the features that were delivered and the features that had been  planned for these capabilities by reviewing, for example, post- implementation reports and briefings, requirements and training plans,  and HUD’s Fiscal Year 2015 Financial Management Systems Plan. More  specifically, for each of the 4 capabilities—travel, time and attendance,  core accounting, and procurement—we reviewed release-related  documentation and compared the result of outcomes to the identified  planned features. Further, we reviewed actions under way to address  open issues and challenges HUD was managing after the implementation  and how those related to planned features. In addition, to identify the  systems that support HUD financial management functions, as well as the  systems that were targeted for replacement with New Core, we reviewed  documentation such as the department’s financial management systems  plans for fiscal years 2014 and 2015. We also reviewed documentation  regarding the department’s future modernization efforts, including the  HUD IT Fund 2017 Summary Statement and Initiatives, preliminary  planning documents, and briefings.
To evaluate the program, we assessed the department’s implementation  of key IT management practices in the areas of program definition,  planning, requirements, and governance in order to compare the  practices with standards and processes identified by the Project  Management Institute (PMI), Institute of Electrical and Electronics  Engineers, and federal guidance, including HUD policies and guidance  and GAO’s guides for investment management, cost estimating, and  schedule assessments.
In the area of program definition, we reviewed documentation  including the New Core Implementation Plan and the New Core  Program Charters, and New Core Program Management Plans for  each release, and briefings to determine whether these artifacts were  developed in adherence with key practices and elements for fully  defining a program as called for in PMI program management  standards, concept of operations guidance published by the Institute  of Electrical and Electronics Engineers, and our previous reports on IT  modernization efforts. We also reviewed briefing slides documenting  recommendations and results of a study HUD conducted to plan for a  vision and roadmap for New Core to determine the extent to which the  department established a comprehensive concept of operations and  roadmap for the program.
For program planning, we reviewed New Core documentation  including work breakdown structures, schedules, and cost estimates  to determine the extent to which these artifacts were consistent with  key practices identified by federal guidance and industry. Specifically,  we assessed whether the work breakdown structures defined in detail  all of the work activities and scope necessary to deliver the planned  14 capabilities and compared it to key practices identified by PMI. In  addition, using GAO’s Schedule Assessment Guide, we assessed  whether schedules identified when and for how long work would occur  as well as whether a valid critical path had been defined. Finally, we  assessed whether New Core developed reliable cost estimates by  using key practices outlined in GAO’s Cost Estimation Guide and  assessed whether those estimates were up to date.
In regard to requirements management, we reviewed New Core’s  process for defining and tracing requirements to determine the extent  to which these practices were consistent with practices promulgated  by PMI. Specifically, we reviewed and assessed the 15 requirements  matrixes developed for New Core to determine if requirements could  be traced back to business needs, criteria used for evaluating and  accepting requirements, and design and testing documentation. We  also ascertained if matrixes identified specific attributes for the  established requirements, such as disposition of the requirements or  any associated testing that was performed.
To assess HUD’s IT governance, we reviewed documentation  produced from New Core governance reviews and program artifacts  such as the charter, program briefings, and associated governance  and program team meeting minutes and compared them to relevant  HUD governance policies outlined in its project planning and  management framework and health assessment guide as well as to  governance practices in our IT investment management guide.
Additionally, we compared New Core executive-level oversight with  criteria in our previous reports and guidance on oversight.
For each objective, we interviewed senior officials from HUD’s  headquarters in Washington, D.C., including HUD’s Deputy Secretary,  Chief Financial Officer, Chief Information Officer, and Chief Procurement  Officer. Specific to the New Core program, we interviewed key officials,  including the Executive Director, Deputy Director, and business and IT  program managers. Additionally, we conducted a site visit to Treasury’s  Administrative Resource Center in Parkersburg, West Virginia, and  interviewed cognizant officials, including the Director of the Office of  Shared Services, program manager, and employees who had been  detailed to work at HUD, such as the release and testing managers.
We determined that information provided by the department, such as  work breakdown structures, schedules, cost estimates, and requirements  traceability matrixes, was sufficiently reliable for the purposes of our  review. To arrive at this assessment, we conducted reliability testing by  comparing information with other program documentation and statements  from relevant department officials to identify discrepancies. Where  appropriate, GAO schedule and cost estimation experts also assessed  the reliability of the data and artifacts we reviewed.
We conducted this performance audit from February 2015 to July 2016 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Financial Management Systems Supporting the Department of Housing and Urban Development
paragraphs: As of July 2016, 46 systems were in place to support the Department of  Housing and Urban Development’s (HUD) financial management  functions, as identified in table 3. Of these systems, 8 were implemented  as part of the New Core program. Specifically, HUD gained access to 7  systems operated by ARC. The department also implemented the New  Core Interface Solution to ensure that its legacy systems could  communicate with the shared service systems. Additionally, 13 of the 46  systems that were targeted for replacement as part of New Core, but  have not yet been decommissioned or fully replaced are also identified.
section_title: Appendix III: Comments from the Department of Housing and Urban Development
section_title: Appendix IV: Comments from the Department of the Treasury
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact above, Teresa M. Yost (Assistant Director),  Donald A. Baca, Kami J. Brown, Christopher G. Businsky, Juana S.  Collymore, Amanda C. Gill, Michael S. LaForge, Jason T. Lee, Lee A.  McCracken, Sukhjoot Singh, and Carroll M. Warfield, Jr. made key  contributions to this report.