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THE O MAN

Written by Dr. Jack Wheeler

The O-man, Barack Hussein Obama, is an eloquently tailored empty suit. No resume, no accomplishments, no experience, no original ideas, no understanding of how the economy works, no understanding of how the world works, no balls, nothing but abstract, empty rhetoric devoid of real substance.

He has no real identity. He is half-white, which he rejects.  The rest of him is mostly Arab, which he hides but is disclosed by his non-African Arabic surname and his Arabic first and middle names as a way to triply proclaim his Arabic parentage to people in Kenya . Only a small part of him is African Black from his Luo grandmother, which he pretends he is exclusively.

What he isn’t, not a genetic drop of, is ‘African-American,’ the descendant of enslaved Africans brought to America chained in
slave ships. He hasn’t a single ancestor who was a slave. Instead, his Arab ancestors were slave owners. Slave-trading was the main Arab business in East Africa for centuries until the British ended it.

Let that sink in: Obama is not the descendant of slaves, he is the descendant of slave owners. Thus he makes the perfect Liberal Messiah.

It’s something Hillary doesn’t understand – how some complete neophyte came out of the blue and stole the Dem nomination from her. Obamamania is beyond politics and reason. It is a true religious cult, whose adherents reject Christianity yet still believe in Original Sin, transferring it from the evil of being human to the evil of being white.

Thus Obama has become the white liberals’ Christ, offering absolution from the Sin of Being White. There is no reason or logic behind it, no faults or flaws of his can diminish it, no arguments Hillary could make of any kind can be effective against it. The absurdity of Hypocrisy Clothed In Human Flesh being their Savior is all the more cause for liberals to worship him:  Credo quia absurdum, I believe it because it is absurd.

Thank heavens that the voting majority of Americans remain Christian and are in no desperate need of a phony savior.

He is ridiculous and should not be taken seriously by any thinking American.

And yet he got elected, not once but twice. Thanks to those that did not think it was important to vote for freedom and those that were willing to give up their freedoms for entitlements.

Remember you don’t have to be on a southern plantation to be a slave, if you are dependent on government entitlements you just have a different
slave owner.

NEW DOCUMENTS PROVE OBAMA WAS ILLEGALLY SPYING ON AMERICANS

According to a new report from Circa News, leaked classified material from inside the Obama administration proves what many Republicans – including President Trump – have been saying for some time: The intelligence community under Obama was illegally surveilling Americans for years.

“The National Security Agency under former President Barack Obama routinely violated American privacy protections while scouring through overseas intercepts and failed to disclose the extent of the problems until the final days before Donald Trump was elected president last fall, according to once top-secret documents that chronicle some of the most serious constitutional abuses to date by the U.S. intelligence community,” reports Circa.

“More than 5 percent, or one out of every 20 searches seeking upstream Internet data on Americans inside the NSA’s so-called Section 702 database violated the safeguards Obama and his intelligence chiefs vowed to follow in 2011,” continued the report. “The Obama administration self-disclosed the problems at a closed-door hearing Oct. 26 before the Foreign Intelligence Surveillance Court that set off alarm. Trump was elected less than two weeks later.”

Make no mistake: The full story of the Obama administration’s crimes against the American people – and the Constitution – has yet to be uncovered. But we’re getting glimpses. We’re getting the first threads into this story – a story that is far bigger and far more REAL than any imaginary conspiracy the left can dream up about Trump and Russia.

In fact, it wouldn’t surprise us if the Trump/Russia fiction had less to do with getting Hillary Clinton elected than in covering up years of Fourth Amendment violations. After all, is anyone outside of the Republican Party even CONCERNED about Susan Rice’s unmasking of Trump associates? No, she isn’t even being compelled to testify before Congress. We’re just taking her word for it that she did it in the interests of national security.

That’s only believable if you have already swallowed the Trump/Russia collusion tale hook, line, and sinker. Otherwise, we have the top national security official in the nation guilty of invading the private conversations of American citizens and then spreading their names throughout the federal government. And no one has any questions about that? It’s just a “right-wing media nonsense conspiracy”? Oh, okay.

Good to know that our very freedoms are a trivial concern to the Trump-obsessed mainstream media and congressional Democrats.

