HUD Management: Major Challenges and Program Risks (Testimony, 03/23/99,
GAO/T-RCED/AIMD-99-126).

Pursuant to a congressional request, GAO discussed its January 1999
report on the Department of Housing and Urban Development's (HUD) major
management challenges and program risks, focusing on: (1) corrective
actions that HUD has taken or initiated on its major management
challenges; (2) major management challenges that remain and limit HUD's
effectiveness in carrying out its mission; and (3) further actions that
are needed to resolve these challenges.

GAO noted that: (1) HUD is making significant changes and has made
credible progress in overhauling its operations to correct its
management deficiencies; (2) among other things, it has improved its
financial reporting and development risk assessments for its programs,
developed and deployed components for its information and financial
management systems, consolidated and centralized many of its operations,
and reassigned and begun to retrain many of its staff; (3) a major
contributor to this progress is HUD's June 1997 2020 Management Reform
Plan, a set of proposals intended to, among other things, correct the
management deficiencies that GAO and others identified; (4) however, it
should be recognized that HUD's problems were years in the making and
will take time and much effort to correct; (5) HUD management has placed
high priority on removing HUD programs from the high-risk designation,
but it will take continued and sustained efforts before meaningful and
lasting results can be achieved; (6) while major reforms are under way,
GAO's recent work indicates that internal control weaknesses and
problems with information and financial management systems persist; (7)
recently, GAO reported that HUD is likely to continue to spend millions
of dollars, miss milestones, and still not meet its objective of
developing and fully deploying an integrated financial management system
because it has not yet finalized detailed project plans or cost and
schedule estimates for this effort; (8) furthermore, recent reforms to
address HUD's organizational and staffing problems are in the early
stages of implementation, and it is too soon to tell whether the reforms
will resolve the major deficiencies that GAO and others have identified;
(9) therefore, pending the achievement of substantial results, the
integrity and accountability of HUD's programs remain at high risk in
GAO's opinion; and (10) GAO reached this conclusion using the same
methodologies and criteria as it used for its 1995 and 1997 reports.

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

 REPORTNUM:  T-RCED/AIMD-99-126
     TITLE:  HUD Management: Major Challenges and Program Risks
      DATE:  03/23/99
   SUBJECT:  Housing programs
             Internal controls
             Risk management
             Financial management systems
             Information resources management
             Reengineering (management)
             Public administration
IDENTIFIER:  HUD 2020 Management Reform Plan
             GAO High Risk Program
             
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Cover
================================================================ COVER


Before the Subcommittee on Housing and Transportation,
Senate Committee on Banking, Housing, and Urban
Affairs, U.S.  Senate

For Release
on Delivery
Expected at
9:30 a.m.  EST
Tuesday
March 23, 1999

HUD MANAGEMENT - MAJOR CHALLENGES
AND PROGRAM RISKS

Statement of Judy A.  England-Joseph, Director
Housing and Community Development Issues
Resources, Community, and Economic
Development Division

GAO/T-RCED/AIMD-99-126

GAO/RCED/AIMD-99-126T


(385788)


Abbreviations
=============================================================== ABBREV

  HUD -
  KPMG -
  LLP -
  CFO -
  FHA -
  FMFIA -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are here today to discuss the results of our work regarding the
major management challenges facing the Department of Housing and
Urban Development (HUD).\1 For many years, we and others (e.g., HUD's
Inspector General, external auditors) have reported significant
management problems at HUD.  These problems are the results of
serious, long-standing departmentwide deficiencies in four management
areas--internal controls, information and financial management
systems, organizational structure, and staffing.  In 1994, we
designated HUD programs as a high-risk area because of these
management deficiencies, and in 1995 and 1997,\2 we reported on the
deficiencies and HUD's progress in resolving them.  Taken together,
these deficiencies place the integrity and accountability of HUD's
programs at high risk.  These deficiencies can affect HUD's
management of significant financial commitments, obligations, and
exposure.  Resolving them is particularly critical for HUD because
its housing and community development programs rely extensively on
the integrity of thousands of diverse individuals and entities. 

