Management Challenges: GAO's Responses to HUD's Comments (Letter Report,
07/14/1999, GAO/RCED/AIMD-99-189).

This report provides (1) the Department of Housing and Development's
(HUD) comments on GAO's designation of HUD as an area within the
government at particularly high risk for waste, fraud, abuse, and
mismanagement and (2) GAO's response to those comments.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED/AIMD-99-189
     TITLE:  Management Challenges: GAO's Responses to HUD's Comments
      DATE:  07/14/1999
   SUBJECT:  Internal controls
	     Financial management systems
	     Information resources management
	     Federal agency reorganization
	     Housing programs
	     Risk management
	     Human resources utilization
	     Accountability
	     Strategic information systems planning
IDENTIFIER:  GAO High Risk Program
	     High Risk Series 1997
	     Performance and Accountability Series 1999
	     HUD 2020 Management Reform Plan

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    United States General Accounting Office GAO
    Report to Congressional Requesters July 1999
    MANAGEMENT CHALLENGES GAO's Responses to HUD's Comments
    GAO/RCED/AIMD-99-189 GAO    United States General Accounting
    Office Washington, D.C. 20548 Resources, Community, and Economic
    Development Division B-282678 July 14, 1999 The Honorable Wayne
    Allard Chairman, Subcommittee on Housing and Transportation
    Committee on Banking, Housing, and Urban Affairs United States
    Senate The Honorable John F. Kerry Ranking Minority Member
    Subcommittee on Housing and Transportation Committee on Banking,
    Housing, and Urban Affairs United States Senate As part of the
    work in producing our January 1999 report Major Management
    Challenges and Program Risks: Department of Housing and Urban
    Development (GAO/OCG-99-8), on December 15, 1998, we provided the
    Department with a statement of facts for its review and comment.
    In response, in a letter dated December 28, 1998, the Department
    of Housing and Urban Development's (HUD) Deputy Secretary stated
    that he was disappointed with the conclusion we reached regarding
    HUD's risk status (that the integrity and accountability of HUD's
    programs remain at high risk) and raised several concerns about
    our statement of facts. Specifically, the Deputy Secretary raised
    concerns about (1) our designation of HUD's programs as a high-
    risk area and the criteria we use in designating an area as high-
    risk and in removing that designation; (2) HUD's belief that we
    had not fully addressed the impact and significance of reforms
    that the Department has recently instituted; (3) HUD's belief that
    our December 18, 1998, report on HUD's information systems was not
    accurate and complete;1 and (4) HUD's belief that there were
    inaccuracies in our statement of facts. You asked that we provide
    you with our response to the issues raised by the Deputy
    Secretary. This report responds specifically to the issues HUD
    raised. Appendix I includes HUD's letter; and appendix II, our
    point-by-point evaluation of HUD's comments. 1HUD Information
    Systems: Improved Management Practices Needed to Control
    Integration Cost and Schedule (GAO/AIMD-99-25, Dec. 18, 1998).
    Page 1                                GAO/RCED/AIMD-99-189 HUD's
    Management Challenges B-282678 GAO's Designation of    In summary,
    our conclusion that HUD's programs are a high-risk area is HUD's
    Programs as a     based on the status of four serious, long-
    standing Department-wide management deficiencies that, taken
    together, have placed the integrity High-Risk Area          and
    accountability of HUD's programs at high risk since 1994. We and
    others (i.e., HUD's Inspector General and external auditors) have
    observed these significant management deficiencies that cut across
    HUD's program areas, and we have issued numerous reports about
    them over the past 15 years.2 We designated HUD's programs as a
    high-risk area in 1994 because of (1) internal control weaknesses,
    such as a lack of necessary data and management processes that
    were a major factor leading to the HUD scandals of the late 1980s;
    (2) poorly integrated, ineffective, and generally unreliable
    information and financial management systems that did not meet the
    needs of program managers; (3) organizational deficiencies, such
    as overlapping and ill-defined responsibilities; and (4) an
    insufficient mix of staff with the proper skills, which hampered
    the effective monitoring and oversight of HUD's programs. As
    pointed out in our January 1999 report on HUD's major management
    challenges and program risks, our recent work indicates that,
    while HUD has made credible progress in laying the framework for
    improving its management, internal control weaknesses and problems
    with information and financial management systems persist at the
    Department. Furthermore, recent reforms to address the
    Department's organizational and staffing problems are in the early
    stages of implementation, and it is too soon to tell whether or
    not they will resolve the major deficiencies that we and others
    have identified. Consequently, as we reported in 1995 and 1997,3
    these deficiencies, taken together, continue to place the
    integrity and accountability of HUD's programs at high risk. Our
    criteria for designating a program or agency high-risk and
    removing that designation have been discussed with HUD officials
    on several occasions. In addition, our criteria were included in
    our 1997 High-Risk Series report and in our written response to
    HUD's then Acting Deputy Secretary's June 23, 1998, letter on this
    subject. We have pointed out that our criteria for designating
    programs or agencies as high-risk areas stem directly from our
    professional and objective judgment about patterns of 2App. III
    provides a list of major GAO reports on HUD's management, issued
    from 1984 through April 1999. 3High-Risk Series: Department of
    Housing and Urban Development (GAO/HR-95-11, Feb. 1995) and High-
    Risk Series: Department of Housing and Urban Development (GAO/HR-
    97-12, Feb. 1997). Page 2
    GAO/RCED/AIMD-99-189 HUD's Management Challenges B-282678
    significant management deficiencies uncovered over time in our
    audits, as well as those of inspectors general and others, that
    remain largely unresolved. We stated in our response to HUD's June
    23, 1998, letter that programs and agencies for which we have
    removed our high-risk designation are those that have demonstrated
    results in overcoming management deficiencies. We further stated
    that it is important to note that while reform initiatives are
    important, plans for reform are not sufficient in and of
    themselves. Rather, it is the results of such reform initiatives-
    demonstrating that management problems have been corrected-that
    count. We have also pointed out to HUD officials our consistent
    application of our criteria for high-risk designations.
    Specifically, we reached our conclusion about HUD and all of our
    determinations of which government operations are considered to be
    high-risk in our January 1999 Performance and Accountability
    Series reports4 using the same methodology and criteria, which
    were the same as those used for our February 1997 High-Risk Series
    reports. HUD's Reforms    We disagree with the Deputy Secretary's
    statements that the impact and significance of reforms that HUD
    has recently instituted were not fully addressed in our statement
    of facts. In the statement of facts we provided to HUD and in our
    January 1999 report on HUD's major management challenges and
    program risks that followed, we described the major actions the
    Department has taken and the achievements it has realized since it
    launched its 2020 Management Reform Plan in June 1997. In
    addition, we discussed HUD's goals under the plan for the areas
    where we identified management deficiencies: internal controls,
    systems, organization, and staffing. We also stated that HUD's
    reforms should help to address internal control weaknesses facing
    the agency and described HUD's establishment and implementation of
    risk assessments for programs that were established or
    substantially revised; the Department's development and deployment
    of certain information and financial management systems; and the
    establishment and operation of various HUD offices, including the
    Department's specialized and nationwide centers that consolidate
    processes and functions within and across program areas. Beyond
    the statement of facts provided to HUD, in our final report on
    HUD's management challenges and program risks, our "Overview"
    included a summary of HUD's achievements since its 2020 plan was
    announced and 4Major Management Challenges and Program Risks: A
    Governmentwide Perspective (GAO/OCG-99-1, Jan. 1999). Page 3
    GAO/RCED/AIMD-99-189 HUD's Management Challenges B-282678 our
    conclusion that HUD has made credible progress in laying the
    framework for improving its management. In other recent reports
    and testimonies, we have recognized HUD's continued emphasis on,
    and progress toward, addressing its long-standing management
    deficiencies. HUD's Secretary and leadership team have given top
    priority to addressing the Department's management deficiencies.
    This attention by top management is critical and must be sustained
    in order to achieve real and lasting change. Importantly, given
    the nature and extent of the challenges facing the Department, it
    will take time to implement and assess the impact of any related
    reforms. GAO's Report on        Many of the Deputy Secretary's
    comments on our statement of facts HUD's Information      related
    to a draft of our December 18, 1998, report on HUD's information
    systems. The final report contained our responses to those
    comments as Systems                well as clarifications we made
    to the report as a result of HUD's comments. For example, the
    Deputy Secretary stated that the draft of our December 1998 report
    was not accurate about the amount to be spent to develop financial
    systems and that a more accurate estimate for the effort is $250
    million. In our December 1998 report and statement of facts, we
    had stated the Department expects to spend about $239 million for
    development costs plus $132 million for maintenance costs. We also
    reported that HUD had not yet finalized the plans, costs, and a
    schedule to complete its current financial systems integration
    strategy, so systems costs continue to be uncertain. Accordingly,
    HUD's estimates have fluctuated considerably, as reflected in
    various documents received from the Chief Financial Officer and
    his staff. We reported, for example, that cost estimates have
    changed from the $540 million reported by HUD in June 1998; to the
    $255 million cited in the Department's November 12, 1998, comments
    on our draft report on information systems; to the $239 million
    that HUD reported a week later. However, we found that the $255
    million and the $239 million estimates did not include at least
    $132 million associated with maintaining the systems. As pointed
    out in our December 1998 report, HUD's continuing uncertainty as
    to what the total cost estimate is for its financial systems
    integration demonstrates the Department's need to develop and use
    well-defined cost-estimating processes to prepare reliable cost
    estimates. The Accuracy of Our    We also disagree with the Deputy
    Secretary's statements that there were Statement of Facts
    inaccuracies in our statement of facts. Many of the statements
    identified as Page 4                        GAO/RCED/AIMD-99-189
    HUD's Management Challenges B-282678 inaccurate related to
    statements that clearly described HUD's past problems, and not
    current problems as construed by the Deputy Secretary. For
    example, HUD asserted that the statement, "Managers were not
    actively assessing risks in their programs as required under the
    management control program," was totally false. The statement HUD
    quoted was in a paragraph in our statement of facts that began "In
    February 1997 we reported. . . ." This paragraph summarized the
    information we had reported in our 1997 High-Risk Series report
    regarding internal controls. Our January 1999 report on HUD's
    major management challenges and program risks reiterated the
    phrase "we reported in 1997" to make it clearer that this
    statement referred to past problems at HUD. Lastly, in taking the
    Deputy Secretary's concerns into account, we added information he
    provided to update our final report on HUD's management challenges
    and program risks, including the completion of inspections for
    over 4,200 multifamily properties by HUD's real estate assessment
    center; the referral of 200 cases involving multifamily properties
    to the enforcement center; the increase in debarments of
    multifamily housing landlords; and the progress made by HUD in
    implementing reforms, as reported by HUD's consultants. We also
    added further details on the number of financial management
    systems or components of these systems developed or deployed by
    HUD under its systems integration efforts and the number of HUD
    managers that have completed risk management training. Where
    appropriate, we incorporated other clarifications to our final
    report on the basis of the Deputy Secretary's comments. We are
    sending copies of this report to the appropriate Senate and House
    committees; the Honorable Andrew Cuomo, Secretary of Housing and
    Urban Development; and the Honorable Jacob Lew, Director, Office
    Management and Budget. We will make copies available to others
    upon request. Page 5                        GAO/RCED/AIMD-99-189
    HUD's Management Challenges B-282678 If you or your staff have any
    questions, please call me at (202) 512-7631. Other GAO contacts
    for and key contributors to this report are listed in appendix IV.
    Sincerely yours, Judy A. England-Joseph Director, Housing and
    Community Development Issues Page 6
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Page 7
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Contents Letter
    1 Appendix I
    10 The Department of Housing and Urban Development's Comments on
    the Major Challenges and Program Risks Identified in GAO's
    Statement of Facts Appendix II
    82 GAO's Responses to HUD's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts Appendix III
    128 Major GAO Reports on HUD's Management Appendix IV
    130 GAO Contacts and Staff Acknowledgments Page 8
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Contents
    Abbreviations CFO          Chief Financial Officer DOD
    Department of Defense FHA          Federal Housing Administration
    FMFIA        Federal Managers Financial Integrity Act FSI
    financial systems integration GAO          General Accounting
    Office HUD          Department of Housing and Urban Development
    HUDCAPS      HUD's Centralized Accounting and Program System IG
    Inspector General I-TIPS       Information Technology Investment
    Portfolio System JFMIP        Joint Financial Management
    Improvement Project OIG          Office of the Inspector General
    OMB          Office of Management and Budget REAC         real
    estate assessment center SFFAS        Statement of Federal
    Financial Accounting Standards Page 9
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Note: GAO's responses appear in app. II. The page nos.
    cited in HUD's letter refer to GAO's Dec. 15, 1998, statement of
    facts provided to HUD. HUD's comment 1. Page 10
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 2. HUD's comment 3. Page 11
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 4. HUD's comment 5. Page 12
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 6. Page 13
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 7. Page 14
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 8. HUD's comment 9. Page 15
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 10. Page 16
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 11. HUD's comment 12. HUD's comment 13.