Oh, but some hacked emails – now THAT’S a story.

history will record this as the largest fraud upon the American people ever

 

 

Susan Rice ordered spy agencies to produce ‘spreadsheets’ on Trump, aides

Susan Rice, former President Barack Obama’s national security adviser, ordered U.S. spy agencies to produce “detailed spreadsheets” of legal phone calls involving Donald Trump and his aides when he was running for president, according to former U.S. Attorney Joseph diGenova.

“What was produced by the intelligence community at the request of Ms. Rice were detailed spreadsheets of intercepted phone calls with unmasked Trump associates in perfectly legal conversations with individuals,” diGenova told The Daily Caller News Foundation Investigative Group Monday.

“The overheard conversations involved no illegal activity by anybody of the Trump associates, or anyone they were speaking with,” diGenova said. “In short, the only apparent illegal activity was the unmasking of the people in the calls.”

Dear reader:

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They are afraid The Daily Signal is providing an alternative to the usual left-wing or establishment media spin. Now, they are using their “mainstream” media megaphones to diminish The Daily Signal.

The Daily Signal exists as an alternative to the mainstream media. We are a dedicated team of more than 100 journalists and policy experts funded solely by the financial support of the general public.

We need your help! Not only are these media outlets going after our reputation, but the White House Correspondents’ Association is facing pressure to exclude us.

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No amount of bullying is going to stop us from covering the White House.

Other knowledgeable official sources with direct knowledge and who requested anonymity confirmed to The Daily Caller News Foundation diGenova’s description of surveillance reports Rice ordered one year before the 2016 presidential election.

Also on Monday, Fox News and Bloomberg News, citing multiple sources, reported that Rice had requested the intelligence information that was produced in a highly organized operation. Fox said the unmasked names of Trump aides were given to officials at the National Security Council; the Department of Defense; James Clapper, Obama’s director of national intelligence; and John Brennan, Obama’s CIA director.

Joining Rice in the alleged White House operations was her deputy, Ben Rhodes, according to Fox.

Critics of the atmosphere prevailing throughout the Obama administration’s last year in office point to former Obama Deputy Defense Secretary Evelyn Farkas who admitted in a March 2 television interview on MSNBC that she “was urging my former colleagues” to “get as much information as you can, get as much intelligence as you can, before President Obama leaves the administration.”

Farkas sought to walk back her comments in the weeks following: “I didn’t give anybody anything except advice.”

Retired Col. James Waurishuk, a National Security Council veteran and former deputy director for intelligence at the U.S. Central Command, told The Daily Caller News Foundation that many hands had to be involved throughout the Obama administration to launch such a political spying program.

“The surveillance initially is the responsibility of the National Security Agency,” Waurishuk said. “They have to abide by this guidance when one of the other agencies says, ‘We’re looking at this particular person which we would like to unmask.’”

“The lawyers and counsel at the NSA surely would be talking to the lawyers and members of counsel at CIA, or at the National Security Council or at the director of national intelligence or at the FBI,” he said. “It’s unbelievable of the level and degree of the administration to look for information on Donald Trump and his associates, his campaign team, and his transition team. This is really, really serious stuff.”

Michael Doran, former National Security Council senior director, told The Daily Caller News Foundation Monday that “somebody blew a hole in the wall between national security secrets and partisan politics.” This “was a stream of information that was supposed to be hermetically sealed from politics and the Obama administration found a way to blow a hole in that wall.”

Doran charged that potential serious crimes were undertaken because “this is a leaking of signal intelligence.”

“That’s a felony,” he told The Daily Caller News Foundation. “And you can get 10 years for that. It is a tremendous abuse of the system. We’re not supposed to be monitoring American citizens. Bigger than the crime, is the breach of public trust.”

Waurishuk said he was most dismayed that “this is now using national intelligence assets and capabilities to spy on the elected, yet-to-be-seated president.”

“We’re looking at a potential constitutional crisis from the standpoint that we used an extremely strong capability that’s supposed to be used to safeguard and protect the country,” he said. “And we used it for political purposes by a sitting president. That takes on a new precedent.”

Content created by The Daily Caller News Foundation is available without charge to any eligible news publisher that can provide a large audience. For licensing opportunities of our original content, please contact licensing@dailycallernewsfoundation.org.