Our statement today is primarily based on our January 1999 report on
HUD's major management challenges and program risks.  It discusses
(1) corrective actions that HUD has taken or initiated on its major
management challenges, (2) major management challenges that remain
and limit HUD's effectiveness in carrying out its mission, and (3)
further actions that are needed to resolve these challenges. 

In summary, we found the following: 

  -- HUD is making significant changes and has made credible progress
     in overhauling its operations to correct its management
     deficiencies.  Among other things, it has improved its financial
     reporting and developed risk assessments for its programs,
     developed and deployed components for its information and
     financial management systems, consolidated and centralized many
     of its operations, and reassigned and begun to retrain many of
     its staff.  A major contributor to this progress is HUD's June
     1997 2020 Management Reform Plan, a set of proposals intended
     to, among other things, correct the management deficiencies that
     we and others identified.  However, it should be recognized that
     HUD's problems were years in the making and will take time and
     much effort to correct.  Current HUD management has placed high
     priority on removing HUD programs from the high-risk
     designation, but it will take continued and sustained efforts
     before meaningful and lasting results can be achieved. 

  -- While major reforms are under way, our recent work indicates
     that internal control weaknesses and problems with information
     and financial management systems persist.  For example, material
     internal control weaknesses persist in the Section 8 subsidy
     payment process, which provides $18 billion in rental
     assistance, and HUD has not adequately monitored programs and
     functions, such as contractors' management of the Department's
     real estate assets.  Recently, we reported that HUD is likely to
     continue to spend millions of dollars, miss milestones, and
     still not meet its objective of developing and fully deploying
     an integrated financial management system because it has not yet
     finalized detailed project plans or cost and schedule estimates
     for this effort.\3 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 the reforms will resolve the major deficiencies that we
     and others have identified.  Therefore, pending the achievement
     of substantial results, the integrity and accountability of
     HUD's programs remain at high risk in our opinion.  We reached
     this conclusion using the same methodologies and criteria as our
     1995 and 1997 reports. 

  -- To resolve these management deficiencies, the Department needs
     to ensure that the actions being taken eliminate the remaining
     major internal control weaknesses; strengthen its management and
     oversight of efforts to integrate its information and financial
     management systems and correct these systems' weaknesses; ensure
     that the field offices have enough staff to carry out the work
     assigned, including the monitoring of programs and activities
     and the assessment of outcomes; and ensure that all staff have
     the skills needed to perform their functions. 


--------------------
\1 Major Management Challenges and Program Risks:  Department of
Housing and Urban Development (GAO/OCG-99-8, Jan.  1999). 

\2 High-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). 

\3 HUD Information Systems:  Improved Management Practices Needed to
Control Integration Cost and Schedule (GAO/AIMD-99-25, Dec.  18,
1998). 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

Directly or indirectly, HUD affects millions of Americans as it
carries out the federal government's missions, policies, and programs
for housing and community development.  These missions range from
making housing affordable by insuring loans for multifamily rental
housing properties and providing rental assistance for about 4.5
million low-income residents, to helping revitalize over 4,000
localities through community development programs, to encouraging
homeownership by providing mortgage insurance to about 7 million
homeowners who might not have been able to qualify for nonfederally
supported loans.  HUD is also one of the nation's largest financial
institutions, with significant commitments, obligations, and
exposure.  As of September 30, 1997, HUD was responsible for managing
about $454 billion in insured mortgages and $531 billion in
guarantees of mortgage-backed securities.\4 For fiscal year 1999, it
has $24.3 billion in budget authority. 

HUD initiated a number of reforms and downsizing efforts in the
1990s.  In February 1993, then Secretary Cisneros initiated a
reinvention process under which task forces were established to
review and refocus HUD's mission and identify improvements in the
delivery of program services.  HUD also took measures in response to
the National Performance Review's September 1993 report, which
recommended that HUD eliminate its regional offices, realign and
consolidate its field office structure, and reduce its field
workforce.  Following a July 1994 report by the National Academy of
Public Administration that criticized HUD's performance and
capabilities, Secretary Cisneros issued a reinvention proposal in
December 1994 that called for major reforms, including a
consolidation and streamlining of HUD's programs coupled with a
reduction in staff.  Building upon the earlier reinvention efforts,
Secretary Cuomo initiated the 2020 planning process in early 1997 to
address, among other things, HUD's downsizing goals and management
deficiencies. 