    HUD's comment 14. Page 17
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 15. Page 18
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 19                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts Page 20
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 21                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts Page 22
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 23                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts Page 24
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 25                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts Page 26
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 16. Page 27
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 28                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts Page 29
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 30                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts Page 31
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 32                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts Page 33
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 17. Page 34
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 35                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts Page 36
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 18. HUD's comment 19. Page 37
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 20. Page 38
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 21. Page 39
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 40                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts HUD's comment
    22. Page 41                            GAO/RCED/AIMD-99-189 HUD's
    Management Challenges Appendix I The Department of Housing and
    Urban Development's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts Page 42
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 23. Page 43
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 24. HUD's comment 25. Page 44
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 26. Page 45
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 27. HUD's comment 28. Page 46
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 29. Page 47
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 30. Page 48
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 49                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts HUD's comment
    31. Page 50                            GAO/RCED/AIMD-99-189 HUD's
    Management Challenges Appendix I The Department of Housing and
    Urban Development's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts HUD's comment 32.
    Page 51                            GAO/RCED/AIMD-99-189 HUD's
    Management Challenges Appendix I The Department of Housing and
    Urban Development's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts HUD's comment 33.
    Page 52                            GAO/RCED/AIMD-99-189 HUD's
    Management Challenges Appendix I The Department of Housing and
    Urban Development's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts HUD's comment 34.
    Page 53                            GAO/RCED/AIMD-99-189 HUD's
    Management Challenges Appendix I The Department of Housing and
    Urban Development's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts HUD's comment 35.
    HUD's comment 36. HUD's comment 37. Page 54
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 38. HUD's comment 39. HUD's comment 40.
    HUD's comment 41. HUD's comment 42. HUD's comment 43. Page 55
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 56                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts Page 57
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 44. HUD's comment 45. Page 58
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 46. Page 59
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 47. HUD's comment 48. Page 60
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 61                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts HUD's comment
    49. Page 62                            GAO/RCED/AIMD-99-189 HUD's
    Management Challenges Appendix I The Department of Housing and
    Urban Development's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts Page 63
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 50. Page 64
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 65                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts Page 66
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 51. Page 67
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 68                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts HUD's comment
    52. HUD's comment 53. Page 69
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 70                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts HUD's comment
    54. Page 71                            GAO/RCED/AIMD-99-189 HUD's
    Management Challenges Appendix I The Department of Housing and
    Urban Development's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts HUD's comment 55.
    HUD's comment 56. Page 72
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 73                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts HUD's comment
    57. Page 74                            GAO/RCED/AIMD-99-189 HUD's
    Management Challenges Appendix I The Department of Housing and
    Urban Development's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts Page 75
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 58. Page 76
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts HUD's comment 59. HUD's comment 60. Page 77
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 78                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts Page 79
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix I The
    Department of Housing and Urban Development's Comments on the
    Major Challenges and Program Risks Identified in GAO's Statement
    of Facts Page 80                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix I The Department of Housing
    and Urban Development's Comments on the Major Challenges and
    Program Risks Identified in GAO's Statement of Facts HUD's comment
    61. HUD's comment 62. Page 81
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts Note: References to
    page numbers refer to those of HUD's letter of December 28, 1998.
    1. HUD's Comment, p. 1 HUD commented that "Comprehensive
    reorganization, major system developments and deployment,
    carefully crafted staffing reforms, and the hallmark achievement
    of HUD's first ever audited financial statements are all glossed
    over by GAO as minor advances and are presented as interesting
    interim movements toward some unknown mark on an undefined
    measuring stick."1 GAO's Response We disagree. In the statement of
    facts we provided HUD on December 15, 1998, we described the major
    actions it has taken and the achievements it has realized since it
    launched its 2020 Management Reform Plan in June 1997, including
    each of the items mentioned above by the Department. In addition,
    we discussed HUD's goals under the plan for the areas where we
    identified management deficiencies: internal controls, systems,
    organization, and staffing. Beyond the statement of facts provided
    to HUD, in our final report2 our "Overview" included a summary of
    HUD's achievements since the 2020 plan was announced and our
    conclusion that HUD has made credible progress in laying the
    framework for improving its management. HUD's comment implies that
    our statement of facts lacked clear criteria for evaluating its
    progress. See our response to comment 3 for a discussion of our
    criteria for evaluating HUD's progress and related matters. 2.
    HUD's Comment, p. 2 HUD commented that under its 2020 Management
    Reform Plan, "the Department implemented a bold initiative to
    fundamentally re-design the manner in which HUD delivers its
    programs." According to HUD, "The profound significance of . . .
    [its] major achievements and accomplishments is missing in the
    report, as well as a corresponding 1HUD was referring to its
    fiscal year 1997 financial statements, upon which it received a
    qualified audit opinion. After HUD responded to our statement of
    facts, HUD's Inspector General issued, on March 29, 1999, its
    unqualified opinion on HUD's consolidated federal accounting-based
    financial statements for fiscal year 1998, which is further
    discussed under HUD's comment 17. 2Major Management Challenges and
    Program Risks Department of Housing and Urban Development
    (GAO/OCG-99-8, Jan. 1999). Page 82
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts description of
    reduced risk at the agency. The Department has developed and
    implemented a detailed plan for reform-a plan that has reduced the
    risk of waste, fraud, and abuse." According to HUD, "the tenor of
    the draft report leaves the reader to conclude that, since there
    are not absolute measurable results in all areas, little that is
    positive has happened at the Department during the past two
    years." GAO's Response As mentioned, the statement of facts we
    provided HUD described a number of positive achievements made by
    HUD since it launched its 2020 reforms. We stated, among other
    things, that HUD's reforms could help to address internal control
    weaknesses facing the agency and described HUD's establishment and
    implementation of risk assessments for programs that were
    established or substantially revised; development and deployment
    of information and financial management systems; and establishment
    and operation of various HUD offices, including its specialized
    and nationwide centers that consolidate processes and functions
    within and across program areas. While the 2020 reforms may help
    reduce HUD's risks, we were not aware of significant evidence
    demonstrating that risks had actually been reduced at the time of
    our work regarding major management challenges and program risks.
    In addition, HUD's comments on our statement of facts do not
    present evidence demonstrating that its risks have been reduced.
    HUD's fundamental contention is that since it has made plans and
    begun implementing changes in the way it delivers programs, risks
    have been reduced. The only evidence HUD provided in its December
    28, 1998, letter demonstrating that its risks have been reduced is
    a 300-percent increase in debarments, which appears to be based on
    the increase in debarments from 30 debarments in 1996 to about 100
    in 1997. Our January 1999 report on HUD's major management
    challenges and program risks included this information. HUD's
    characterization of the tenor of our report may, in part, be
    attributable to the fact that as a statement of facts, the
    document provided to HUD did not include the "Overview" that
    appeared in the final report. As explained previously, the
    "Overview" provided our views on the significance of the 2020 plan
    reforms. Page 83                            GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix II GAO's Responses to HUD's
    Comments on the Major Challenges and Program Risks Identified in
    GAO's Statement of Facts 3. HUD's Comment, pp. 2 and 3 HUD
    expressed concern that we had not provided the specific criteria
    for the "high-risk" designation to be removed since the Department
    raised the question in a June 23, 1998, letter from the
    Department's Acting Deputy Secretary to GAO's Acting Comptroller
    General. In that letter, HUD requested that we present established
    and objective criteria that had been and would be used to
    determine what programs in an agency constitute high risk and what
    makes an entire federal agency high-risk. GAO's Response Our
    conclusion that HUD's programs are high-risk is based on the
    status of four serious, long-standing Department-wide management
    deficiencies that, taken together, have placed the integrity and
    accountability of HUD's programs at high risk since 1994. We have
    issued numerous reports and testimonies over the past 15 years
    pointing to these significant management deficiencies that cut
    across HUD's program areas. We and others (i.e., HUD's Inspector
    General and external auditors) have observed these management
    deficiencies. Because HUD is one of the nation's largest financial
    institutions responsible for managing about $454 billion in
    insured mortgages, about $531 billion in guarantees of mortgage-
    backed securities, and about $24 billion in current budget
    authority and because these four weaknesses continue largely
    unresolved or recent reforms to address them are in the early
    stages of implementation (and it is too soon to tell whether they
    will resolve the deficiencies), our professional judgment is that
    HUD's programs continue to be a high-risk area. On several
    occasions, we have discussed with HUD officials our criteria for
    designating a program or agency high-risk. In addition, we
    included our criteria in our 1997 High-Risk Series report3 and in
    our written response to HUD's Acting Deputy Secretary's June 23,
    1998, letter on this subject. We have pointed out that our
    criteria for designating programs or agencies as high-risk areas
    stem directly from our professional and objective judgment about
    patterns of significant management deficiencies uncovered over
    time in our audits, as well as those of inspectors general and
    others, that remain largely unresolved. We stated in our response
    to HUD's June 23, 1998, letter that programs and agencies for
    which we have removed our high-risk designation are those that
    have demonstrated results in overcoming management deficiencies.
    We further stated that it is important to note that while reform
    initiatives are important, plans for reform are not sufficient in
    and of themselves. Rather, it is the results of 3High-Risk Series:
    Department of Housing and Urban Development (GAO/HR-97-12, Feb.
    1997). Page 84                              GAO/RCED/AIMD-99-189
    HUD's Management Challenges Appendix II GAO's Responses to HUD's
    Comments on the Major Challenges and Program Risks Identified in
    GAO's Statement of Facts such reform initiatives-demonstrating
    that management problems have been corrected-that count. As
    mentioned above, our February 1997 High-Risk Series report on HUD
    clearly laid out the actions-such as eliminating material internal
    control weaknesses-that we believed were necessary to reduce the
    risks to the agency's programs. We also met with HUD officials in
    August 1997 and provided them with a list of corrective actions
    that would need to be substantially completed to address the
    deficiencies that made HUD high-risk in our opinion, such as
    completing improvements to its financial and information
    management systems. The list largely mirrored the discussion in
    our February 1997 report. As pointed out in our January 1999
    report on HUD's major management challenges and program risks, our
    recent work indicates that internal control weaknesses and
    problems with information and financial management systems persist
    at the Department. Furthermore, recent reforms to address the
    Department's organizational and staffing problems are in the early
    stages of implementation, and it is too soon to tell whether or
    not they will resolve the major deficiencies that we and others
    have identified. Consequently, we continue to believe, as we
    reported in 19958 and 1997, that these deficiencies, taken
    together, place the integrity and accountability of HUD's programs
    at high risk. 4. HUD's Comment, p. 3 HUD asserted that we have has
    been unable to articulate what constitutes high risk at the
    Department and for all agencies and in fact have acknowledged that
    no such governmentwide test of high risk exists. HUD also stated
    that it should be provided specific criteria used to determine
    whether an agency is high-risk; the data used to determine whether
    an agency is high-risk; the data showing how other agencies stood
    when we applied that objective, standardized high-risk test; and
    the analysis we used in comparing the data on HUD to the high-risk
    criteria. GAO's Response As discussed in our response to comment
    3, we have informed HUD officials about what constitutes high risk
    at the Department in our opinion, what the Department needs to
    accomplish to remove the designation, and what is not sufficient
    to remove the designation. 8High-Risk Series: Department of
    Housing and Urban Development (GAO/HR-95-11, Feb. 1995). Page 85
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts In response to HUD's
    request that it be provided the criteria we use to determine
    whether any agency is high risk and how the agencies compared when
    we applied our criteria, we have informed HUD officials that the
    criteria we apply to the Department are the same criteria we have
    applied to other agencies. Our criteria included considering
    factors such as the significance of HUD's management deficiencies,
    their impact on program operations, past successes achieved in
    resolving the deficiencies, and the amount of risk inherent in
    HUD's operations. We also have informed HUD officials that
    different agencies' functions, programs, and organizational units
    have been removed and added each time we have updated our high-
    risk designations. Because different agencies present different
    exposures to risk and management deficiencies can differ in their
    impact on programs, we have advised HUD officials that
    independent, professional, and objective judgment of knowledgeable
    GAO professionals plays a role in determining whether a program is
    high-risk. We have also advised them that professional judgment
    will also play a role in determining at what point improvements
    made by HUD in resolving its management deficiencies will mean
    that the agency overall will no longer warrant the designation
    high-risk, but that individual functions and/or specific programs
    within the agency may instead be designated high-risk. In our
    January 8, 1999, response to HUD's Deputy Secretary's letter of
    December 28, 1998, we pointed out our consistent application of
    our criteria for high-risk designations. We explained that we
    reached our conclusion about HUD and all of our determinations of
    which government operations are considered to be high-risk in our
    January 1999 Performance and Accountability Series reports9 using
    the same methodology and criteria, which were the same as those
    used for our February 1997 High-Risk Series reports. 5. HUD's
    Comment, pp. 3 and 4 HUD stated that senior GAO staff had
    indicated that no high-risk test was being applied to all federal
    agencies, that the label of high risk was applied on the basis of
    the professional judgment of GAO staff, and that a high-risk test
    of having four or more agencywide problems had not been applied to
    any other agency. 9Major Management Challenges and Program Risks:
    A Governmentwide Perspective (GAO/OCG-99-1, Jan. 1999). Page 86
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts GAO's Response HUD's
    assertion is incorrect. Senior GAO officials have told HUD
    officials that we consider the implications of all management
    deficiencies in determining whether an agency is high-risk or not.