Ben Carson Finds $516.4 BILLION Of Mismanaged Funds… Media SILENT

Housing and Urban Development Secretary Ben Carson has gotten down to business.

The results of a new, independent audit of the last years of President Barack Obama’s term — 2015 and 2016 — show an incredible mismanagement of funds and a wealth of errors.

Here’s what Audit Report 2017-FO-0005, released Wednesday, notes:

“The total amounts of errors corrected in HUD’s notes and consolidated financial statements were $516.4 billion and $3.4 billion, respectively. There were several other unresolved audit matters, which restricted our ability to obtain sufficient, appropriate evidence to express an opinion.”

That is a lot of waste, fraud, and abuse.

The audit continues, noting exactly why they made a “check-up” of the department:

“Our objective was to express an opinion on the fairness of HUD’s consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) applicable to the Federal Government. This report presents our reissued independent auditor’s report on HUD’s fiscal years 2016 and 2015 (restated) consolidated financial statements, including an update to our report on HUD’s internal controls.”

U.S. Department of Housing and Urban Development, Washington, DC

HUD’s Fiscal Years 2016 and 2015 (Restated) Consolidated Financial Statements Audit (Reissued)

Office of Audit, Financial Audits Division Audit Report Number: 2017-FO-0005 Washington, DC March 1, 2017

To:

From: Subject:

Courtney Timberlake, Deputy Chief Financial Officer, F

/signed/

Thomas R. McEnanly, Director, Financial Audits Division, Washington DC, GAF

HUD’s Fiscal Years 2016 and 2015 (Restated) Consolidated Financial Statements Audit (Reissued)

Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General’s (OIG) independent auditor’s report on HUD’s consolidated financial statements and reports on internal controls over financial reporting and compliance with laws and regulations.

HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on recommended corrective actions. For each recommendation without a management decision, please respond and provide status reports in accordance with the HUD Handbook. Please furnish us copies of any correspondence or directives issued because of the audit.

The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its publicly available reports on the OIG Web site. Accordingly, this report will be posted at http://www.hudoig.gov.

If you have any questions or comments about this report, please do not hesitate to call me at 202-402-8216.

Audit Report Number: 2017-FO-0005 Date: March 1, 2017

HUD’s Fiscal Years 2016 and 2015 (Restated) Consolidated Financial Statements Audit (Reissued)

Highlights

What We Audited and Why

In accordance with the Chief Financial Officers Act of 1990, as amended, we are required to annually audit the consolidated financial statements of the U.S. Department of Housing and Urban Development (HUD). HUD reissued its fiscal years 2016 and 2015 (restated) consolidated financial statements due to pervasive material errors that we identified. Our objective was to express an opinion on the fairness of HUD’s consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) applicable to the Federal Government. This report presents our reissued independent auditor’s report on HUD’s fiscal years 2016 and 2015 (restated) consolidated financial statements, including an update to our report on HUD’s internal controls.

What We Found

The total amounts of errors corrected in HUD’s notes and consolidated financial statements were $516.4 billion and $3.4 billion, respectively. There were several other unresolved audit matters, which restricted our ability to obtain sufficient, appropriate evidence to express an opinion. These unresolved audit matters relate to (1) the Office of General Counsel’s refusal to sign the management representation letter, (2) HUD’s improper use of cumulative and first-in, first-out budgetary accounting methods of disbursing community planning and development program funds, (3) the $4.2 billion in nonpooled loan assets from Ginnie Mae’s stand-alone financial statements that we could not audit due to inadequate support, (4) the improper accounting for certain HUD assets and liabilities, and (5) material differences between HUD’s subledger and general ledger accounts. This audit report contains 11 material weaknesses, 7 significant deficiencies, and 5 instances of noncompliance with applicable laws and regulations.

What We Recommend

In addition to recommendations made in audit reports 2017-FO-0001, 2017-FO-0002, and 2017- FO-0003, we recommend that HUD (1) reassess its current consolidated financial statement and notes review process to ensure that sufficient internal controls are in place to prevent and detect errors, (2) evaluate the current content of HUD’s consolidated note disclosures to ensure compliance with regulations and GAAP, and (3) develop a plan to ensure that restatements are properly reflected in all notes impacted.