--------------------
\4 These mortgage-backed securities are guaranteed by HUD's
Government National Mortgage Association and backed by pools of
mortgage loans insured or guaranteed by HUD's Federal Housing
Administration, the Department of Agriculture's Rural Housing
Service, or the Department of Veterans Affairs. 


   CORRECTIVE ACTIONS THAT HUD HAS
   TAKEN OR INITIATED
---------------------------------------------------------- Chapter 0:2

HUD has taken important steps to strengthen its internal controls and
financial reporting, improve its information and financial management
systems, consolidate its operations, and appropriately deploy and
train its staff.  Guiding many of these efforts has been its 2020
Management Reform Plan, introduced in June 1997.  While it is still
too soon to evaluate the effectiveness of some of these efforts, we
believe that the Department has made credible progress in correcting
many of the management deficiencies that we and others have
identified. 

HUD has improved its financial reporting and has strengthened its
internal controls by conducting risk assessments for some of its
programs .  HUD's fiscal year 1996 and 1997 financial statements were
audited by HUD's Inspector General and HUD's Federal Housing
Administration's (FHA) fiscal year 1997 and 1998 financial statements
were audited by KPMG Peat Marwick LLP, a public accounting firm.\5
For fiscal years 1996 and 1997, HUD's Inspector General was able to
provide qualified opinions on HUD's financial statements, compared
with no opinion on the reliability of its financial statements for
fiscal year 1995.  In addition, as the public accounting firm KPMG
Peat Marwick LLP reported this month, FHA presented its fiscal year
1998 financial statements in accordance with federal accounting
standards and received an unqualified opinion on those statements. 
In 1998, HUD's Office of Chief Financial Officer (CFO) established a
risk management division, which has continued efforts initiated by
the CFO to work with the Department's program offices and new
nationwide centers to identify risks and develop action plans to
reduce them.  As of September 30, 1998, the risk assessment division
had completed risk management training for over 1,100 headquarters
and field managers. 

Efforts to integrate and replace HUD's information systems, begun in
1991, received support and higher priority under HUD's 2020 plan.  As
of December 1998, HUD reported, it had developed and deployed 11 new
financial management systems or components of these systems.  For
example, in March 1998, the Office of Housing deployed the first
phase of the real estate management system, a new system being
developed to implement 2020 reforms.  In addition, the Office of the
CFO developed and deployed a consolidated general ledger for fiscal
year 1999 that will include summary transactions for the entire
Department.  The Office of the CFO is also developing a risk
evaluation database that will be used to identify programs needing
special risk reviews.  The database will include information on the
programs' funding, as well as findings reported by us, HUD's
Inspector General, and internal reviews.  Further agencywide
improvements include cleaning up certain data elements in the
Department's information systems and verifying the reliability of
these and other data.  Finally, HUD recently reported that it had
completed all of its year 2000 renovations for both mission-critical
and non-mission-critical systems and had finished certifying 100
percent of these systems and implementing 97 percent of them. 

Under its 2020 plan, HUD has significantly revised its organization
and redeployed its staff in an effort to operate more efficiently and
provide better service to its customers.  Specifically, it has
consolidated programs and centralized processes and functions within
and across program areas, transferring much of its workload from its
81 field offices to several specialized national centers.  As it
completes these workload transfers, it is reassigning staff and
retraining them to perform their new functions. 

HUD has also strengthened its management reform efforts by linking
them to the strategic and annual plans it has developed under the
Government Performance and Results Act of 1993.\6


--------------------
\5 HUD's financial statement audit for fiscal year 1998 had not been
issued when we were preparing our testimony statement, but FHA's
financial statements for fiscal year 1998 had been issued.  We
understand HUD's financial statements will be issued shortly. 

\6 The Results Act seeks to shift the focus of government
decision-making and accountability from activities to results. 