    The fact that a specific number of agencywide problems exist at a
    particular agency does not automatically mean that an agency or
    program is high-risk. To apply such a limited test would discount
    the effect of such factors as the prevalence of the deficiencies,
    past successes achieved by agencies in resolving them, and
    exposure to risk. Overall, the intent of our special effort to
    review and report on federal government program areas that we
    consider at greater risk is to focus our resources and attention
    as well as those of the Congress and agency management on actions
    needed to correct the most serious problems in selected areas. Our
    criteria for designating programs as high-risk areas stem directly
    from our professional and objective judgment about patterns of
    significant management deficiencies in the federal government
    uncovered over time in our audits, as well as those of inspectors
    general and others, that remain largely unresolved. A
    determination includes our consideration of factors such as the
    seriousness of the management deficiencies identified; their
    cumulative impact on program operations, federal spending, and the
    ability of an agency to carry out its mission; the results
    achieved by past efforts to resolve the deficiencies; and the
    amount of risk of fraud, waste, and abuse inherent in an agency's
    operation. In addition, as we pointed out in our January 1999
    performance and accountability series, an increasing amount of
    information is becoming available through the implementation of
    the performance-based management legislation that the Congress has
    enacted. This information makes it both possible and appropriate
    for GAO to periodically reassess the methodologies and criteria it
    uses to determine which operations, functions, and entities should
    be included in the performance and accountability series reports
    and which should be identified as "high-risk." We also pointed out
    in this January 1999 report that we plan to undertake a
    comprehensive review and reassessment of this area during 1999. In
    conducting this review and reassessment, and in accordance with
    our normal practices, we will consult with key stakeholders,
    including selected congressional and agency representatives,
    before completing our approach to the 2001 series. Page 87
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts Our review effort
    likely will result in new ways of determining and presenting major
    management challenges and program risks, especially in connection
    with selected functions (e.g., strategic planning, organizational
    alignment, human capital strategies, and contract management) as
    well as at the overall department and agency level. This
    reassessment may also result in the consolidation of GAO's current
    high-risk series as an important component of an expanded
    performance and accountability series. The ultimate determination
    of what should be included in this series and what should be
    deemed to be "high-risk" will continue to involve the independent,
    professional, and objective judgment of GAO professionals. 6.
    HUD's Comment, p. 4 HUD asserted that GAO has a shifting standard
    for determining if HUD is high-risk. HUD stated that senior GAO
    staff initially indicated that they would apply a standard for
    removing HUD from the high-risk list if "reasonable progress" was
    achieved in implementing the 2020 reforms and at another time
    stated that the standard would be "results" and a demonstration
    that HUD's problems have been fixed completely-that there were
    substantial, long-term results bearing out the success and
    sustainability of the reforms. GAO's Response Senior GAO officials
    informed HUD officials that we would be fair in assessing the
    progress made by the Department and that reasonable progress in
    successfully resolving its management deficiencies by means of
    verifiable results was the standard we would apply in our review.
    HUD is incorrect in asserting that the standard we said we would
    apply was reasonable progress in implementing the 2020 plan
    reforms. 7. HUD's Comment, p. 5 HUD commented that if we believed
    that it was not possible for HUD to be removed from the list, that
    working assumption must be stated explicitly in the report or the
    report would be misleading. GAO's Response Our views on the
    difficulties faced by HUD in resolving its management deficiencies
    and removing the high-risk designation were communicated to the
    Department and others over a year ago. In testimony before the
    Page 88                            GAO/RCED/AIMD-99-189 HUD's
    Management Challenges Appendix II GAO's Responses to HUD's
    Comments on the Major Challenges and Program Risks Identified in
    GAO's Statement of Facts Subcommittee on Housing Opportunity and
    Community Development, Senate Committee on Banking, Housing, and
    Urban Affairs, on May 7, 1998, we said that HUD's management
    deficiencies have had a long history, that they did not happen
    overnight, and that it will not be easy for HUD to overcome many
    of them. In addition, in response to a specific question from
    Chairman Connie Mack regarding whether HUD was still high-risk and
    the likelihood of removing the agency from our next series of
    high-risk reports, GAO's Director of Housing and Community
    Development Issues, made the following comments: "They are high-
    risk today, and there's a very good chance that they will be high-
    risk early next spring, when we issue our next report. However, I
    think we will be recognizing the progress that the agency has
    made. And the big point is realizing that this is a multiyear
    effort. It is not an easy task that they have set out." A copy of
    the draft hearing transcript was attached to our July 24, 1998,
    letter to the Acting Deputy Secretary. Our January 1999 report on
    HUD's major management challenges and program risks included the
    statement that, given the severity of HUD's management
    deficiencies, it would not be realistic to expect that the
    Department would have substantially implemented its reform efforts
    and demonstrated success in resolving its management deficiencies
    in the 2 years since we issued our last report. 8. HUD's Comment,
    p. 6 HUD asserted that senior GAO staff, in repeated discussions,
    said they believed that HUD had made substantial progress in
    reducing risk, that the agency's risk profile was significantly
    improved over the last time GAO conducted a review. Yet, HUD
    asserted, this view was absent from the report. GAO's Response In
    reports, testimonies, and meetings, senior GAO officials have
    complimented HUD officials for undertaking reforms of its
    programs. The GAO officials have characterized these reforms as
    representing solid progress, as being far-reaching, as affecting
    nearly all operational aspects of the Department, and as
    constituting credible progress. However, they have not
    characterized these reforms as reducing risk or significantly
    improving HUD's risk profile. Rather, they have consistently
    maintained that it must be demonstrated that reforms have led to
    Page 89                            GAO/RCED/AIMD-99-189 HUD's
    Management Challenges Appendix II GAO's Responses to HUD's
    Comments on the Major Challenges and Program Risks Identified in
    GAO's Statement of Facts substantial and verifiable results in
    resolving management deficiencies to remove the high-risk
    designation. At the same time, as we discuss in our responses to
    comments 4 and 5, the independent, professional, and objective
    judgment of knowledgeable GAO professionals plays a role in
    determining whether a program is high-risk. 9. HUD's Comment, p. 6
    HUD commented that GAO's draft report failed to use and cite three
    independent and objectives studies of the Department's reforms by
    management experts-Booz-Allen and Hamilton, the Public Strategies
    Group, and PricewaterhouseCoopers. GAO's Response While GAO's
    statement of facts mentioned the Booz-Allen and Hamilton, Inc.,
    report, the thrust of this report was not discussed in detail in
    our statement of facts. This was because this report as well as
    the Public Strategies Group and PricewaterhouseCoopers reports
    were primarily aimed at describing the progress made in
    implementing the 2020 reforms, and not at developing evidence
    demonstrating that the reforms have led to substantial and
    verifiable results in resolving HUD's management deficiencies. In
    our January 1999 report on HUD's major management challenges and
    program risks, we included information on the Public Strategies
    Group report in addition to the Booz-Allen and Hamilton, Inc.,
    report. 10. HUD's Comment, p. 7 HUD commented that GAO had
    withheld the conclusion section of the report from HUD's review
    and that senior GAO staff were orally characterizing the report as
    maintaining the high-risk label for HUD. The absence of the
    section, HUD said, severely compounded its difficulty in
    responding accurately and appropriately to the specific text of
    the report. GAO's Response The statement of facts we provided HUD
    officials for review did not contain conclusions. This is because
    this statement was provided to HUD officials to obtain their
    comments on the accuracy and completeness of the information we
    obtained and analyses we made. We did not obtain agency Page 90
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts comments on the draft
    conclusions of any of our reports in the January 1999 series on
    major management challenges and program risks. 11. HUD's Comment,
    p. 8 HUD asserted that we characterized its financial management
    systems inaccurately, given the many comprehensive systems
    improvements that have been made within the past few years. HUD
    stated that our discussion was focused almost entirely on process
    improvements and was not properly balanced by the brief summary of
    major system accomplishments. HUD cited the statement in our
    report, "According to its CFO [Chief Financial Officer], HUD
    continues to make progress addressing system problems by deploying
    systems and/or system modules to manage and monitor the
    Department's programs," and stated that "it should be clear to any
    objective viewer that when a large number of systems have been
    successfully developed and deployed, a substantial improvement in
    the systems environment has inevitably occurred." However, HUD
    stated, "GAO refuses to attest to such facts despite its one-year
    review and only attributes this information to 'CFO' hearsay."
    GAO's Response We disagree. Our statement of facts (1) noted that
    HUD had developed and deployed a number of systems or components
    for systems; (2) provided examples of these systems; and (3)
    referred to our report entitled HUD Information Systems: Improved
    Management Practices Needed to Control Integration Cost and
    Schedule (GAO/AIMD-99-25, Dec. 18, 1998), which included a more
    detailed discussion of HUD's major system accomplishments. In our
    December 1998 report, we reported that although HUD had developed
    and deployed various systems or modules for 12 of 14 systems
    integration projects, the Department did not know when the systems
    integration effort would be completed, or at what cost, because
    the Department had not yet finalized detailed project plans or
    cost and schedule estimates for this effort. We concluded that
    without such plans, the Department is likely to continue to spend
    millions of dollars, miss milestones, and still not fully meet its
    objective of developing and fully deploying an integrated
    financial management system. We also disagree with the
    implications of HUD's comment that our December 1998 report on
    HUD's information systems should have Page 91
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts concluded that when a
    large number of systems have been successfully developed and
    deployed, a substantial improvement in the systems environment has
    inevitably occurred. Successfully developing and deploying systems
    depend on several factors, including whether user requirements
    were met, existing material or internal control weaknesses were
    eliminated, and the systems were developed and deployed using
    sound methodologies. Given the objectives and scope of our review,
    we could not conclude in our December 1998 report whether HUD had
    successfully developed and deployed a large number of systems or
    had made substantial improvements in its systems environment. 12.
    HUD's Comment, p. 8 HUD believed that our observation that it did
    not finalize the revised project plans for completing the core
    accounting system (HUDCAPS) was wrong. HUD stated that during the
    initial phase of the 1-year review of systems at HUD, it provided
    us with a completed first-year plan; a final draft of the second-
    year plan; and, in November 1998, the complete project plan. GAO's
    Response HUD's comment relates to our December 1998 report on
    HUD's information systems and not our statement of facts. We agree
    that HUD provided us with copies of the fiscal year 1998 and
    fiscal year 1999 project plans for HUDCAPS. However, we found that
    the fiscal year 1999 plan was incomplete because it did not
    include a schedule that showed key milestones, tasks, task
    dependencies, and a critical path demonstrating how HUDCAPS would
    be completed and integrated with other systems by October 1999,
    the date projected by HUD for completing an integrated core
    financial system. In addition, on December 4, 1998, HUD provided
    to us what the Department referred to as a complete project plan
    for the core accounting system, HUD's Centralized Accounting and
    Program System (HUDCAPS). This was 22 days after HUD provided us
    with official comments on our draft report and 35 days after we
    had requested comments. By that time, our report was already being
    printed for publication and, consequently, was issued without
    noting whether a project plan for HUDCAPS had been completed.
    Also, in our December 1998 report, we pointed out that HUD had not
    yet finalized other detailed project plans that are necessary to
    complete the systems integration effort. Page 92
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts 13. HUD's Comment, p.
    8 HUD commented that it had recently installed a standard general
    ledger and chart of accounts that did not previously exist. It
    asserted, "This is a critical accomplishment that was barely
    mentioned by GAO and is key to the Department's publishing
    integrated financial statements for the entire agency." GAO's
    Response HUD's deployment of a Department-wide standard general
    ledger was mentioned in our statement of facts. However, detailed
    information on it was not included in our statement because it had
    been in effect for so little time during the period of our review.
    The new standard general ledger was not used to prepare HUD's
    fiscal year 1998 consolidated financial statements but will be
    used to prepare its fiscal year 1999 consolidated financial
    statements, for which an audit report will be prepared in the
    spring of 2000. In addition, while the new standard general ledger
    and chart of accounts should greatly improve the efficiency of
    preparing integrated financial statements for the entire agency,
    HUD was already able to produce integrated financial statements
    prior to these improvements. 14. HUD's Comment, p. 9 HUD commented
    that our statement of facts dwelt on the Department's efforts to
    evaluate whether its management systems conform to the
    requirements of Federal Managers' Financial Integrity Act (FMFIA)
    and of the Office of Management and Budget (OMB) Circular A-127.
    HUD also stated that it self-declared certain systems as
    noncompliant based on its interpretation of the general Joint
    Financial Management Improvement Project (JFMIP) criteria. HUD
    asserted that it chose to apply a vigorous standard whereby if
    only 1 of the 12 criteria was unmet, then the system was labeled
    as noncompliant. HUD also stated that it had yet to obtain any
    clear guidance from GAO, despite repeated inquiries, on whether
    the Department was applying a significantly higher standard for
    systems noncompliance than other agencies. GAO's Response HUD's
    comments imply that it was holding itself to a higher standard
    than other federal agencies because it declared systems
    nonconforming if only 1 of the 12 JFMIP criteria was unmet.
    However, HUD's records show that most of the 38 systems it
    declared not in conformance with FMFIA criteria Page 93
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts in 1998 did not
    conform with 3 or more of the 12 criteria. According to HUD's
    records, 21 of 38 nonconforming systems did not meet 3 or more of
    the 12 criteria, and 10 of the 21 nonconforming systems did not
    meet 10 or 11 criteria. Three of the 38 systems were reported as
    nonconforming because they did not meet one criterion; 9 did not
    meet two criteria; information on why 4 systems were not in
    conformance was not available; and another system, although
    reported to be nonconforming, was actually conforming. We have not
    reviewed the standards applied by other federal agencies in
    determining their systems' compliance with JFMIP criteria and
    therefore cannot offer any comments on the standards they follow.