Table of Contents

Background and Objective…………………………………………………………………………..4 Independent Auditor’s Report……………………………………………………………………..6 Results of Audit …………………………………………………………………………………………28

Appendixes………………………………………………………………………………………………..33

A. AuditeeCommentstoReissuedIndependentAuditor’sReport……………………..33

B. ScheduleofQuestionedCostsandFundsToBePuttoBetterUse………………….35

C. HUD’s Fiscal Years 2016 and 2015 (Restated) Consolidated Financial Statements and Notes…………………………………………………………………………………… 36

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Background and Objective

We are required by the Chief Financial Officers Act of 1990, as amended by the Government Management Reform Act of 1994 and implemented by Office of Management and Budget (OMB) Bulletin 15-02, Audit Requirements for Federal Financial Statements, to audit the U.S. Department of Housing and Urban Development’s (HUD) principal financial statements or select an independent auditor to do so. The objective of our audit was to express an opinion on the fair presentation of these principal financial statements.

In planning our audit of HUD’s principal financial statements, we considered internal controls over financial reporting and tested compliance with selected provisions of applicable laws, regulations, and government policies that may materially affect the consolidated principal financial statements. Providing an opinion on internal controls or compliance with selected provisions of laws, regulations, and government policies was not an objective, and, accordingly, we do not express such an opinion.

On November 15, 2016, we issued an independent auditor’s report1 stating that the U.S. Department of Housing and Urban Development (HUD) was unable to provide final fiscal years 2016 and 2015 consolidated financial statements and accompanying notes in a timeframe that would allow us to obtain sufficient, appropriate evidence to determine whether they were free from material misstatement. We also reported on the delays encountered in the material weakness, Weak Internal Controls Over Financial Reporting Led to Errors and Delays in the Preparation of Financial Statements and Notes.2

The delays were due to insufficiently designed and implemented financial reporting processes and internal controls that were put into place because of HUD’s transition of its core financial system to a Federal shared service provider (FSSP). HUD inadequately planned and tested the changes to HUD’s financial reporting process before the transition. Additionally, late restatements performed by HUD’s component entities, the Government National Mortgage Association (Ginnie Mae) and Federal Housing Administration (FHA), contributed to the delay in providing final consolidated financial statements.3 As a result, we were unable to provide an opinion on HUD’s fiscal years 2016 and 2015 financial statements. While there were other material matters that supported our basis for disclaimer, this was the primary reason for our disclaimer of opinion. HUD published its consolidated financial statements and our disclaimer of opinion in HUD’s 2016 agency financial report (AFR).

1 Office of Inspector General (OIG) Audit Report 2017-FO-0004, Independent Auditor’s Report, issued November 15, 2016
2 OIG Audit Report 2017-FO-0003, Additional Details To Supplement Our Independent Auditor’s Report, issued November 15, 2016

3 OIG Audit Report 2017-FO-0004, Independent Auditor’s Report on HUD’s Financial Statements, issued November 18, 2016

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Despite having to disclaim on HUD’s fiscal years 2016 and 2015 financial statements and notes, we continued our review of the financial statements. Our review identified material errors and misstatements in the financial statements and notes. The results of that review are contained in this report (see Material Weaknesses section) and update the material weakness, Weak Internal Controls Over Financial Reporting Led to Errors and Delays in the Preparation of Financial Statements and Notes, reported in Office of Inspector General (OIG) audit reports 2017-FO-0003 and 2017-FO-0004.

We notified HUD management in early December 2016 and requested that it perform its own review. HUD concluded its review and agreed with us that the pervasiveness and scope of the errors contained in the financial statements justified the need to reissue the statements to correct the errors. HUD withdrew its AFR, and on December 28, 2016, HUD’s Acting Chief Financial Officer notified the Inspector General that HUD had requested from the Office of Management and Budget (OMB) an extension for submitting its AFR from November 15, 2016, to March 1, 2017.

Our review of the reissued fiscal years 2016 and 2015 consolidated financial statements entailed reviewing the revised consolidated financial statements to (1) validate that appropriate revisions were made to the financial statements and notes to correct all errors that were identified and (2) confirm that the financial statements and notes are presented in conformity with OMB Circular A-136 and United States generally accepted accounting principles (GAAP).