   MAJOR MANAGEMENT CHALLENGES
---------------------------------------------------------- Chapter 0:3

In 1994, we designated HUD programs as a high-risk area because of
serious, long-standing departmentwide deficiencies in four management
areas.  These deficiencies, taken together, placed the integrity and
accountability of HUD's programs at high risk.  First, internal
control weaknesses, such as a lack of necessary data and management
processes, were a major factor leading to the scandals.  Second,
poorly integrated, ineffective, and generally unreliable information
and financial management systems did not meet the needs of program
managers and weakened their ability to provide management control
over housing and community development programs.  Third, HUD had
organizational problems, such as overlapping and ill-defined
responsibilities and authorities between its headquarters and field
organizations and a fundamental lack of management accountability and
responsibility.  Finally, an insufficient mix of staff with the
proper skills hampered the effective monitoring and oversight of
HUD's programs and the timely updating of procedures.  Our recent
work indicates that these management deficiencies continue to exist
or it is too soon to tell whether HUD's reforms will resolve them. 


      PROBLEMS WITH INTERNAL
      CONTROLS PERSIST
-------------------------------------------------------- Chapter 0:3.1

While HUD has initiated actions that should help to address its
internal control weaknesses, material internal control weaknesses
persist in its management of the Section 8 subsidy payment process,
which provides $18 billion in rental assistance; control and
management of staff resources; management of losses resulting from
defaults in the single-family and multifamily insurance programs;
implementation of automated systems to provide needed management
information or reliable data; and monitoring of multifamily
properties and of the single-family and multifamily notes
inventories.  In addition, we have reported recently that HUD has not
adequately monitored, among other things, contractors' management of
the Department's real estate assets; appraisals of properties
purchased with FHA-insured loans; and its process for deobligating
funds no longer needed for Section 8 project-based rental assistance
contracts. 


         MATERIAL INTERNAL CONTROL
         WEAKNESSES
------------------------------------------------------ Chapter 0:3.1.1

The most recently issued financial statement audits, performed by
HUD's Inspector General and KPMG Peat Marwick, found continued
material internal control weaknesses in both HUD and FHA's programs. 

The Inspector General's fiscal year 1997 financial statement audit
continued to find material weaknesses in HUD's internal controls, and
the Inspector General reported that HUD continues to face major
challenges in its efforts to correct long-standing material internal
control weaknesses.  For example, HUD reported that it spent about
$18 billion to provide rent and operating subsidies through a variety
of programs.  On the basis of data for calendar year 1996, HUD
estimated that it had provided over $900 million in overpayments.\7
This high level of improper payments exists because HUD does not have
adequate internal controls over the process of verifying tenants'
self-reported income--the primary factor in determining the amount of
assistance HUD pays.\8 In fiscal year 1998, HUD unveiled a
multifaceted plan to identify households' unreported and/or
underreported income. 

In our January 1999 report, we pointed out that KPMG Peat Marwick's
audit of FHA's financial statements for fiscal year 1997 continued to
find material weaknesses in FHA's internal controls.  These
weaknesses included insufficient staff and administrative resources
for such tasks as performing loss mitigation functions,\9 managing
troubled assets, and implementing new automated systems; inadequate
emphasis on providing early warning of, and preventing losses due to
defaults on insured mortgages; and resolving remaining problems with
accounting and financial management systems.  The report added that
because of the issues' complexity, implementing sufficient changes to
mitigate these internal control weaknesses will take several years. 
After we issued our January 1999 report, KPMG Peat Marwick LLP
issued, on March 5, 1999, its unqualified opinion on FHA's federal
accounting-based financial statements for fiscal year 1998.  However,
the auditors did report a new material internal control weakness in
addition to those described above related to the need for FHA to
improve its process for preparing federal accounting-based financial
statements. 

In addition to the issues disclosed by the audits of HUD's and FHA's
financial statements, we and HUD's Inspector General have identified
weaknesses related to HUD's contract management, including problems
with the Department's automated procurement systems, assessment and
planning for contract needs, and oversight of contractors'
performance.  Following the Inspector General's 1997 review of HUD's
contracting practices, contracting departmentwide was added as a
material internal control weakness in HUD's Federal Managers'
Financial Integrity Act (FMFIA) assessment for fiscal year 1997.\10
HUD is implementing reforms to address these weaknesses, including
appointing a chief procurement officer, redesigning the contract
procurement process, and establishing standard training requirements
for staff responsible for monitoring contractors' progress and
performance. 

