HUD encourages homeownership by providing mortgage insurance for single family housing and makes rental housing more affordable for about 4.8 million low-income households by insuring loans to construct or rehabilitate multifamily rental housing and by assisting such households with their rent payments. In addition, it has helped to revitalize over 4,000 localities through community development programs. To accomplish these diverse missions, HUD relies on third parties, including contractors, to administer many of its programs. As shown in figure 1, according to data HUD reported to the Federal Procurement Data Center (FPDC), for fiscal year 2000, HUD obligated the bulk of its contracting dollars—over 96 percent—in three categories of contracting: automated data processing and telecommunications services for about $254 million; operation of government-owned facilities for about $195 million for one of its multifamily contractors; and over $600 million for professional, administration, and management support services contracts, such as real estate brokerage services, technical assistance, and other services. According to HUD data, about $640 million of the $1.2 billion contract obligations for fiscal year 2000 are for Office of Housing contracts; much of this contracting was for services HUD needs to manage its foreclosed single-family and multifamily housing inventory, which HUD acquires when borrowers default on mortgages insured by the Federal Housing Administration (FHA). According to HUD’s fiscal year 2001 annual performance report, the Secretary holds single-family property with a value of about $2.4 billion and multifamily property with a value of about $750 million as of September 30, 2001. In its single-family program, HUD contracts for management and marketing contractors who are responsible for securing, maintaining, and selling the houses that HUD acquires when the owners default on their loans. HUD also contracts for property management services, such as on-site management, rent collection, and maintenance, for multifamily properties it acquires through foreclosure. HUD’s two largest multifamily property management contractors have an obligated value of about $650 million over 5 years. Contracting is conducted in HUD’s Office of the Chief Procurement Officer (OCPO) in Washington D.C., or by one of HUD’s three Field Contracting Operations (FCO) offices located in Philadelphia, Pennsylvania; Atlanta, Georgia; and Denver, Colorado. OCPO contracts for information technology and other services in support of HUD headquarters. FCO offices primarily contract for services related to the business operations of HUD’s field offices and specialized centers. For example, contracting officers in one FCO assist HUD’s two Multifamily Property Disposition Centers (located in Atlanta, Georgia, and Ft. Worth, Texas) in contracting for and overseeing the property management contractors that are responsible for the day-to-day management of foreclosed multifamily properties. HUD’s Office of Multifamily Housing field offices and two Property Disposition Centers are responsible for the oversight of various programs to provide affordable multifamily housing. The largest multifamily contracts in the field are for the Property Disposition Centers, which are responsible for management of foreclosed multifamily properties. HUD’s multifamily housing field offices—comprising 18 hub offices and their associated 33 program centers—also contract for inspections of the construction of multifamily properties built under its FHA-insured and assisted multifamily housing programs, which are for the construction of housing for the elderly and disabled. Multifamily Housing has four full- time GTRs located in Atlanta and Ft. Worth who are responsible for monitoring most field multifamily contracts; two GTRs are assigned to the Property Disposition Centers and two are responsible for the construction inspection contracts. Most of the field contracts are also assigned at least one GTMs, who is designated to assist, on a part-time basis, the GTRs on the day-to-day technical oversight of the contractors’ performance. Various federal laws, regulations, and policies govern contracting operations and procedures. The Federal Acquisition Regulation (FAR) establishes uniform policies and procedures for acquisitions by all executive agencies. The FAR establishes procedures for all aspects of the contracting process, from solicitation to post award monitoring, including responsibilities of the various members of the acquisition team such as the contracting officer. Also in 1974, the Office of Federal Procurement Policy (OFPP) Act created OFPP within the Office of Management and Budget to provide, among other things, governmentwide policies for agencies in procurement matters. OFPP’s Guide to Best Practices for Contract Administration recommends the use of a contract administration plan for good contract administration. According to the guide, this plan should specify the performance outputs and describe the methodology used to conduct inspections of those outputs. HUD supplements the FAR through its own regulations called HUD’s Acquisition Regulation (HUDAR) and its Procurement Policies and Procedures Handbook. The handbook specifies various monitoring tools that the GTR may use to monitor contractor performance, such