Management is responsible for

  • Preparing the financial statements in conformity with accounting principles generally

    accepted in the United States of America;

  • Establishing, maintaining, and evaluating internal controls and systems to provide

    reasonable assurance that the broad objectives of the Federal Financial Management

    Improvement Act of 1996 (FFMIA) are met; and

  • Complying with applicable laws and regulations.

    In auditing HUD’s principal financial statements, we were required by Government Auditing Standards to obtain reasonable assurance about whether HUD’s principal financial statements were presented fairly, in accordance with GAAP, in all material respects. We believe that our audit provides a reasonable basis for our disclaimer of opinion.

    This report is intended solely for the use of HUD management, OMB, and Congress. However, this report is a matter of public record, and its distribution is not limited.

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U.S. DEPARTMENT OF

HOUSING AND URBAN DEVELOPMENT OFFICE OF INSPECTOR GENERAL

Independent Auditor’s Report4 To the Secretary,

U.S. Department of Housing and Urban Development:

Report on the Financial Statements

Introduction

The Chief Financial Officers Act of 1990 requires HUD to prepare the accompanying consolidated balance sheets as of September 30, 2016 and 2015 (restated); the related consolidated statements of net cost, changes in net position, and combined statement of budgetary resources for the fiscal years then ended; and the related notes to the financial statements. We were engaged to audit those financial statements in accordance with generally accepted government auditing standards accepted in the United States of America and OMB Bulletin 15-02.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America, which include the design, implementation, and maintenance of internal controls relevant to the

4 This report is supplemented by four separate reports issued by HUD OIG to provide a more detailed discussion of the internal control and compliance issues and to provide specific recommendations to HUD management. The findings have been included in the Internal Control and Compliance With Laws and Regulations sections of the independent auditor’s report. The supplemental reports are available on the HUD OIG Internet site at https://www.hudoig.gov and are entitled (1) Additional Details To Supplement Our Fiscal Years 2016 and 2015 (Restated) U.S. Department of Housing and Urban Development Financial Statement Audit (audit report 2017-FO- 0003, issued November 15, 2016); (2) Audit of Federal Housing Administration Financial Statements for Fiscal Years 2016 and 2015 (Restated) (audit report 2017-FO-0002, issued November 14, 2016); (3) Audit of the Government National Mortgage Association’s Financial Statements for Fiscal Years 2016 and 2015 (Restated) (audit report 2017-FO-0001, issued November 14, 2016); and (4) HUD’s Fiscal Years 2016 and 2015 (Restated) Consolidated Financial Statements Audit (Reissued) (audit report 2017-FO-0005, issued March 1, 2017).

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preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

We are required by the Chief Financial Officers Act of 1990, as amended by the Government Management Reform Act of 1994 and implemented by OMB Bulletin 15-02, Audit Requirements for Federal Financial Statements, to audit HUD’s principal financial statements or select an independent auditor to do so.

Our responsibility is to express an opinion on the fair presentation of these principal financial statements in all material respects, in conformity with accounting principles generally accepted in the United States of America. Because of the matters described in the Basis for Disclaimer of Opinion section, however, we were not able to obtain sufficient, appropriate audit evidence to provide a basis for an audit opinion. The audit was conducted in accordance with government auditing standards generally accepted in the United States of America, which require the auditor to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

Basis for Disclaimer of Opinion

During our fiscal year 2016 audit, HUD’s acting general counsel refused to sign off on certain matters included in the management representation letter concerning all known actual or possible litigation, claims, and assessments related to HUD, including its component entities. We believe that HUD’s acting general counsel is responsible for and knowledgeable about those matters that should be considered in Office of the Chief Financial Officer (OCFO) management’s preparation and fair presentation of the financial statements. Due to HUD’s acting general counsel’s refusal to sign off on these matters, which is a scope limitation, we lacked assurance that all known actual or possible litigation, claims, and assessments had been properly accounted for or disclosed in the consolidated financial statements in accordance with GAAP.