Some of the other material internal control weaknesses reported as
open under the FMFIA assessment for fiscal year 1997 pertained to
HUD's (1) monitoring of insured mortgages and multifamily projects,
(2) Secretary-held multifamily and single-family mortgage notes
inventories, and (3) income verification process.  HUD has reduced
its material weaknesses from 51 in fiscal year 1991 to the 9
remaining open as of fiscal year 1997.  Some of these remaining
weaknesses are 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. 


--------------------
\7 Households generally are required to pay 30 percent of their
income toward rent, and HUD provides the balance of the rental
payment.  When households fail to disclose all of their income, HUD
may end up paying a greater rental subsidy than otherwise would be
required. 

\8 Other material internal control weaknesses included the need to
complete improvements to financial systems, improve resource
management, and continue efforts to improve the monitoring of
multifamily properties. 

\9 FHA's loss mitigation program seeks, among other things, to
mitigate losses resulting from foreclosure by using alternatives to
foreclosure, such as loan modifications. 

\10 Management control programs for federal agencies are mandated by
FMFIA, and requirements for them were established by the Office of
Management and Budget.  Each year, federal departments are to report
whether their management control systems provide reasonable assurance
that the requirements of FMFIA are being met, identify any new
material weaknesses and instances of nonconformance, and report any
actions taken to correct previously identified material weaknesses. 


         PROBLEMS IN MONITORING
         EXISTING PROGRAMS PERSIST
------------------------------------------------------ Chapter 0:3.1.2

Despite its importance as a management control tool, monitoring
continues to be problematic for HUD in many program areas.  Since the
Department announced its 2020 Management Reform Plan in June 1997, we
have issued reports pointing out problems with HUD's (1) oversight of
real estate asset management contractors,\11 (2) monitoring of the
performance of appraisers of selected properties for home buyers
seeking FHA single-family loans in two field offices,\12 (3)
procedures for identifying and deobligating funds that are no longer
needed,\13 (4) ability to ensure that its housing preservation
program is being managed effectively and efficiently,\14 and (5)
oversight of lenders' compliance with requirements of the home
improvement loan insurance program.\15


--------------------
\11 Single-Family Housing:  Improvements Needed in HUD's Oversight of
Property Management Contractors (GAO/RCED-98-65, Mar.  27, 1998). 

\12 Appraisals for FHA Single-Family Loans:  Information on Selected
Properties in New Jersey and Ohio (GAO/RCED-98-145R, May 6, 1998). 

\13 Section 8 Project-Based Rental Assistance:  HUD's Processes for
Evaluating and Using Unexpended Balances Are Ineffective
(GAO/RCED-98-202, July 22, 1998). 

\14 The preservation program was aimed at keeping existing
multifamily housing affordable for lower-income households as the
owners of these properties were approaching eligibility to pay off
their mortgages.  See Housing Preservation:  Policies and
Administrative Problems Increase Costs and Hinder Program Operations
(GAO/RCED-97-169, July 18, 1997). 

\15 Home Improvement:  Weaknesses in HUD's Management and Oversight
of the Title I Program (GAO/RCED-98-216, July 16, 1998). 


      PROBLEMS WITH SYSTEMS
      PERSIST
-------------------------------------------------------- Chapter 0:3.2

While efforts to integrate HUD's information and financial management
systems are well under way, the Department will continue to be
adversely affected by inadequate systems and information until it has
completed these efforts.  We reported in December 1998 that HUD has
not finalized detailed project plans or cost and schedule estimates
for its financial systems integration 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 reported that HUD has not yet established
an effective process for managing its information technology
investments.  As a result, it cannot effectively monitor its progress
in implementing the new systems and cannot be sure that it is
selecting the right projects.  In addition, the fiscal year 1997
audit of HUD's consolidated financial statements continued to report
material internal control weaknesses in financial systems that were
departmentwide or FHA-wide.  HUD agreed with our overall
recommendations to prepare complete and reliable estimates of the
life-cycle costs and benefits of the 1997 systems integration
strategy.  HUD also agreed that the management and oversight of its
systems integration effort could be improved by fully implementing
and institutionalizing the provisions of the Clinger-Cohen Act and
the Paperwork Reduction Act, including our recommendations to
implement defined processes for managing information technology
investments and for estimating costs. 