as a quality assurance plan, a contractor’s work plan and schedule of performance, or progress reports. The purpose of the monitoring is to ensure that (1) the contractor performs the services and/or delivers the products of the type and quality that the contract requires, (2) performance is along the most efficient lines of effort, (3) performance and deliverables are timely, (4) performance is within the total estimated cost, and (5) HUD will be able to properly intervene when performance is deficient. For example, according to the handbook, often the best way for a GTR to determine the quality of the contractor’s performance is through an actual inspection of work or products. Inspections may be routine, unannounced, or a combination of the two, and the contract should specify any requirement for routine inspections, such as the frequency and dates, or other occurrences that would trigger an inspection. The handbook does not establish specific monitoring requirements, such as timetables for review or numbers of site visits; however, some of the policies established by individual program offices do include such requirements. For example, the Office of Multifamily Housing’s Standard Operating Procedures No. 5 requires that HUD staff visit construction sites at least twice during construction to verify the performance of the inspection contractor who is responsible for inspecting actual construction of the project. The Clinger-Cohen Act of 1996 requires executive agencies, through consultations with OFPP, to establish education, training, and experience requirements for acquisition workforces at civilian agencies. Under implementing guidance issued by OFPP, an agency’s acquisition workforce—including its contracting officers, contract specialists, purchasing agents, contracting officer representatives, and contracting officer technical representatives—must meet an established set of contracting competencies. In addition, OFPP has identified specific training requirements for personnel in the contracting and purchasing occupation series. OFPP further required that agencies have policies and procedures that specify career paths and mandatory training requirements for acquisition positions and that agencies collect and maintain standardized information on the training of its acquisition workforce. A strong internal control system provides the framework for accomplishing management objectives, accurate financial reporting, and compliance with laws and regulations. Effective internal controls, including monitoring, serve as checks and balances against undesired actions, thereby providing reasonable assurance that resources are effectively managed and accounted for. A lack of effective internal controls puts an entity at risk of fraud, waste, abuse, and mismanagement. Monitoring is a particularly critical management control tool for HUD because its housing programs rely extensively on various third parties, such as contractors, to achieve HUD’s goals. For many years, HUD has been the subject of criticism for management and oversight weaknesses that have made its programs vulnerable to fraud, waste, abuse, and mismanagement. In January 2001, we recognized the credible progress that HUD had made in improving its management and operations, and we reduced the number of HUD program areas deemed to be high risk to two of its major program areas—single family mortgage insurance and rental housing assistance. These program areas include the single family and multifamily property disposition activities cited earlier and comprise about two-thirds of HUD’s budget. We, HUD’s Office of Inspector General (OIG), and the National Academy of Public Administration (NAPA) have reported on weaknesses in HUD’s contract administration and monitoring of contractors’ performance over several years. For example, starting in 1998, we reported on the performance of HUD’s single-family contractors—that HUD did not have an adequate system in place to assess its field offices’ oversight of real estate asset management contractors. In three offices that we reviewed, none of the offices adequately performed all of the functions needed to ensure that the contractors met their contractual obligation to maintain and protect HUD-owned properties. HUD’s OIG completed a comprehensive review of HUD’s contracting operations in 1997 and found that a lack of adequate planning, needs assessment, good initial planning, monitoring, and cost control on several multimillion dollar contracts left HUD vulnerable to waste and abuse. The OIG found contract monitoring to be very lax throughout the program areas. The GTRs and GTMs had a poor understanding of their roles and responsibilities, allowing HUD to be overbilled, improperly authorizing contract tasks, accepting less than complete contract work without financial credits or adjustments, and could not document whether certain tasks were completed. In a followup review in 1999, the OIG reported that HUD’s reforms had laid the groundwork for an effective acquisition process; however, they concluded that HUD’s contracting attitudes and practices had not changed significantly. In May 1997, NAPA, reported that HUD’s procurement process took too long; FHA’s oversight of contracted services was inadequate; and FHA sometimes used contracting techniques that limited competition.