We identified several other matters for which we were unable to obtain adequate audit evidence to provide a basis of opinion on the fiscal years 2016 and 2015 (restated) financial statements. When evaluating these areas and their impacts on the financial statements as a whole, we determined that multiple material financial statement line items were impacted and the issues identified were pervasive and material to the fiscal years 2016 and 2015 consolidated financial statements. There were no other satisfactory audit procedures that we could adopt to obtain sufficient, appropriate evidence with respect to these unresolved matters. Readers are cautioned that amounts reported in the financial statements and related notes may not be reliable.

The other matters that we identified related to (1) improper budgetary accounting, (2) a disclaimer of opinion on Ginnie Mae’s financial statements, (3) unvalidated grant accrual estimates, (4) improper and unreliable accounting for assets and liabilities, and (5) significant unreconciled subledger to general ledger differences. Additional details are discussed below.

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Improper budgetary accounting. HUD continued to use budgetary accounting for its Office of Community Planning and Development (CPD) programs that was not performed in accordance with Federal GAAP, which resulted in misstatements in HUD’s combined statement of budgetary resources. Therefore, we could not assess whether the balances reported were reasonable.

HUD used a cumulative and first-in first-out (FIFO) method5 to disburse and commit CPD program funds that was not in accordance with GAAP for Federal grants. These methods were used to determine the amount of uncommitted HOME Investment Partnerships Program grant funds that would be subject to reallocation and recapture under section 218(g) of the HOME Investment Partnership Act and to process disbursements for CPD formula programs, respectively. The effects of these methodologies were considered pervasive because of the dollar risk exposure and volume of CPD grant activities from several thousand grantees (as of September 30, 2016, approximately $2.7 billion in disbursements and $2.4 billion in undisbursed obligations were impacted that were related to the HOME program, Community Development Block Grant, Housing for Persons with AIDS, and Emergency Shelter Grant) and the system limitations of HUD’s grant management and mixed accounting system to properly account for these grant transactions in accordance with the statutory requirements and GAAP.

Due to these issues, we determined that financial transactions related to CPD’s formula- based programs that entered HUD’s accounting system had been processed incorrectly. Although FIFO has been removed for disbursements made from fiscal year 2015 and forward grants, this method will not be removed retroactively from prior-year grants. Thus, based on the pervasiveness of their effects, in our opinion, the obligated and unobligated balance brought forward and obligated and unobligated balances reported in HUD’s combined statement of budgetary resources for fiscal year 2015 and in prior years were materially misstated. The related amount of material misstatements for these CPD programs in the accompanying combined statement of budgetary resources could not be readily determined to reliably support the budgetary balances reported by HUD at yearend due to the inadequacy of evidence available from HUD’s mixed accounting and grants management system.

Disclaimer of opinion on Ginnie Mae financial statements. In fiscal year 2016, for the third consecutive year, Ginnie Mae could not bring its material asset balances related to its nonpooled loan assets into an auditable state. Specifically, we were unable to obtain sufficient, appropriate evidence to express an opinion on the fairness of the $4.2 billion (net

5 The Federal Accounting Standards Advisory Board (FASAB) Handbook defines FIFO as a cost flow assumption. The first goods purchased or produced are assumed to be the first goods sold (FASAB Handbook, Version 13, appendix E, page 30, dated June 2014). In addition, the Financial Audit Manual states that the use of “first-in, first- out” or other arbitrary means to liquidate obligations based on outlays is not generally acceptable (GAO-PCIE (U.S. Government Accountability Office-President’s Council on Integrity and Efficiency) Financial Audit Manual, Internal Control Phase, Budget Control Objectives, page 395, F-3). In the context of HUD’s use of this method, the first funds appropriated and allocated to the grantee are the first funds committed and disbursed, regardless of the source year in which grant funds were committed for the activity.

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of allowance) in nonpooled loan assets from Ginnie Mae’s defaulted issuers’ portfolio, and Ginnie Mae continued to improperly account for FHA reimbursable costs as an expense instead of capitalizing the costs as an asset.

A number of Ginnie Mae balance sheet line items made up the $4.2 billion in nonpooled loan assets,6 which were consolidated into the other non-credit-reform loans reported on HUD’s consolidated balance sheet. This condition occurred because Ginnie Mae lacked financial management systems capable of handling its loan-level transaction accounting requirements. Therefore, we were again unable to perform all of the audit procedures needed to obtain sufficient, appropriate evidence. As a result, we determined that our audit scope was insufficient to express an opinion on Ginnie Mae’s $4.2 billion in nonpooled loan assets as of September 30, 2016.