Other problems with information and financial management systems were
identified by us, the Inspector General, or HUD.  These problems
included (1) the effectiveness of HUD's processes for taking
unexpended balances into account when determining funding needs as
part of its budget process; (2) a February 1998 determination by HUD
that 38 of its 92 systems did not conform to the requirements of
FMFIA and of the Office of Management and Budget Circular A-127; and
(3) a March 1998 report by the Inspector General which continued to
report material internal control weaknesses in financial management
systems including insufficient information on the credit quality of
individual multifamily loans and insufficient information on FHA's
operations by program, geographical area, or other relevant
components. 


      ORGANIZATIONAL STRUCTURE IS
      IN PLACE, BUT TRANSFER OF
      FUNCTIONS AND
      RESPONSIBILITIES IS IN
      TRANSITION
-------------------------------------------------------- Chapter 0:3.3

During 1998, HUD implemented the organizational changes set forth in
its 2020 Management Reform Plan.  All of HUD's various offices, hubs,
program centers, and specialized and nationwide centers became
operational.  However, the real estate assessment, enforcement, and
financial management centers will not be performing all of their
centralized functions until 1999 and 2000.  While the managers and
staff we interviewed regarded these organizational changes as
beneficial overall, it is still too soon to evaluate the
effectiveness of HUD's reorganization. 

HUD's new real estate assessment center has issued regulations on the
physical and financial assessments of multifamily properties and
public housing authorities.  However, the center will not begin
financial assessments of multifamily properties until around April
1999, when audited financial statements on the properties are
submitted to HUD.  Although physical inspections of public housing
authorities will start in 1999, financial assessments will 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.  The center began physically inspecting multifamily
properties in October 1998 and, according to HUD, had inspected over
4,200 properties as of late December 1998. 

HUD's new enforcement center will investigate and take enforcement
actions against troubled multifamily and public housing authority
properties that do not comply with HUD's regulations.  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.\16
However, as of December 1998, the enforcement center was working on
200 multifamily property cases referred to it by housing staff,
according to HUD.  Also, according to HUD, debarments of landlords of
multifamily properties totaled about 100 in 1997, more than three
times the 1996 total. 

HUD's new financial management center is assuming responsibility for
the Department's Section 8 financial management processing workload. 
The transfer of much of this workload from HUD's public housing field
offices 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's
field offices was not expected to begin until February 1999 and is
not scheduled to be completed until mid- to late summer 1999.  In
addition, the schedule for transferring the financial management
workload for approximately 21,000 housing assistance contracts from
the Office of Housing's field offices 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. 

There has not yet been a significant shift of functions and
responsibilities from the field offices to the centers except at
homeownership centers, according to the field office managers and
staff we interviewed between July and October 1998.\17 Office
managers also indicated that the transfer of community service and
outreach functions and responsibilities from the field offices to the
community builders was in a transitional phase. 


--------------------
\16 The referrals will be based on the properties' physical and
financial condition, the properties' management performance, and
residents' satisfaction.  Before being referred to the enforcement
center, public housing authorities will have 1 year to work with one
of two troubled agency recovery centers within the Office of Public
and Indian Housing to correct the deficiencies identified by the
assessment center. 

\17 From July through October 1998, we interviewed HUD managers and
staff at selected locations about the effect on their programs and
work of the various organizational changes made under the 2020 plan. 
We judgmentally selected the Denver homeownership center; the Fort
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., to conduct our work. 


