HUD is the principal government agency responsible for programs dealing with housing, community development, and fair housing opportunities. HUD’s missions include making housing affordable by providing mortgage insurance for multifamily housing, providing rental assistance for about 4.5 million lower-income residents, helping revitalize over 4,000 localities through community development programs, and encouraging homeownership by providing mortgage insurance. HUD is one of the nation’s largest financial institutions, responsible for managing more than $454 billion in mortgage insurance and $531 billion, as of September 30, 1997, in guarantees of mortgage-backed securities. The agency’s budget authority for fiscal year 1998 is about $24 billion. HUD has initiated a number of reform and downsizing efforts in the 1990s . In February 1993, then-Secretary Cisneros initiated a “reinvention” process in which task forces were established to review and refocus HUD’s mission and identify improvements in the delivery of program services. HUD also took measures in response to the National Performance Review’s September 1993 report, which recommended that HUD eliminate its regional offices, realign and consolidate its field office structure, and reduce its field workforce by 1,500 by the close of fiscal year 1999. Following a July 1994 report by the National Academy of Public Administration that criticized HUD’s performance and capabilities, Secretary Cisneros issued a reinvention proposal in December 1994 that called for major reforms, including a consolidation and streamlining of HUD’s programs coupled with a reduction in staff to about 7,500 by the year 2000. Building upon the earlier reinvention efforts, Secretary Cuomo initiated the 2020 planning process in early 1997 to address, among other things, HUD’s downsizing goals and management deficiencies. The Congress enacted the Government Performance and Results Act of 1993 in conjunction with the Chief Financial Officers Act and information technology reform legislation to help instill performance-based management in the federal government. The Results Act seeks to shift the focus of government decisionmaking and accountability away from a preoccupation with the activities—such as grants and inspections made—to a focus on the results—such as the real gains in employability, safety, responsiveness, or program quality. Under the act, agencies are to develop strategic plans, annual performance plans, and annual performance reports. The HUD scandals of the late 1980s served to focus a great deal of public attention on the management problems at HUD. We designated HUD as a high-risk area because of four long-standing, departmentwide management problems. First, internal control weaknesses, such as a lack of necessary data and management processes, were a major factor leading to the scandals. Second, poorly integrated, ineffective, and generally unreliable information and financial management systems did not meet program managers’ needs and weakened their ability to provide management control over housing and community development programs. Third, HUD had organizational problems, such as overlapping and ill-defined responsibilities and authorities between HUD headquarters and field organizations and a fundamental lack of management accountability and responsibility. Finally, an insufficient mix of staff with the proper skills hampered the effective monitoring and oversight of HUD’s programs and the timely updating of procedures. We have testified before this Subcommittee on specific major management challenges facing HUD that are illustrative of these four deficiencies discussed above. In February 1997, we reported that HUD had made some progress in addressing these problems. Specifically, we reported that HUD: had made limited progress in addressing internal control weaknesses by implementing a new management planning and control program intended to identify and rank the major risks in each program and devise strategies to abate those risks, and had reduced its material weaknesses identified under the FMFIA assessment from 51 in the early 1990s to 9. At the same time, we noted that the remaining material weaknesses were long-standing and involved large sums of money, and that financial audits had continued to identify material internal control weaknesses in HUD’s programs. We also found that managers were not actively assessing risks in their programs as required under the management control program. Finally, despite its importance as a management tool, HUD’s monitoring of program participants continued to be a problem area. continued to make progress in improving its information and financial management systems but much work remained: Some of the projects would not be completed until the year 2000. In addition, we noted that HUD reported that most of its systems did not comply with the FMFIA and therefore could not be relied upon to provide timely, accurate, and reliable financial information and reports to management. had completed a field reorganization that eliminated its regional office structure and transferred direct authority for staff and resources to the Assistant Secretaries, and was planning additional reorganization efforts. Although HUD had not evaluated the effects of its reorganization, most field directors we surveyed rated it successful overall and believed that the reorganization had achieved most of the intended goals—namely, eliminating previously confused lines of authority within