    15. HUD's Comment, p. 9 HUD stated, "We strongly believe that it
    is very important that these system accomplishments be highlighted
    and discussed in greater detail, and that these changes are
    reflected in a changed GAO analyses of HUD's systems." GAO's
    Response See our response to comment 11. 16. HUD's Comment, p. 18
    HUD commented that during the past year, the Department had
    aggressively tackled the issue of computer matching and income
    verification and improved subsidy verification. HUD established a
    task force with staff from Public and Indian Housing; Policy
    Development and Research; the Assessment Center; and the Chief
    Financial Officer's (CFO) Office to expand capabilities for
    ensuring that subsidies are paid on the basis of tenants' incomes
    that are correct. GAO's Response Our statement of facts pointed
    out the material internal control weakness over the process of
    uncertain verification of tenants' incomes. The statement also
    explained that in fiscal year 1998, HUD unveiled a multifaceted
    plan to address this weakness. The effectiveness of the steps HUD
    has taken to address this issue, however, will most likely not be
    known until the fiscal year 1999 financial statement audit is
    completed in the spring of 2000. Page 94
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts 17. HUD's Comment, p.
    25 Concerning the Department's financial statements, HUD commented
    that it received its first-ever qualified audit opinion 2 years
    ago (in prior years, auditors issued disclaimers of opinion) and
    that it was on track to receive an unqualified (clean) opinion for
    its fiscal year 1998 consolidated financial statement. According
    to HUD, "This is a keystone achievement and reflective of the
    changing attitude of HUD managers in recognizing their fiscal
    responsibilities and the vast improvement in HUD's financial
    systems and financial data." GAO's Response Our statement of facts
    on HUD's major management challenges and program risks pointed out
    that HUD had received a qualified opinion on its fiscal year 1997
    financial statements. Beyond the statement of facts provided to
    HUD, in our final report our "Overview" pointed out HUD's
    improvement in receiving a qualified opinion on its fiscal years
    1996 and 1997 financial statements. After we issued our report on
    HUD's major management challenges and program risks, HUD's
    Inspector General issued, on March 29, 1999, its unqualified
    opinion on HUD's consolidated federal accounting-based financial
    statements for fiscal year 1998. The Inspector General stated in
    this report that in previous fiscal years, she was unable to
    conclude that HUD's consolidated financial statements were
    reliable in all material respects. Therefore, her ability to
    conclude that HUD's fiscal year 1998 financial statements were
    reliable was noteworthy. We agree that obtaining an unqualified
    opinion on its fiscal year 1998 financial statements was a
    noteworthy accomplishment for HUD. However, the Inspector General
    also stated that because of continued weaknesses in HUD's internal
    controls and financial management systems, this accomplishment
    came only after HUD and its contractors went through extensive ad
    hoc analyses and special projects to develop account balances and
    necessary disclosures. 18. HUD's Comment, p. 28 HUD commented that
    credit reform (the reason for the qualified opinion in fiscal year
    1997) initiatives within the Department have made significant
    progress. The Federal Housing Administration (FHA) has received
    from a major public sector accounting firm an unqualified (clean)
    opinion on its Page 95                            GAO/RCED/AIMD-
    99-189 HUD's Management Challenges Appendix II GAO's Responses to
    HUD's Comments on the Major Challenges and Program Risks
    Identified in GAO's Statement of Facts statements since 1993, HUD
    explained. The Department expected compliance with the
    requirements of credit reform in its fiscal year 1998 financial
    statements and stated that significant work has already been
    accomplished. GAO's Response Our January 1999 report on HUD's
    major management challenges and program risks included material
    recognizing that during 1998, HUD, with the assistance of
    independent contractors, focused significant effort on improving
    its ability to prepare loan program cost estimates in accordance
    with federal accounting standards and credit reform requirements.
    Our January 1999 report also stated that HUD has developed a plan
    that, if fully implemented, should help it prepare reasonable
    estimates of loan program costs in the future. Also, although FHA
    received an unqualified audit opinion on its fiscal year 1997
    financial statements, the amounts reported for FHA's loan program
    costs were derived using private sector generally accepted
    accounting principles that are significantly different from those
    prepared on the basis of federal accounting standards. After we
    issued our report on HUD's major management challenges and program
    risks, HUD's Inspector General and the public accounting firm KPMG
    LLP issued unqualified audit opinions on HUD's consolidated and
    FHA's federal accounting-based financial statements for fiscal
    year 1998. These unqualified opinions indicate that HUD and FHA
    were able to develop reasonable estimates of loan program costs
    for fiscal year 1998. However, the Inspector General also noted
    that this required extensive ad hoc efforts by HUD's Office of
    Housing and contractor support personnel. 19. HUD's Comment, p. 28
    HUD commented, "GAO says that [the Department's] systems are
    inadequate because they are poorly integrated, ineffective and
    generally unreliable." Disagreeing, HUD stated that over 60
    percent of its systems are compliant, including its financial
    systems. In support of this, HUD stated, "Our financial statements
    are now considered accurate (save for a single audit qualification
    on credit reform) and thus, the underlying data are accurate-which
    was not true two years ago." HUD contended that we downplayed this
    accomplishment despite the significant attention focused on this
    goal by the Congress, OMB, and GAO management. Page 96
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    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts GAO's Response HUD's
    comment on our characterization of its systems misstated the
    statement of facts we provided to the Department. Our
    characterization appeared in a passage that began, "However, these
    systems have been inadequate because . . ." and went on to
    summarize the information we had reported in our 1997 High-Risk
    Series report regarding information and financial management
    systems. In our January 1999 report on HUD's major management
    challenges and program risks, we added the phrase "we have
    reported in the past" to make it clearer that the statement
    referred to HUD's past problems. 20. HUD's Comment, p. 29 HUD
    commented that significant work has been done to develop new
    accounting and financial management systems: "We now have a new
    standard, fully compliant HUD-wide general ledger. And, we have
    developed and deployed 11 new financial management systems." GAO's
    Response See our response to comment 13 for a discussion of HUD's
    general ledger. Our January 1999 report on HUD's major management
    challenges and program risks recognized the development and
    deployment of the 11 financial management systems. Our December
    1998 report on HUD's information systems contained additional
    information on the status of HUD's systems integration projects.
    21. HUD's Comment, pp. 30-32 HUD asserted that there have been
    major, comprehensive accomplishments in financial systems
    integration. Accordingly, HUD said that we should be able to
    state, on the basis of the documentation submitted, that the
    listed 11 systems have been developed and deployed during the past
    few years: the Integrated Disbursement and Information System; the
    Integrated Business System; the HUD Procurement System; the Grants
    Evaluation Management System; HUDCAPS; the Tenants Rental
    Assistance Certification System; the Budget Formulation System;
    the Community 2020 Geographic Information System; the Budget
    Outlay Support System; the Single Family Premium Collection
    System; and the Real Estate Management System. Page 97
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    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts GAO's Response Our
    statement of facts mentioned that HUD was continuing to make
    progress addressing system problems by deploying systems or
    modules to manage and monitor departmental programs and provided
    examples of these systems. Our December 1998 report on HUD's
    information systems included a detailed discussion on the status
    of HUD's financial systems integration and the systems that have
    been developed and deployed to support it. (Also, see our response
    to comment 11.) 22. HUD's Comment, pp. 32 and 33 HUD commented
    that the Department agreed with a principal finding of our
    December 1998 report on its information systems-that the
    Department must improve its information technology capital
    planning process. However, according to HUD, our report did not
    take note of several major accomplishments and, in effect,
    suggested that no process was in place. HUD commented that it has
    had in place a structured process for selecting information
    technology investments since 1989 and has consistently made
    improvements to that process over the past decade. GAO's Response
    We disagree. Our statement of facts and December 1998 report
    stated that HUD did not have an effective process to manage its
    information technology investments. This is not the same as
    stating that there was no process in place, as suggested by HUD's
    comments. Specifically, in our December 1998 report, we explained
    that we reviewed HUD's recent selection and control processes
    beginning with fiscal year 1997 and found that both processes were
    incomplete and inadequate to make sound investment decisions and
    properly manage the selected investments. The major deficiencies
    we found with HUD's processes were that (1) investment decisions
    were made without reliable, complete, up-to-date project-level
    information and (2) oversight was not based on project-specific
    measures, which are required to effectively monitor and control
    information technology projects. Page 98
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    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts 23. HUD's Comment, p.
    34 HUD asserted that the statement, "Managers were not actively
    assessing risks in their programs as required under the management
    control program," was totally false. HUD went on to discuss risk
    assessments that have been prepared since 1996, as well as its
    Community Planning and Development's grants management system.
    GAO's Response The statement HUD quoted was in a paragraph in our
    statement of facts that began, "In February 1997 we reported. . .
    ." This paragraph summarized the information we had reported in
    our 1997 High-Risk Series report regarding internal controls. Our
    January 1999 report on HUD's major management challenges and
    program risks reiterated the phrase "we reported in 1997" at the
    end of the paragraph to make it clearer that this statement
    referred to past problems at HUD. Contrary to the implications of
    HUD's comments on risk assessments, our statement of facts
    discussed the Department's activities regarding the preparation of
    risk assessments for its nationwide centers, as well as other
    programs. In addition, our statement discussed a number of other
    activities HUD initiated to address its internal control problems,
    including the establishment of the Risk Management Division and
    real estate and enforcement centers and the development of a risk
    evaluation database. Also, in our February 1997 High-Risk Series
    report, we pointed out that in July 1994, HUD began implementing
    its new management planning and control program, which was based
    on front-end risk assessments of certain programs. At the time of
    our work on HUD's major management challenges and program risks,
    we were completing a review of HUD's Community Planning and
    Development's grant management system. Subsequently, on April 27,
    1999, we issued a report entitled Community Development: Weak
    Management Controls Compromise Integrity of Four HUD Grant
    Programs (GAO/RCED-99-98). 24. HUD's Comment, p. 35 HUD commented
    that the heading "2020 Reform Plan Directed Toward Internal
    Control Weaknesses" was a misleading statement and needed to be
    revised to accurately reflect that the plan was not solely
    directed toward internal control weaknesses and to state that 2020
    effectively Page 99                            GAO/RCED/AIMD-99-
    189 HUD's Management Challenges Appendix II GAO's Responses to
    HUD's Comments on the Major Challenges and Program Risks
    Identified in GAO's Statement of Facts addressed those problems.
    HUD also noted that 1,100 field and headquarters managers received
    internal control training during fiscal year 1998. GAO's Response
    Our statement of facts described actions initiated by HUD under
    its 2020 reform plan that were intended to address its internal
    control problems as well as its other management deficiencies. In
    the "Overview" section of our statement, which was not provided to
    HUD, we stated that HUD's 2020 reform plan addresses more than its
    management deficiencies. However, we disagree that HUD's actions
    effectively addressed the internal control weaknesses that we and
    others previously reported. Our statement of facts and January
    1999 report on HUD's major management challenges and program risks
    showed that internal control problems persist at HUD. As pointed
    out in those documents, material internal control weaknesses
    persist in its (1) management of the Section 8 subsidy payment
    process, which provides $18 billion in rental assistance; (2)
    management of staff resources; (3) management of losses resulting
    from defaults in the single-family and multifamily housing
    insurance programs; (4) implementation of automated systems to
    provide needed management information or reliable data; (5)
    monitoring of multifamily properties and single-family and
    multifamily housing notes inventories; and (6) contracting
    procedures. Furthermore, since we issued our February 1997 High-
    Risk Series report on HUD, we have reported that the Department
    has not adequately monitored, among other things, its real estate
    asset management contractors, the performance of appraisers of
    properties purchased with FHA-insured loans, and its process for
    deobligating funds no longer needed for Section 8 project-based
    rental assistance contracts. Finally, the statement of facts
    recognized that as of September 30, 1998, the CFO's Risk
    Management Division completed risk management training for
    headquarters and field managers and supervisors at or above the
    GS-13 level. Our January 1999 report on HUD's major management
    challenges and program risks included the information that over
    1,100 HUD headquarters and field managers completed risk
    management training. Page 100
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts 25. HUD's Comment, p.
    35 HUD commented that the statement, "REAC [the real estate
    assessment center] will not be fully functional until 2000," does
    not acknowledge that "significant aspects of REAC's housing
    assessment operations are already functioning well beyond any
    systems ever used at HUD." As an example, HUD explained that the
    center's new physical inspection data collection device and
    protocol are already in operational use, with over 4,200
    inspections completed through mid-December 1998. HUD felt that we
    "should . . . acknowledge that all critical components of REAC's
    housing assessment processes are scheduled to be functioning to
    improve the Department's monitoring and enforcement activity
    before the year 2000." In addition, HUD explained, the center has
    completed initial advisory scores for several hundred public
    housing authorities and is assisting the enforcement center with
    physical and financial assessments of 200 enforcement case
    referrals made by the multifamily housing program center's staff.