         FIELD OFFICE STAFF ARE
         POSITIVE ABOUT
         ORGANIZATIONAL CHANGES
------------------------------------------------------ Chapter 0:3.3.1

A recent survey by the National Partnership for Reinventing
Government showed that 70 percent of HUD's workforce identified the
agency's reinvention efforts as a top priority.  All of the managers
and staff we interviewed said that the organizational changes under
the 2020 Management Reform Plan were beneficial overall.  For
example, some managers and staff stated that their responsibilities
and lines of authority and accountability for programs were more
clearly defined.  In addition, some managers and staff pointed out
that obtaining clearance on routine issues took less time because
program managers in the field had greater authority to make
decisions.  Managers and staff also stated that once the various
centers and community builders assume all of their functions, the
field offices will have more time to carry out their public trust
responsibilities--namely, compliance and monitoring.  However, most
managers and staff we interviewed said the transfer of functions was
in transition, and they generally did not know when it would be
complete. 


      STAFFING UNDER THE 2020
      REFORM PLAN IS IN TRANSITION
-------------------------------------------------------- Chapter 0:3.4

Because staffing reforms and workload transfers from the field
offices to the centers are still occurring, the effectiveness of
HUD's changes in correcting staffing deficiencies cannot be
determined.  Staff who were reassigned during the reorganization were
receiving training in their new functions and both staff and managers
were positive about the amount and quality of the training. 


         STAFFING AND WORKLOAD
         WERE IN TRANSITION AT THE
         OFFICES WE VISITED
------------------------------------------------------ Chapter 0:3.4.1

Most of the field offices we visited initially lost staff following
the 2020 staffing changes.  However, some of these staff losses were
recovered after HUD decided in May 1998 to assign unplaced staff to
permanent positions.\18 According to HUD, most of the formerly
unplaced staff had been assigned positions as of September 1998, and
most were in place.  At a few locations, some of the formerly
unplaced staff will not be reporting to their new positions until
1999.  While most of the offices we visited reported being fully
staffed, three of the centers were understaffed.  The enforcement
center had 62 percent of its authorized staff level, the real estate
assessment center 40 percent, and the Memphis troubled agency
recovery center 86 percent.\19 HUD managers said the vacant positions
in these centers will be advertised sometime in 1999. 

Once workload transfers are completed, managers at the field offices
we visited expect their workload to decrease, although these manager
did not know how much of a reduction would occur.  There has not been
a significant shift in workload from the field offices to the
centers, according to the staff and managers we interviewed from July
through October 1998.  These managers and staff said the transfer of
work to the centers and the assumption by community builders of their
responsibilities was in transition. 

Efforts to match workforce to workload at HUD's homeownership centers
have presented difficulties.  According to the Inspector General's
December 1998 semiannual report, HUD's single-family homeownership
centers cannot handle the workload currently associated with HUD's
inventory of Secretary-held mortgages or inventory of single-family
properties, which HUD receives through foreclosures.  This situation
has developed because HUD's plans to sell the properties before they
enter its inventory have not evolved, and its plans to sell the
existing notes inventory have been postponed.  HUD is currently
hiring contractors to assist in managing and disposing of its
single-family properties. 

In its annual performance plan for fiscal year 1999, submitted to the
Congress in March 1998, HUD noted that it lacks a single integrated
system to support resource allocation and no longer has departmental
systems for measuring work and reporting time.  However, HUD's 2020
Management Reform Plan calls for HUD to implement a proposed resource
estimation and allocation process.  In addition, HUD reported that it
intends to work with the National Academy of Public Administration to
develop a methodology or approach for resource management that will
allow the Department to identify and justify its resource
requirements for effective and efficient program administration and
management.  According to the Academy, the resource estimation
elements will include workload factors and analysis based on
quantifiable estimates of work requirements for planning, developing,
and operating current and proposed programs, priority initiatives,
and functions.  The methodology will also enable HUD to estimate
resources for its budget formulation and execution and to link
resources to performance measures.  Currently, work has been
completed on the resource management methodology and was being tested
at one office. 


--------------------
\18 After making a number of personnel decisions in the fall of 1997
to implement the 2020 reforms, HUD sent letters to approximately
3,000 employees notifying them that they had not been placed in
positions in HUD's new organization.  In May 1998, the Secretary
announced that the downsizing activity would cease and that the 1,300
staff who were still unplaced at that time would be given permanent
assignments. 