programs, enhancing communications, reducing levels of review and approval, and improving customer service. had made some progress in addressing the problems with staff members’ skills and with resource management. The Department had increased staff training since our 1995 report and begun to implement a needs assessment process to plan future training. We noted that HUD directors we surveyed generally believed that the skills of their staff had improved over the previous 2 years; however, 40 percent of the directors rated the Department’s training as less than good. In addition, we and HUD’s Inspector General continued to identify staff resource problems in HUD’s major program areas, specifically in public housing and the Federal Housing Administration (FHA). Finally, we reported that the problem of inadequate staff resources to monitor and administer HUD’s current array of programs likely would be compounded as the Department implemented plans to downsize. Our February 1997 report concluded that HUD programs continued to pose a high risk to the government in terms of their vulnerability to waste, fraud, abuse, and mismanagement; that HUD needed to complete its corrective actions; and that HUD and the Congress needed to work together to implement a restructuring strategy that focuses HUD’s mission and consolidates, reengineers, or reduces HUD’s programs to bring its responsibilities in line with its management capacity. In its March 1998 report on the audit of the agency’s fiscal year 1997 consolidated financial statements, HUD’s Inspector General reported that management problems continue. For example, the report identified seven material internal control weaknesses, including the agency’s failure to establish a control structure that provided reasonable assurance that $18 billion in rental subsidies are based upon tenants’ correct incomes. Other material weaknesses included the needs for HUD to upgrade its financial management systems; FHA to improve its accounting and financial management systems; HUD to improve the management of its resources, which affects the Department’s ability to monitor program recipients and contractors; and HUD to improve its monitoring of multifamily projects. Our work has also shown a continuing need for improvement. For example: Our recent report on HUD’s tenant-based Section 8 assistance program illustrates the need for further improvement in financial management. We found that flaws in HUD’s budget process, including double-counting of administrative fees that are paid to housing agencies for operating the Section 8 program and insufficient use of supporting historical data, led to significant overestimates of contract renewal needs. Recognizing these inaccuracies, HUD submitted a revised budget estimate that was $1 billion lower than its original estimate. The agency agreed with our recommendations for improvements in this area. Similarly, in our on-going review of the project-based Section 8 program, we found errors in the analyses the Department uses to support its requests for funding to amend Section 8 contracts that do not have sufficient funding. As we discussed in recent testimony on HUD’s fiscal year 1999 budget request, these errors contributed to HUD substantially overestimating the funding needed to amend Section 8 project-based contracts in fiscal year 1999. The errors included omitting relevant Section 8 funding and contracts. We are continuing to work with HUD to ensure that these errors are corrected. We recently testified that HUD faces Year 2000 risks with its automated systems (the possibility that systems that represent the year using two digits rather than four will generate incorrect results beyond 1999). System failures could interrupt the processing of applications for mortgage insurance, the payment of mortgage insurance claims, and the payment of rental assistance. According to HUD’s schedule for the 30 mission-critical systems undergoing renovation, testing, and certification or where renovation has not yet begun, all of these actions will be completed by December 31 of this year. However, at the time of our testimony HUD was behind schedule on 20 of these 30 mission-critical systems, with 13 of the 20 experiencing delays of 2 months or more. Furthermore, HUD reported that 5 of these 13 have “failure dates”—the first date that a system will fail to recognize and process dates correctly—between August 1, 1998 and January 1, 1999. To better ensure the completion of work on mission-critical systems, HUD officials decided to halt routine maintenance on five of its largest systems, beginning April 1. Under the HUD 2020 Management Reform Plan and related efforts, HUD is in the process of making significant changes that will affect most aspects of its operations, including the long-standing management problems and issues facing the agency. The plan calls for reducing the number of programs, reducing staffing levels, retraining the majority of the staff, reorganizing the 81 field offices, consolidating processes and functions within and across program areas into specialized centers, and modernizing and integrating the financial and management information systems. As we stated in our March 1998 report, the plan is directed in part towards correcting the management deficiencies that we and others have identified. However, because the reforms are not yet complete and some of the plan’s approaches are untested, the extent to which they will result in the intended benefits is unknown.