    GAO's Response Our statement of facts pointed out that as part of
    its reform plan, HUD established a real estate assessment center,
    which had issued regulations on the physical and financial
    assessments of multifamily properties and public housing
    authorities. It also pointed out that the center would not be
    fully functional until 2000 because it would not begin financial
    assessments of multifamily properties until around April 1999,
    when audited financial statements on the properties were to be
    submitted to HUD. Lastly, our statement of facts pointed out that
    although physical inspections of public housing authorities would
    start in 1999, financial assessments would not begin until 2000.
    The additional year is needed to give housing authorities time to
    convert their annual financial statements from HUD's accounting
    guidance to generally accepted accounting principles in accordance
    with the uniform financial standards for HUD's housing programs.
    In addition, our statement of facts discussed the potential
    benefits that HUD expects to achieve through the establishment of
    the real estate assessment center and acknowledged that HUD plans
    to physically and financially assess the total inventory of
    multifamily properties and public housing authorities. However, to
    date neither HUD nor we are able to evaluate the extent to which
    this reform has led to substantial and verifiable results in
    resolving management weaknesses. Page 101
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts Regarding the
    inspections completed by the center, our January 1999 report on
    HUD's major management challenges and program risks recognized
    that 4,200 inspections had been completed as of late-December
    1998. Our report also recognized that 200 cases had been referred
    to the enforcement center. In this regard, it should be noted that
    HUD's portfolio of multifamily properties totals around 32,000,
    and more than 13,000 public housing developments nationwide. 26.
    HUD's Comment, p. 36 HUD commented that our statement, "Although
    the Enforcement Center began operations on September 1, 1998, it
    is not scheduled to perform all of its centralized functions until
    around April 1999, when it is to begin receiving referrals of
    troubled multifamily properties from the Real Estate Assessment
    Center," did not recognize that the enforcement center had been
    receiving cases and performing all of its functions and was
    regularly receiving additional cases from Housing and the real
    estate assessment center. To date, HUD reported, the enforcement
    center had received 200 cases, and the Department had dramatically
    improved enforcement at the agency, for example, increasing
    debarments of bad landlords by 300 percent over the years. GAO's
    Response HUD's comment that the enforcement center had received
    200 cases from Housing and the real estate assessment center is
    inconsistent with other statements made in the letter, which said
    that the 200 referrals came from the Office of Multifamily Housing
    (see comment 25). On January 8, 1999, an enforcement center
    official advised us that all referrals had come from the Office of
    Multifamily Housing only. As discussed previously, our January
    1999 report on HUD's major management challenges and program risks
    recognized the 200 cases received by the enforcement center and
    the increase in debarments. 27. HUD's Comment, p. 37 HUD commented
    that we would be more accurate if we stated that material
    weaknesses are found within the financial statements at all
    federal agencies and departments. According to HUD, "Most cabinet
    level agencies have on the average 8-24 material weaknesses with
    DOD [the Department of Defense] exceeding 50 open material
    weaknesses." Consequently, HUD felt Page 102
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    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts that this problem is
    not isolated to HUD and that we needed to make this
    acknowledgment. GAO's Response Our statement of facts and January
    1999 report on HUD's major management challenges and program risks
    were about HUD and not other federal agencies. Other GAO reports
    have been prepared on such challenges and risks faced by other
    agencies. However, it should be noted that on the basis of fiscal
    year 1997 audits, there were six federal entities that had no
    material internal control weaknesses. Also, we have designated
    DOD's financial management as high-risk since 1995. 28. HUD's
    Comment, pp. 37 and 38 HUD commented that "GAO fails to tell the
    entire story," particularly about how HUD compares to other
    federal agencies regarding compliance with the reporting
    requirements under credit reform and Statement of Federal
    Financial Accounting Standards (SFFAS) No. 2. Approximately 60
    percent of the agencies that credit reform affects have not
    achieved full compliance, HUD stated. However, HUD pointed out,
    FHA has achieved compliance for its credit programs in accordance
    with private sector accounting standards-that is, FHA has received
    an unqualified (clean) audit opinion under generally accepted
    accounting principles for its financial statements since 1993. As
    a result of the qualification in HUD's fiscal year 1997
    consolidated financial statement audit, FHA has developed a plan
    to comply with the reporting requirements of SFFAS No. 2. HUD
    asserted that its work and accomplishments in this area had been
    praised in another GAO report titled Credit Reform: Key Credit
    Agencies Had Difficulty Making Reasonable Loan Program Cost
    Estimates. (Our credit reform report was a draft report at the
    time HUD made these comments). HUD concluded, therefore, that
    there appeared to be a tension, if not direct contradiction,
    between this other report and the statement of facts. Also, HUD
    stated that we should emphasize the accomplishment of receiving a
    qualified opinion because 2 years ago, the Department was not able
    to receive any type of opinion on its financial statement. Page
    103                           GAO/RCED/AIMD-99-189 HUD's
    Management Challenges Appendix II GAO's Responses to HUD's
    Comments on the Major Challenges and Program Risks Identified in
    GAO's Statement of Facts GAO's Response Our report on credit
    reform entitled Credit Reform: Key Credit Agencies Had Difficulty
    Making Reasonable Loan Cost Estimates (GAO/AIMD-99-31) was issued
    on January 29, 1999. This report showed that three out of the five
    key credit agencies we reviewed were not able to comply with
    credit reform, including HUD. The discussion in that report
    related to HUD's ability to comply with credit reform was entirely
    consistent with our January 1999 report. For example, our credit
    reform report stated, "HUD was unable to provide adequate
    supporting data for its fiscal year 1997 financial statements
    estimates of its loan program costs, which resulted in a qualified
    audit opinion from HUD's IG [Inspector General] on those financial
    statements. This lack of supporting data also raises questions
    about the integrity of loan program cost information submitted for
    budgetary purposes." The report also contained a discussion of the
    effort made by HUD in 1998 to resolve this problem and the plan it
    developed. (Also, see our response to HUD's comment 18 on the
    fiscal year 1998 financial statement audits.) 29. HUD's Comment,
    p. 38 HUD commented that our statement, "Although HUD has reduced
    its material weaknesses from 51 in fiscal year 1991 to the 9
    remaining open as of fiscal year 1997, some of the remaining
    weaknesses are long-standing," was very dismissive in its tone, so
    HUD suggested deleting the "although." HUD maintained that the
    reduction was real progress. GAO's Response Our statement intended
    to provide evidence of the progress HUD has made since 1991 in
    this area. At the same time, it is important to note that some of
    the nine material weaknesses remaining open as of fiscal year 1997
    are indeed long-standing-one dates back to 1983, while four others
    date back to 1993-and some, such as those relating to the $18
    billion rental assistance program, involve billions of dollars. It
    should also be noted that in our February 1997 High-Risk Series
    report, we reported that at the end of fiscal year 1995, HUD
    reported that it had nine material internal control weaknesses,
    the same number as in 1997. Since our February 1997 report, HUD
    has removed four material Page 104
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    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts weaknesses and added
    four, so the total remains at nine. The four areas in which
    material weaknesses were removed were community development block
    grant entitlements, Section 236 excess rental income, Section 235
    accounting system, and the title II prepayment and preservation
    program. The four material weaknesses added involved the
    monitoring of insured mortgages and multifamily projects,
    Secretary-held multifamily and single-family mortgage notes,
    income verification, and contracting. We deleted the word
    "although" in our January 1999 report, as suggested by HUD. 30.
    HUD's Comment, p. 39 HUD questioned the use of material from our
    report Housing Preservation: Policies and Administrative Problems
    Increase Costs and Hinder Program Operations (GAO/RCED-97-169,
    July 18, 1997) as an illustration of monitoring problems at HUD.
    The Department pointed out that the program is no longer funded
    and that the remaining issues from that report relate to oversight
    of those projects that were funded and their compliance with
    affordability restrictions that owners agreed to in exchange for
    financial incentives. According to HUD, since the report was
    issued in July 1997, the Department, along with Multifamily
    Housing in particular, has taken significant steps that will
    greatly enhance its ability for project oversight to ensure
    compliance with program requirements. HUD also explained the steps
    it has taken to enhance its ability to ensure compliance with
    program requirements. GAO's Response The description in our
    statement of facts of the problems we found in HUD's preservation
    program was accurate. Contrary to HUD's assertion that the report
    dealt mainly with funding and targeting aspects of the program,
    substantial segments of the report dealt with problems in HUD's
    management and oversight of the program. As noted in our report,
    these problems contributed to the program's high cost and hampered
    its effectiveness. One of the key problems we identified was that
    headquarters' oversight of its field offices' implementation of
    the program was limited. For example, headquarters did not conduct
    systematic reviews of field offices that processed preservation
    transactions, and the information received by headquarters was
    generally limited to the aggregate dollar amounts of the
    preservation incentives approved by field offices. As a result,
    HUD headquarters was not in a position to identify or Page 105
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    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts respond effectively
    to problems and issues that arose. We also questioned whether some
    of the reviews performed by HUD field offices of applications for
    preservation funding were sufficient to ensure that the costs were
    prudent and represented the best use of preservation funds. While
    the Congress terminated funding for the preservation program, a
    key factor in the Congress's decision was HUD's poor management of
    the program-a point clearly stated in our statement of facts we
    provided to the Department. HUD remains responsible for ensuring
    that property owners who participated in the program comply with
    affordability restrictions that were placed on their properties
    and stated that its newly created Office of Quality Assurance will
    be testing cases and project managers' follow-up to ensure that
    HUD's field offices are addressing the affordability and
    compliance requirements under the preservation program. While we
    have not performed any recent work to assess HUD's actions in this
    area, the Department did not indicate that any such reviews have
    been performed or that it has formulated any specific guidance for
    its field offices to follow on how they should monitor property
    owners' compliance with affordability restrictions (a weakness
    identified in our report). 31. HUD's Comment, p. 41 According to
    the Department, GAO's statement, "HUD's inability to implement
    plans under 2020 for handling properties on which borrowers
    defaulted was due to a shortage of Single Family staff because of
    downsizing." was false. HUD asserted that it has adequate staffing
    in its single-family housing operations. GAO's Response HUD's
    comment misstated the statement of facts we provided to the
    Department. Our statement of facts said that the Inspector General
    reported that "The problem [of oversight of contracts] was due to
    a shortage of single-family staff because of downsizing and HUD's
    inability to implement plans under 2020 for handling properties on
    which borrowers defaulted." Our statement of facts did not state
    or imply that HUD's inability to implement the 2020 plan was due
    to a shortage of staff because of downsizing. Also, we attributed
    the assessment to HUD's Inspector General in her December 1998
    semiannual report to the Congress. Page 106
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts However, we revised
    the above statement in our January 1999 report on HUD's major
    management challenges and program risks to reflect the specific
    wording used in the Inspector General's semiannual report and to
    more fully describe her reasons for characterizing the oversight
    of contractors as inadequate. 32. HUD's Comment, p. 42 HUD
    commented that we gave "only passing reference to the Home Buyer
    Protection Plan, in fact just one sentence." HUD explained that it
    is aggressively implementing the plan, which was announced in June
    1998. GAO's Response We disagree that more information on the Home
    Buyer Protection Plan was needed in our January 1999 report. Many
    of the plan's procedures and operations had not been finalized or
    implemented at that time. Therefore, we are unable to comment on
    whether the Home Buyer Protection Plan has led to substantial and
    verifiable results in improving HUD's appraisal process. After we
    issued our report on HUD's major management challenges and program
    risks, in April 1999 we issued a report on HUD's appraisal
    process, which discussed, among other things, potential changes to
    various processes resulting from the Home Buyer Protection Plan.4
    33. HUD's Comment, p. 43 HUD disagreed with our statement that it
    is too early to assess the effectiveness of the reform efforts to
    address internal control weaknesses. HUD stated that giving only
    one sentence for such a major reform is misleading to the reader
    and indicates a bias against documenting how substantially HUD has
    reduced risk. HUD stated that we are taking the approach that
    unless "operational perfection is attained . . . then the work and
    efforts to date remain unrecognized, unmeasurable, and without
    impact on the HUD operations." HUD also stated that our statement
    of facts did not recognize the risk assessments that had been
    completed, the internal control training provided to its managers,
    the high-level management attention paid to corrective action
    plans, and the demonstrable steps taken toward resolving several
    open material weaknesses. HUD also pointed to the Booz-Allen
    Hamilton study issued in March 1998 as further evidence that
    progress is being made. 4Single-Family Housing: Weaknesses in
    HUD's Oversight of the FHA Appraisal Process (GAO/RCED-99-72, Apr.