\19 The troubled agency recovery center's operations will address,
among other things, the recommendation of the National Performance
Review (now the National Partnership for Reinventing Government) that
HUD target efforts to resolve severe difficulties with problem public
housing authorities. 


         MANAGERS WERE GENERALLY
         POSITIVE ABOUT TRAINING
         AND STAFF SKILLS
------------------------------------------------------ Chapter 0:3.4.2

The 2020 Management Reform Plan stated that HUD would retrain the
majority of its staff.  The field office managers and staff we
interviewed during our 1998 field office visits reported that their
training increased significantly with the plan's implementation.  The
managers and staff were generally positive about the amount of
training available to them and the quality of the training.  Training
varied from that provided at universities, to external professional
certification training, to videotaped programs and substantial
on-the-job training needed because of staff reassignments.  For
example, staff at the Memphis troubled agency recovery center
reported spending most of their first 3 months on the job in locally
developed training programs and in on-the-job-training with more
experienced public housing staff.  Staff and managers reported a need
for continuing program area and specialized computer training. 

In addition, managers reported during our 1998 field office visits
that the skills of their staff varied from adequate to excellent and
were sufficient for the staff to do their jobs, except in the case of
some of the recently assigned, formerly unplaced staff.  The managers
told us that while the formerly unplaced staff may lack specific
program knowledge, they have the ability to do the work. 


   FURTHER ACTION NEEDED
---------------------------------------------------------- Chapter 0:4

While HUD has initiated actions under the 2020 Management Reform Plan
that could help to address its management deficiencies, the reforms
are not fully implemented or it is too soon to assess their
effectiveness. 

  -- HUD faces significant material internal control weaknesses,
     including weaknesses in the control structure intended to help
     ensure that rental assistance payments of $18 billion are based
     on accurate reports of tenants' incomes.  As reform efforts are
     fully implemented, HUD needs to ensure that the actions being
     taken under the 2020 reform plan and related efforts will
     address the remaining material internal control weaknesses. 

  -- HUD will continue to be adversely affected by inadequate systems
     and information until its systems integration efforts are
     successfully completed.  In the meantime, we believe HUD needs
     to strengthen its management and oversight of efforts to
     integrate its financial systems and the management of its
     information technology investments.  In addition, HUD needs to
     continue its efforts to bring nonconforming systems into
     conformance with FMFIA requirements.  As part of this process,
     HUD needs to ensure that its assessments of systems to determine
     conformance are well documented and verified.  Finally, HUD
     needs to eliminate the material internal control weaknesses
     related to systems. 

  -- In accordance with the Results Act, HUD needs to (1) monitor the
     performance of the centers as they assume their functions, as
     well as track the other organizational changes, to determine
     whether the 2020 reform plan's goals are being achieved and (2)
     closely monitor the implementation of its staffing reform
     efforts to ensure that the field offices and staff have the
     resources and skills to carry out the work assigned, including
     the monitoring of programs and activities and the assessment of
     outcomes.  In addition, HUD needs to complete its efforts to
     develop a process for identifying and justifying its staff
     resource requirements. 


-------------------------------------------------------- Chapter 0:4.1

In closing, Mr.  Chairman, given the severity of the management
deficiencies that we and others have observed, it would not be
realistic to expect that HUD 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. 
Nevertheless, with close oversight by the Congress, HUD is making
significant changes and has made credible progress since 1997 in
laying the framework for improving its management.  HUD's Secretary
and leadership team have given top priority to addressing the
Department's management deficiencies.  This top management attention
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.  While major reforms are
under way, several are in the early stages of implementation, and it
is too soon to tell whether they will resolve the major deficiencies
that we and others have identified.  Therefore, in our opinion, the
integrity and accountability of HUD's programs remain at high risk. 
Mr.  Chairman, this concludes my statement.  We would be pleased to
respond to any questions that you or Members of the Subcommittee may
have. 

Appendix I RELATED GAO PRODUCTS

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-AMID-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). 


*** End of document. ***