    16, 1999). Page 107                              GAO/RCED/AIMD-99-
    189 HUD's Management Challenges Appendix II GAO's Responses to
    HUD's Comments on the Major Challenges and Program Risks
    Identified in GAO's Statement of Facts GAO's Response Our
    statement of facts recognized the steps HUD has taken to address
    its internal control weaknesses, such as risk assessments that
    have been and are being performed and internal control training
    provided to its managers, as discussed in our response to comment
    23. We also recognized in our statement of facts that the 2020
    reform plan has potential for addressing HUD's deficiencies. Our
    basic point on internal control weaknesses and HUD's other
    management deficiencies is that HUD is making significant changes
    and has made credible progress since 1997 in laying the framework
    for improving the way the Department is managed. However, given
    the nature and extent of the challenges facing the Department, it
    will take time to implement and assess the impact of any related
    reforms. While major reforms are under way, several are in the
    early stages of implementation, and it is too soon to tell whether
    or not they will resolve the major deficiencies that we and others
    have identified. Consequently, we continue to believe, as we
    reported in 1995 and 1997, that these management deficiencies,
    taken together, place the integrity and accountability of HUD's
    programs at high risk. HUD indicated that a study by Booz-Allen is
    further evidence that progress is being made. This review, which
    primarily involved Booz-Allen's review and analyses of HUD's
    staffing requirements under the 2020 reorganization, was conducted
    from December 19, 1997, through February 27, 1998. Booz-Allen
    obtained information for its study primarily by reviewing HUD's
    implementation plans and assessing the adequacy and reasonableness
    of the staffing levels proposed in each plan. While the Booz-Allen
    study noted that the 2020 organization is in place, as stated in
    HUD's comments, it also characterizes some of the changes under
    the reorganization much the same as we did, namely, as being in
    process. For example, the study stated that the organization "is
    being staffed" and that "progress has been made in implementing
    the revised organizations." The study did not offer evidence of
    substantial and verifiable results in resolving HUD's management
    deficiencies as a result of the 2020 reforms. Furthermore, the
    study is dated March 1998, before all of the centers were
    operational, HUD's downsizing was officially halted, or the
    "unplaced" staff were given permanent assignments. Page 108
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    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts 34. HUD's Comment, p.
    44 HUD commented that the heading in our statement of facts "Much
    Work Remains on HUD's Information and Financial Management
    Systems" mischaracterized the work that the Department has done in
    the past 2 years. For example, HUD stated that it has developed
    and implemented 11 new systems and that all of its accounting
    systems are A-127 compliant. HUD suggested that the heading be
    revised to "Much Work Has Been Accomplished Relating To HUD's
    Information and Financial Management Systems." GAO's Response Our
    statement of facts and December 1998 report on HUD's information
    systems noted that progress has been made in developing and
    deploying systems. However, our December 1998 report concluded
    that while the Department has developed and deployed various
    modules and systems for 12 of the 14 different projects initiated
    under the 1993 and 1997 financial systems integration strategies,
    the systems integration effort has not yet been completed.
    Additional work that must be completed before HUD has integrated
    its financial management and information system includes (1)
    developing interfaces between the mixed systems and the core
    financial management system and (2) completing the individual
    systems integration projects (i.e., the mixed systems) such as the
    Grants Evaluation Management System, FHA's Mortgage Insurance
    System, and the FHA Financial Data Warehouse. In addition, as
    pointed out in our 1999 report on HUD's major management
    challenges and program risks, work on cleaning and verifying
    certain data elements from 18 different financial and mixed
    systems is in process. 35. HUD's Comment, p. 45 HUD commented that
    our statement that most of HUD's systems, "did not comply with
    Federal Managers' Financial Integrity Act (FMFIA) and therefore
    could not be relied upon to provide timely, accurate and reliable
    financial information and reports to management," was misleading,
    given the documentation that had been provided to us. HUD also
    stated that it has had far more vigorous standards for compliance
    with FMFIA than any other federal agency. While HUD noted that
    some nonfinancial systems are not yet compliant with the act, it
    stated the systems that have the most risk exposure for HUD are
    fully compliant. Page 109                           GAO/RCED/AIMD-
    99-189 HUD's Management Challenges Appendix II GAO's Responses to
    HUD's Comments on the Major Challenges and Program Risks
    Identified in GAO's Statement of Facts GAO's Response HUD's
    comment misstated the statement of facts we provided to the
    Department. The statement appeared in a paragraph that began, "In
    1997 we reported. . . ." This paragraph summarized the information
    we had reported in our 1997 High-Risk Series report regarding
    information and financial management systems. We reported that at
    that time, 93 of HUD's 116 systems did not comply with FMFIA. In
    our January 1999 report on HUD's major management challenges and
    program risks, we reiterated the phase "in our 1997 report" to
    make it clearer that the statement referred to HUD's past
    problems. In our statement of facts, we acknowledged that HUD in
    1998 reported that 38 of its 92 systems were not in compliance
    with FMFIA. However, we also reported that for three systems we
    reviewed, HUD's determination that the systems complied with FMFIA
    requirements was based upon staff members' knowledge, without any
    verification or documentation. In addition, our statement of facts
    reported that the Inspector General's March 1998 report to the
    Congress pointed out that 21 of the 31 systems that HUD had
    reclassified as conforming in 1998 did not have detailed
    assessments and justifications available, as required by HUD's
    CFO. HUD's internal guidance for these reviews did not stipulate
    when or how the program staff should verify that the systems met
    OMB's requirements. (Also see our response to comment 14 regarding
    the Department's assertion that it may have more vigorous
    standards for complying with FMFIA than any other federal agency.)
    36. HUD's Comment, p. 45 HUD commented that our statement of facts
    negatively described HUD's data clean up efforts and that our
    description had a dismissive tone that incorrectly ignored its
    work to date. GAO's Response We disagree. Our statement of facts
    presented a factual discussion of the status of HUD's data cleanup
    efforts, which we said were ongoing, and concluded that it was too
    soon to assess their impact. Page 110
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts 37. HUD's Comment, p.
    45 HUD commented that it agreed with the general recommendations
    in our December 1998 report on HUD's information systems but that
    the thrust of our report was not properly focused and was in some
    cases inaccurate. According to HUD, "The report is not accurate
    concerning the dollars expended on the development of financial
    systems; the report does not properly compare like systems when
    year to year comparisons are made; and most importantly, the
    report does not cite in its conclusions the many system
    improvements that HUD has accomplished. In short, the conclusions
    and recommendations are focused almost entirely on process
    improvements and are not properly balanced by summarizing the
    major system accomplishments of the Department." GAO's Response
    The majority of these comments are associated with our December
    1998 report and do not relate to issues discussed in our statement
    of facts. HUD's comments and our responses to those comments were
    contained in our December 1998 report and are discussed in the
    following passages-items 38 through 43. 38. HUD's Comment, pp. 46-
    49 HUD commented that our December 1998 report was not accurate
    about the dollars expended on the development of financial
    systems. HUD also commented that the report indicated that the
    initial cost of the Department's financial systems integration
    (FSI) strategy was $103 million; that the number increased to $206
    million with the 1993 strategy; and that by the end of fiscal year
    1999, the cost would be approximately $540 million. According to
    HUD, this interpretation was misleading and inaccurate because it
    did not compare like systems and did not differentiate development
    costs, maintenance costs, and non-FSI costs. "A more accurate
    estimate for the FSI effort is $250 million. This is a key point,"
    HUD asserted, "and the numbers and the text should be corrected. .
    . ." Page 111                           GAO/RCED/AIMD-99-189 HUD's
    Management Challenges Appendix II GAO's Responses to HUD's
    Comments on the Major Challenges and Program Risks Identified in
    GAO's Statement of Facts GAO's Response In our December 1998
    report and statement of facts we stated the Department expects to
    spend about $239 million for development costs plus $132 million
    for maintenance costs. However, we also reported that HUD had not
    yet finalized the plans, cost, and schedule to complete its
    current FSI strategy, and, therefore, FSI costs continue to be
    uncertain. Accordingly, HUD's estimates have fluctuated
    considerably, as reflected in various documents we received from
    the CFO and his staff. For example, cost estimates have changed
    from the $540 million reported by HUD in June 1998, to the $255
    million cited in the Department's November 12, 1998, comments on
    our draft report on information systems, to the $239 million that
    HUD reported a week later. However, we found that the $255 million
    and the $239 million estimates did not include at least $132
    million associated with maintaining FSI systems. As pointed out in
    our December 1998 report, HUD's continuing uncertainty as to what
    the total cost estimate is for FSI through September 1999,
    demonstrates the Department's need to develop and use well-defined
    cost-estimating processes to prepare reliable cost estimates. 39.
    HUD's Comment, p. 46 HUD commented that our December 1998 report
    did not properly compare like systems when year-to-year
    comparisons were made. GAO's Response In our December 1998 report,
    we responded to this comment by stating that we were asked to
    identify the initial objectives; development, deployment, and
    maintenance costs; and completion dates for HUD's FSI effort and
    how they had changed. Our report described the systems and the
    estimated costs that were included as part of the three plans and
    strategies for achieving integrated financial management systems.
    In addition, in our December 1998 report, we explained that HUD's
    underlying strategy to implement integrated financial management
    systems had changed three times. In finalizing the December 1998
    report, we also clarified estimates for the FSI strategies and the
    expected costs through fiscal year 1999. Page 112
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    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts 40. HUD's Comment, p.
    46 According to HUD, we did not cite the many system improvements
    that HUD has accomplished. GAO's Response As described, HUD's
    comment relates to our December 1998 report. We responded to this
    comment in our December 1998 report by summarizing the actions
    taken by HUD to date in our conclusions and adding information to
    our discussions of various FSI systems throughout the report. 41.
    HUD's Comment, p. 46 HUD commented that it was not given credit
    for the fact that it was one of the first agencies to implement
    the Information Technology Investment Portfolio System (I-TIPS).
    GAO's Response Our December report gave HUD credit for deploying
    I-TIPS to select information technology investments. However, it
    did not state that HUD was among the first agencies to implement
    I-TIPS because our work did not focus on comparing HUD to other
    federal agencies in implementing I-TIPS. Our objective was to
    determine whether HUD had followed industry best practices and had
    implemented the provisions of the Clinger-Cohen Act of 1996 and
    the Paperwork Reduction Act of 1995 that are required to manage
    FSI projects as investments. 42. HUD's Comment, p. 46 HUD
    commented that we also observed that the Department did not
    finalize the revised project plans for completing the core
    accounting system, HUDCAPS. HUD explained that it provided the
    final plan for completing HUDCAPS to us earlier. Furthermore, the
    Department pointed out that it recently installed a standard
    general ledger and chart of accounts, which the Department felt
    was barely mentioned in the statement of facts. Page 113
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    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts GAO's Response See
    GAO's response to comments 12 and 13. 43. HUD's Comment, pp. 46
    and 47 HUD felt that the accomplishments of the Department were
    scattered throughout and not properly brought together and
    highlighted; "cumulatively," HUD asserted, "they paint a very
    different picture of the agency's progress." GAO's Response HUD's
    comment is primarily associated with our December 1998 report on
    the Department's information systems. To respond to HUD's comment,
    we summarized the status of HUD's FSI effort to date and expanded
    the discussion of individual FSI projects to reflect the new
    information provided by HUD. Also, for our January 1999 report on
    HUD's major management challenges and program risks, we added
    information stating that HUD had told us that it had developed and
    deployed various modules and systems for 11 financial management
    systems. 44. HUD's Comment, p. 49 HUD commented that we made "a
    very weak mention" of the fact that the Department had completed
    its Year 2000 renovation of all systems, both mission critical and
    noncritical ahead of schedule. HUD also stated that we failed to
    mention that it was 93 percent complete with the certification of
    its systems and 86 percent complete with its implementation as of
    December 1998. GAO's Response Our January 1999 report on HUD's
    major management challenges and program risks was updated to
    reflect that recently HUD reported that the certification of its
    systems was 93 percent complete and its implementation was 86
    percent complete. Page 114
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    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts 45. HUD's Comment, p.
    49 HUD disputed our use of the weaknesses we reported in its
    estimates of project-based Section 8 amendment needs and
    recaptures of project-based Section 8 funding as an example of a
    financial management systems problem.6 (The reports in question
    are our reports entitled Section 8 Project-Based Rental
    Assistance: HUD's Processes for Evaluating and Using Unexpended
    Balances Are Ineffective (GAO/RCED-98-202, July 22, 1998) and
    Section 8 Tenant-Based Housing Assistance: Opportunities to
    Improve HUD's Financial Management (GAO/RCED-98-47, Feb. 20,
    1998). HUD asserted that the Congress's decision to reduce budget
    authority associated with project-based Section 8 amendments by
    $2.9 billion was a policy decision rather than attributable to a
    systems problem. GAO's Response While the Congress's decision to
    reduce the funding for Section 8 amendments was ultimately a
    policy decision, HUD failed to note that the decision was reached
    only after we identified serious flaws in the estimates of the
    project-based Section 8 amendment needs that HUD had provided to
    the Congress in connection with its fiscal year 1999 budget
    request. More specifically, we found that HUD had substantially
    overestimated its long-term funding needs for project-based
    Section 8 amendments and had underestimated the amount of
    recaptured funds that could be used to meet its fiscal year 1999
    amendment needs. These problems occurred because HUD did not
    ensure that the data used to analyze project-based Section 8
    amendment needs were complete, accurate, and current. HUD also did
    not sufficiently review the analyses of amendment needs that a HUD
    contractor performed to ensure that they were reliable. We found
    substantive errors in these analyses. When these errors were
    corrected and the analyses were updated to take into account the
    OMB's then-current economic assumptions, the estimate of long-term
    shortfalls in Section 8 amendment needs decreased from $19 billion
    to less than $2 billion. Furthermore, while HUD's budget request
    indicated that only $463 million in recaptured funds could be used
    to offset fiscal year 1999 Section 8 amendment needs, the revised
    analyses indicated that HUD would be able to recapture almost $3.7
    billion from Section 8 contracts expiring in fiscal years 1998 and
    1999, a substantial portion of which could be used to offset these
    needs. We also note that in responding to our December 1998
    report, HUD agreed with our recommendation for 6Amendment funding
    is provided to Section 8 contracts that have insufficient funding
    available for HUD to make rental assistance payments through the
    remaining life of the contracts. In contrast, for project-based
    Section 8 contracts for which expenditures have been less than
    anticipated, funds may be recaptured and used to help fund other
    Section 8 contracts. Page 115
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts improvements in its
    preparation of future budget requests for the Section 8 project-
    based program. 46. HUD's Comment, p. 50 HUD commented that we
    painted an inaccurate picture of its oversight of the Section 8
    tenant-based and project-based assistance programs. HUD pointed
    out that no housing authority had ever double-paid administrative
    fees and that it had not yet agreed with our assertion that fees
    have been double-counted for project-based assistance. HUD
    disputed the reference to $1 billion and believed that $1,416,000
    (annual cost) would depict a more adequate accounting picture. HUD
    also asserted that its process model was appropriate, although we
    and the Congress disagreed with the approach and assumptions that
    provided for level funding of increases for Section 8 over the
    budget period and the application of current excesses. GAO's
    Response We agree that language in our statement of facts could
    have been construed to mean that administrative fees to housing
    agencies had been double paid in both the tenant- and project-
    based programs, although this was not the statement's intent. Our
    January 1999 report on HUD's major management challenges and
    program risks clarified that the double-counting occurred only in
    the budgeting process and did not involve the project-based
    portion of the Section 8 program. However, our statement that HUD
    in September 1997 submitted to the Congress a revised budget
    estimate that was over $1 billion less than its original estimate
    for renewing Section 8 housing assistance contracts was correct.
    Furthermore, the principal reason for this amended budget request
    was, as HUD stated in its comments on our report, the
    identification of the double-counting error and its subsequent
    adjustment. Regarding project-based Section 8 amendments, HUD was
    incorrect in stating that we and the Congress disagreed with the
    approach and assumptions that provided for a level funding of
    Section 8 increases over the budget period. Our concerns with
    HUD's estimates of Section 8 amendment needs had nothing to do
    with the concept of leveling out funding shortfalls. The revised
    analyses cited in our report on project-based Section 8 unexpended
    balances all used the leveling methodology that HUD built into its
    Budget Forecasting System model. Under this approach, HUD spreads
    estimated funding shortfalls over the Page 116
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    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts remaining term of a
    Section 8 contract rather than beginning to recognize them in the
    year in which the contract is projected to run out of funds.
    Instead, as discussed in our response to the previous comment, our
    concerns related to the fact that HUD's estimates of amendment
    needs were overstated because of errors, omissions, and
    methodological weaknesses. 47. HUD's Comment, p. 51 HUD commented
    that we repeated our statement, "In 1997... we noted that HUD had
    reported most of its systems did not comply with FMFIA and
    therefore could not be relied upon to provide timely, accurate,
    and reliable financial information and reports to management."
    four times and that HUD finds no fault with its methodology to
    determine compliance with FMFIA. HUD suggested that we rewrite
    this section in a more positive tone. GAO's Response HUD is
    incorrect. This statement was not repeated in our statement of
    facts, although we did mention FMFIA a number of times in
    describing HUD's management deficiencies in internal controls and
    information systems. As in the other sections of our statement of
    facts, we began the discussion of information and financial
    management systems with a summary statement of concerns described
    in our 1997 High-Risk Series report, which included this
    statement. We then discussed the current status of systems'
    compliance and HUD's determination of their conformance with FMFIA
    standards. In our statement of facts, we also discussed FMFIA
    under the section on internal controls. That discussion focused on
    the material internal control weaknesses identified through HUD's
    FMFIA assessment, and we noted that HUD had reduced the number of
    weaknesses identified. We did not reword the lead-in paragraph to
    this section, as HUD suggested, because it was a restatement of
    facts in an issued GAO report. Material weaknesses reported under
    FMFIA are those management control deficiencies that the agency
    head determines are significant enough to be reported in the
    annual FMFIA report. In addition, government auditors are also
    required to identify management control weaknesses that, in their
    opinion, pose a risk or threat to the internal control systems of
    an audited entity, such as a program or operation, even if the
    management of the entity would not report the weaknesses outside
    of the agency. HUD's Office of Inspector General uses the terms
    "material weaknesses" and "reportable conditions" to identify
    these weaknesses. Page 117
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    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts 48. HUD's Comment, p.
    51 HUD commented that we painted a negative picture of FHA's
    compliance with the Credit Reform Act of 1990. GAO's Response See
    our responses to comments 18 and 28. In our January 1999 report,
    we moved the paragraph to which HUD referred and combined it with
    the discussion of credit reform in a section on internal controls.
    49. HUD's Comment, p. 53 HUD commented that our statement, "HUD
    expects to improve both the efficiency and effectiveness of its
    operations through these organizational changes," did not reflect
    that HUD's organizational changes, implemented through the HUD
    Management Reform Plan, were already improving the efficiency and
    effectiveness of operations. As proof, HUD cited excerpts from two
    reports prepared by HUD consultants. GAO's Response As described
    in our statement of facts, while HUD's organizational structure is
    in place, it is too early to assess whether the problems we
    identified in the past have been corrected. Specifically, the
    enforcement, financial management, and real estate assessment
    centers will not be performing all of their centralized functions
    until 1999 and 2000, when the transfer of functions from the field
    offices to the centers has been completed. Consequently, we cannot
    yet determine if these reform efforts have led to substantial and
    verifiable results in resolving HUD's management deficiencies.
    Moreover, neither HUD nor the consultants it cited provided any
    evidence demonstrating that the organizational changes have led to
    substantial and verifiable results in resolving management
    deficiencies. Rather, one of the consultants, David Osborne,
    endorsed the 2020 plan's concept and discussed improvements that
    will occur to HUD's operations once the plan is implemented. The
    other consultant, PricewaterhouseCoopers, in its December 1998
    report on HUD's 2020 reforms, found that implementation of some of
    the 2020 plan's reforms-such as the establishment of the community
    builders and the enforcement, real estate assessment, and troubled
    agency recovery centers-is well under way, with each project Page
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    Management Challenges Appendix II GAO's Responses to HUD's
    Comments on the Major Challenges and Program Risks Identified in
    GAO's Statement of Facts meeting or substantially meeting all of
    the critical milestones that HUD established for completion as of
    September 1; however, the report did not address the effectiveness
    of the changes being made or completed. 50. HUD's Comment, p. 55
    HUD commented that our statement, "the organizational changes were
    generally not based on empirical analysis or studies," was
    completely inaccurate. HUD referred to a March 5, 1998, letter to
    GAO, which laid out different analytical methods used to design
    the 2020 plan, including the review of critical reports; pilot
    program experience; change agent teams; and consultations with
    outside experts, affected constituent groups, the Congress, and
    HUD's Inspector General. HUD also commented that it consulted with
    recognized management experts prior to the June 1997 release of
    the 2020 plan, and with affected constituent groups and the
    Congress after the plan's release. In addition, HUD stated that it
    had incorporated the Inspector General's suggestions into its
    implementation plans. GAO's Response HUD's March 5, 1998, letter
    was in response to a draft of our report entitled HUD Management:
    Information on HUD's 2020 Management Reform Plan (GAO/RCED-98-86,
    Mar. 20, 1998). In both that report and our statement of facts, we
    stated that the efficiencies HUD claimed under the 2020 plan were
    generally not based on detailed empirical analyses or studies.
    Instead, HUD relied on a variety of factors, including workload
    data; the limited results of one pilot project; best practices
    identified in HUD field offices; benchmarks from other
    organizations, and managers' and staff members' experience and
    judgment. We agree that consultations with management experts,
    affected constituent groups, the Congress, and HUD's Inspector
    General are useful in improving the reforms being undertaken
    (including organizational changes) and building support for them.
    However, the purpose of our January 1999 report was to provide
    information on HUD's analytical support for the efficiencies it
    expects from the reforms-that is, the extent of data supporting
    the anticipated quantitative and qualitative benefits stated in
    the 2020 reform plan. Page 119
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    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts 51. HUD's Comment,
    pp. 58-60 HUD commented that our heading "Organizational Structure
    Is in Place, but Transfer of Functions and Responsibilities Is in
    Transition" and the information following it should be changed to
    reflect that centers established under the 2020 plan are
    "performing significant functions which provide vital support to
    all of the Department's major program areas." HUD discussed the
    operations of some of the centers, other management reforms in
    program areas, and the efforts of the community builders and
    community builder fellows. GAO's Response We believe that our
    heading was supported by the information we included in the
    section and that it provided an accurate description of HUD's
    status in implementing its organizational changes under the 2020
    reforms. For example, when the transfer of the financial
    management workload for approximately 21,000 housing assistance
    contracts from the Office of Housing field offices to the
    financial management center occurs will depend on when contract
    administrators are selected and deployed. According to the
    director of the financial management center, the transfer may not
    take place until late 1999 or early 2000. Our basic point is that
    although a new field organization structure is now in place and
    operational, it is too early to assess the effectiveness of this
    structure in correcting organizational deficiencies. The
    enforcement, financial management, and real estate assessment
    centers will not be performing all of their centralized functions
    until 1999 and 2000, when the transfer of functions from the field
    offices to the centers has been completed. 52. HUD's Comment, p.
    60 HUD commented that we made a broad generalization in saying
    that "most managers and staff said the transfer of functions was
    in transition and they did not know when it would be complete."
    Since we visited "only five HUD offices and a small number of
    headquarters organizations," the Department asserted, we were
    "reporting hearsay rather than statistically significant fact."
    Page 120                           GAO/RCED/AIMD-99-189 HUD's
    Management Challenges Appendix II GAO's Responses to HUD's
    Comments on the Major Challenges and Program Risks Identified in
    GAO's Statement of Facts GAO's Response From July through October
    1998, we interviewed HUD officials in the Denver homeownership
    center; the Ft. Worth, Chicago, Houston, and New Orleans field
    offices; the troubled agency recovery center at Memphis; and the
    real estate assessment and enforcement centers in Washington,
    D.C., about various aspects of their operations before the 2020
    reforms were implemented and after their implementation. We also
    interviewed randomly selected professional staff from each of the
    program areas in those locations. In total, we interviewed over 50
    program managers and professional staff from 25 programs at the
    locations we visited. The purpose of our interviews was not to
    obtain a statistically valid sample of HUD employees' views on the
    reorganization. Rather, it was to obtain information from program
    managers and staff at selected locations affected by the
    reorganization. In response to HUD's comment, however, our final
    report, where appropriate, indicated that the views expressed are
    those of the HUD staff that were interviewed only. 53. HUD's
    Comment, p. 60 HUD commented that our statement, "Although a field
    organization structure is in place, staffing decisions were only
    recently completed, and some centers are significantly
    understaffed," was "just wrong." HUD stated that staffing at the
    enforcement center would be completed in February and that
    staffing at the real estate assessment center was on target with
    its phased systems. GAO's Response It was not the intent of our
    statement of facts to imply criticism about staffing levels but,
    rather, to provide evidence on the status of staffing. As we
    stated in our statement of facts, staffing decisions for about
    1,300 employees were completed in September 1998, when the
    unplaced staff were given permanent assignments. The reported
    staffing levels at the centers were based upon our interviews
    through October, and the time frames were noted in our statement
    of facts. We also recognized in our statement of facts that HUD
    managers expected to advertise the unstaffed positions in 1999. In
    its comments, HUD also noted that full staffing at the centers had
    not yet been achieved. We deleted the word "significantly" from
    the discussion of staffing levels in our January 1999 report on
    HUD's major management challenges and program risks. Page 121
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts 54. HUD's Comment, p.
    62 HUD commented that our statement, "Staff losses were recovered
    after HUD decided in May 1998 to assign unplaced staff to
    permanent positions," failed to recognize one of the major goals
    of the 2020 plan, which is to change the way the Department
    operates. According to HUD, to ensure that additional staff
    addressed management deficiencies, unassigned staff were placed in
    areas that represented long-standing departmental problems that
    2020 had addressed. GAO's Response It is not clear to us what HUD
    intended with this statement. The point of this section of our
    statement of facts was to demonstrate that staffing under HUD's
    new organizational structure was in transition because some
    positions were only recently filled and some of the centers
    established under the 2020 plan were not yet fully staffed. 55.
    HUD's Comment, p. 63 HUD commented that we should update our
    statement that "the Enforcement Center had only 62% of its staff"
    to reflect the staffing level it intended to achieve by the end of
    January 1999. HUD also noted that the remaining positions were due
    to be filled by February 1999. GAO's Response Our statement of
    facts noted what HUD's staffing levels were as of the time of our
    work and stated that the managers of the centers planned to
    advertise the remaining positions in 1999. To add material to our
    final report on when expected staffing levels would be met would
    not have been appropriate in our opinion because of the degree of
    uncertainty that surrounded some of HUD's staffing expectations.
    For example, the director of the enforcement center told us that
    he was not sure whether positions would be filled at the center
    because they had been advertised previously but had not been
    filled. 56. HUD's Comment, p. 63 HUD commented that our interviews
    must have been premature because our statement, "to date there has
    not been a significant shift of workload from the field offices to
    the centers, according to the staff and managers we interviewed
    from July through October," was totally inaccurate. HUD Page 122
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts provided an example
    of 200 referrals of troubled projects to the enforcement center
    and spoke of the shift of some work to the financial management
    center and the grants management center. GAO's Response Our
    statement of facts reflected the status of workload transfers at
    the time of our review. As pointed out in our January 1999 report
    on HUD's major management challenges and program risks, the real
    estate assessment, enforcement, and financial management centers
    will not be performing all of their centralized functions until
    1999 and 2000. While the real estate assessment center had
    inspected over 4,200 multifamily properties as of December 1998,
    it would not begin financial assessments of multifamily properties
    until around April 1999, and it will not begin its physical
    inspections and financial assessments of public housing
    authorities until 1999 and 2000, respectively. In this regard, it
    should be noted that HUD's portfolio of multifamily properties
    totals around 32,000 and more than 13,000 public housing
    developments nationwide. Furthermore, the enforcement center was
    not scheduled to begin receiving referrals of multifamily
    properties from the real estate assessment center until around
    April 1999. The transfer of the Section 8 financial management
    processing workload from HUD's public housing field offices to the
    financial management center was expected to be completed in
    January 1999. However, the transfer of the Section 8 financial
    management workload relating to 4,600 annual contribution
    contracts from the Office of Housing field offices to the
    financial management center was not to begin until February 1999
    and was expected to be completed in mid- to late summer 1999.
    Also, when the transfer of the financial management workload for
    approximately 21,000 housing assistance contracts from the Office
    of Housing field offices to the center occurs will depend on when
    contract administrators are selected and deployed. According to
    the director of the financial management center, the transfer may
    not take place until late 1999 or early 2000. In addition, we do
    not believe that the referral of 200 cases of troubled projects to
    the enforcement center represents a significant shift in workload
    because HUD has at least 2,500 troubled multifamily projects in
    inventory, and, by some of its own estimates, the total may be as
    high as 5,000. In addition, a significant function of the
    financial management center relates to the Office of Housing's
    workload, which has yet to be transferred. Page 123
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts 57. HUD's Comment, p.
    65 In reference to our statement that "HUD's single family
    homeownership centers cannot handle the current workload of HUD's
    inventory," the Department stated that FHA had not yet implemented
    scheduled staffing reductions in the single-family HUD-owned
    property disposition or asset management divisions and that any
    criticism of FHA's performance in this area could not be linked to
    a reduction in staffing levels for single-family properties. HUD
    also pointed out that the fact that about 60,000 properties were
    sold indicates that staffing levels are adequate. HUD also stated
    that FHA is in the process of implementing new marketing and
    management contracts to maintain, protect, and sell HUD-owned
    properties, which will allow for a realignment of HUD staffing.
    The contract is based on a pilot program operated in three
    locations over the last 2 years. GAO's Response We revised our
    January 1999 report on HUD's major management challenges and
    program risks, deleting the reference to inadequate staffing as a
    reason for not being able to handle the workload. Our statement
    was based on HUD's Inspector's General's December 1998 report to
    the Congress. HUD's conclusion that selling 60,000 properties
    indicates that staffing is adequate is questionable. When the 1989
    HUD scandals occurred, HUD was selling a large number of
    properties. The problem was not selling properties; rather, it was
    exercising proper control over the agents who were doing the
    selling and over the properties while they were in HUD's
    inventory. It should be noted that in discussing the contracting
    pilot, HUD focused on its successful aspects and did not mention
    other aspects of the pilot that were less successful. For example,
    HUD stated that at two pilot sites, the average sales price
    increased and FHA's average profit per property sold increased or
    remained constant. This is not the complete story. According to
    HUD's evaluation of the pilot, the sales price at one office
    increased by 17 percent, but the increase at the other site was
    minimal-less than 1 percent. The third site experienced an 8-
    percent loss. Regarding profit, one site experienced a 15-percent
    increase, a second experienced a 2-percent decrease, and at the
    third there was a "dramatic" decrease (the percentage is not cited
    in HUD's analysis). Thus, while the new approach Page 124
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts seems to offer
    potential, it is not clear how much more successful the new
    approach will be than HUD's traditional approach. 58. HUD's
    Comment, p. 67 HUD commented that our statement, "Because of the
    workload situation, it is taking HUD longer to sell the properties
    and, as a result, the OIG [Office of Inspector General] estimates
    the agency is incurring additional costs of $1 million a day," was
    "wholly inaccurate." GAO's Response Our statement was based on a
    December 1998 HUD Inspector General report to the Congress and was
    so attributed in our statement of facts. Because we had not
    independently verified this information, we deleted this sentence
    from our January 1999 report on HUD's major management challenges
    and program risks. 59. HUD's Comment, p. 68 HUD maintained that
    our statement, "Because staffing reforms have not been fully
    implemented, their effectiveness in correcting management
    deficiencies cannot be demonstrated," was wrong for two reasons.
    First, HUD stated that the 2020 staffing plan and placement
    actions were, for the most part, completed and implemented.
    According to HUD, "Nine thousand placement actions have been
    completed by the Department, as part of establishing new and
    operational management reform organizations." Second, HUD stated
    that reform operations were well under way, as "evidenced by the
    actual performance of workload requirements by all program and
    consolidated centers." GAO's Response We revised our January 1999
    report on HUD's major management challenges and program risks to
    state that, "Because staffing reforms and workload transfers from
    the field offices to the centers are still in transition, the
    effectiveness of HUD's changes in correcting staffing deficiencies
    cannot be determined." While we agree that the bulk of the
    staffing decisions resulting from the 2020 reforms have been made,
    we disagree that there is evidence that the resulting staffing
    levels are adequate to meet workload needs. As previously stated,
    workload transfer from the field offices to the centers is still
    in a transitional phase. Until Page 125
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix II GAO's
    Responses to HUD's Comments on the Major Challenges and Program
    Risks Identified in GAO's Statement of Facts most of that transfer
    takes place, neither the field offices nor the centers will know
    whether they can handle the workload. The director of the
    financial management center told us, for example, that the
    center's authorized staffing level would be inadequate once it
    assumed its full workload in about a year. In addition, as pointed
    out in our statement of facts and January 1999 report, both we and
    HUD's Inspector General reported that monitoring and oversight of
    programs continues to be a problem at HUD. 60. HUD's Comment, p.
    68 HUD noted that we cited HUD's material internal control
    weakness of "inadequate emphasis on providing early warning of and
    preventing losses due to defaults on insured mortgages" in our
    statement of facts. HUD provided information on actions it had
    planned or taken to address this weakness. GAO's Response The
    material internal control weakness cited by HUD was reported by
    independent public accountants in their audit of FHA's fiscal year
    1997 financial statements. On March 12, 1999, after the issuance
    of our January 1999 report on HUD's major management challenges
    and program risks, the same material internal control weakness was
    reported by an independent public accountant in its audit of FHA's
    fiscal year 1998 financial statements. 61. HUD's Comment, p. 72
    Criticizing a point we made about travel funds ("The lack of
    sufficient travel funds to conduct on-site monitoring of program
    activities is a problem. According to some officials, the scarcity
    of travel funds has prevented them from conducting some on-site
    reviews"), HUD characterized the statement as "another example of
    how GAO takes isolated comments garnered from a non-statistically
    significant base and extrapolates into broad generalizations and
    then does not even check the underlying facts." HUD pointed out
    that the travel budget has significantly increased from $13.5
    million to $15.6 million to $19 million for fiscal years 1997,
    1998, and 1999. Page 126                           GAO/RCED/AIMD-
    99-189 HUD's Management Challenges Appendix II GAO's Responses to
    HUD's Comments on the Major Challenges and Program Risks
    Identified in GAO's Statement of Facts GAO's Response We disagree
    with HUD's characterization of our statements. In our statement of
    facts, we clearly established that the information obtained was
    from interviews of managers and staff conducted during visits to
    six field locations. The information was not intended to be nor
    was it presented as the views of a larger group of HUD employees.
    Nevertheless, we revised our January 1999 report on HUD's major
    management challenges and program risks to specify that 15 of the
    program managers and groups of staff out of the 38 we interviewed
    expressed concerns regarding the availability of travel funds for
    monitoring. We also included in our January report HUD's comments
    regarding the increase in the budget for travel funds. However, it
    should be noted, as pointed out in the report, that increases in
    travel funds do not necessarily translate into more travel funds
    for monitoring programs. Finally, HUD's Inspector General has also
    reported that it has been told that travel funds for program
    monitoring may not be adequate. 62. HUD's Comment, p. 72 HUD
    commented that our statement, "Program officials and a community
    builder in one HUD field office identified a need for HUD to
    clarify the authority of the community builders in dealing with
    HUD staff, locally elected officials, and industry
    representatives," reflected an isolated instance that had been
    dealt with in training; therefore, HUD felt the statement should
    be deleted. GAO's Response We had included this example in our
    statement of facts because the incident that prompted both the
    community builder and program officials to bring it to our
    attention was in our opinion, and theirs, very serious. However,
    we deleted the example from our final report. Page 127
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix III
    Major GAO Reports on HUD's Management Community Development: Weak
    Management Controls Compromise Integrity of Four HUD Grant
    Programs (GAO/RCED-99-98, Apr. 27, 1999). HUD Information Systems:
    Improved Management Practices Needed to Control Integration Cost
    and Schedule (GAO/AIMD-99-25, Dec. 18, 1998). Section 8 Project-
    Based Rental Assistance: HUD's Processes for Evaluating and Using
    Unexpended Balances Are Ineffective (GAO/RCED-98-202, July 22,
    1998). Home Improvement: Weaknesses in HUD's Management and
    Oversight of the Title I Program (GAO/RCED-98-216, July 16, 1998).
    Appraisals for FHA Single-Family Loans: Information on Selected
    Properties in New Jersey and Ohio (GAO/RCED-98-145R, May 6, 1998).
    Housing Finance: FHA's Risk-Sharing Programs Offer Alternatives
    for Financing Affordable Multifamily Housing (GAO/RCED-98-117,
    Apr. 23, 1998). Single-Family Housing: Improvements Needed in
    HUD's Oversight of Property Management Contractors (GAO/RCED-98-
    65, Mar. 27, 1998). Year 2000 Computing Crisis: Strong Leadership
    Needed to Avoid Disruption of Essential Services (GAO/T-AIMD-98-
    117, Mar. 24, 1998). HUD Management: Information on HUD's 2020
    Management Reform Plan (GAO/RCED-98-86, Mar. 20, 1998). Section 8
    Tenant-Based Housing Assistance: Opportunities to Improve HUD's
    Financial Management (GAO/RCED-98-47, Feb. 20, 1998). Housing
    Preservation: Policies and Administrative Problems Increase Costs
    and Hinder Program Operations (GAO/RCED-97-169, July 18, 1997).
    High-Risk Series: Department of Housing and Urban Development
    (GAO/HR-97-12, Feb. 1997). HUD: Field Directors' Views on Recent
    Management Initiatives (GAO/RCED-97-34, Feb. 12, 1997).
    Multifamily Housing: Effects of HUD's Portfolio Reengineering
    Proposal (GAO/RCED-97-7, Nov. 1, 1996). Page 128
    GAO/RCED/AIMD-99-189 HUD's Management Challenges Appendix III
    Major GAO Reports on HUD's Management Housing and Urban
    Development: Limited Progress Made on HUD Reforms (GAO/T-RCED-96-
    112, Mar. 27, 1996). Homeownership: Mixed Results and High Costs
    Raise Concerns About HUD's Mortgage Assignment Program (GAO/RCED-
    96-2, Oct. 18, 1995). Housing and Urban Development: Public and
    Assisted Housing Reform (GAO/T-RCED-96-25, Oct. 13, 1995).
    Federally Assisted Housing: Expanding HUD's Options for Dealing
    With Physically Distressed Properties (GAO/T-RCED-95-38, Oct. 6,
    1994). Federally Assisted Housing: Condition of Some Properties
    Receiving Section 8 Project-Based Assistance Is Below Housing
    Quality Standards (GAO/T-RCED-94-273, July 26, 1994). Section 8
    Rental Housing: Merging Assistance Programs Has Benefits but
    Raises Implementation Issues (GAO/RCED-94-85, May 27, 1994). HUD
    Information Resources: Strategic Focus and Improved Management
    Controls Needed (GAO/AIMD-94-34, Apr. 14, 1994). Multifamily
    Housing: Status of HUD's Multifamily Loan Portfolios (GAO/RCED-94-
    183FS, Apr. 12, 1994). Multifamily Housing: Impediments to
    Disposition of Properties Owned by the Department of Housing and
    Urban Development (GAO/T-RCED-93-37, May 12, 1993). HUD Reforms:
    Progress Made Since the HUD Scandal, but Much Work Remains
    (GAO/RCED-92-46, Jan. 31, 1992). Increasing the Department of
    Housing and Urban Development's Effectiveness Through Improved
    Management (GAO/RCED-84-9, Vols. I and II, Jan. 10, 1984). Page
    129                        GAO/RCED/AIMD-99-189 HUD's Management
    Challenges Appendix IV GAO Contacts and Staff Acknowledgments GAO
    Contacts       Judy A. England-Joseph, (202) 512-7631 Linda M.
    Calbom, (202) 512-9508 Joel C. Willemssen, (202) 512-6408
    Acknowledgments    In addition to those named above, Shirley L.
    Abel, Yvette R. Banks, Jeannie B. Davis, David G. Gill, Angelia V.
    Kelly, Robert Procaccini, Phillis L. Riley, Stewart O. Seman, and
    John H. Skeen, III, made key contributions to this report.
    (385787)           Page 130                       GAO/RCED/AIMD-
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