Ginnie Mae continued to improperly account for FHA reimbursable costs as an expense instead of capitalizing the costs as an asset in fiscal year 2016. This practice caused Ginnie Mae’s asset and net income line items to be misstated, resulting in misstatements in HUD’s consolidated assets, expenses, and net position. Due to multiple years of incorrect accounting, we believe the cumulative effect of the errors identified was material. However, we were unable to determine with sufficient accuracy a proposed adjustment to correct the errors due to insufficient available data.

Unvalidated grant accrual estimates. In reporting on HUD’s liabilities, HUD’s principal financial statements were not prepared in accordance with the requirements of the Federal Government and Federal Accounting Standards Advisory Board (FASAB) Technical Release (TR) 12. FASAB TR 12 provides guidance to agencies on developing reasonable estimates of accrued grant liabilities to report on their financial statements. We were unable to obtain sufficient, appropriate audit evidence that the fiscal years 2015 and 2016 estimates were reasonable. This lack of evidence was due to (1) CPD’s not validating its accrued grant liability estimates, (2) CPD’s inability to provide adequate supporting documentation for grant disbursements in a timely manner, and (3) insufficient time to perform all of the audit procedures we deemed necessary to obtain sufficient, appropriate audit evidence to form an opinion on the estimate in lieu of adequate validation procedures by CPD. There were no other compensating audit procedures that could be performed to obtain reasonable assurance regarding CPD’s accrued grant liability estimates. Therefore, we could not form an opinion on CPD’s accrued grant liability estimates for fiscal years 2016 and 2015. CPD’s estimated accrued grant liabilities were $2.3 billion and $2 billion for fiscal years 2016 and 2015, respectively. These amounts accounted for 85 percent of HUD’s total $2.7 billion accrued grant liabilities in fiscal year 2016 and 84 percent of HUD’s total $2.4 billion accrued grant liabilities in fiscal year 2015.

6 These are (1) mortgage loans held for investment, net ($3.47 billion); (2) claims receivable, net ($709 million); (3) accrued interest receivable, net ($19 million); and (4) acquired property, net ($41 million).

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Improper and unreliable accounting for assets and liabilities. HUD did not properly account for several types of assets and liabilities reported on its balance sheet, causing misstatements or unreliable balances. Specifically, (1) balances reported for non-FHA loan guarantees and property, plant, and equipment balances could not be relied upon; (2) payments advanced to Indian Housing Block Grant (IHBG) grantees for investment purposes were not recorded as advances; and (3) loans receivable related to the Emergency Homeowners’ Loan Program (EHLP) could not be audited.

During fiscal year 2016, HUD was undergoing a reconciliation and cleanup effort for balances related to its non-FHA loan guarantee programs. Many discrepancies had been identified, and adjustments had been processed during the fiscal year to address some of the discrepancies identified totaling $17.3 billion. However, as of September 30, 2016, HUD was in the process of researching and resolving additional discrepancies identified, and the review was ongoing. As a result, we could not rely on HUD’s non-FHA loan guarantee balances, including its loan guarantee liability ($303 million), foreclosed property ($36 million), unpaid obligations ($22.4 million), and memorandum accounts used to track the status of loan guarantee authority. There were no other compensating audit procedures that could be performed to obtain reasonable assurance regarding these balances.

HUD’s accounting for its property, plant, and equipment did not comply with Federal GAAP. Specifically, HUD could not support balances related to internal use software totaling $254.3 million. In addition, HUD did not adequately record property, plant, and equipment balances related to furniture and equipment and leasehold improvements. Therefore, the total HUD proper property, plant, and equipment balance of $297 million could not be relied upon.

HUD authorized recipients of Federal funds to retain funding advanced to them before incurring eligible expenses; however, HUD did not recognize these funds as advances on its financial statements in accordance with Statements on Federal Financial Accounting Standards 1. As of June 30, 2016, as much as $260.1 million was being held in investment accounts with IHBG grantees, which represented an advance in accordance with the standards. HUD elected to present these as expenses on its statement of net cost once they were disbursed. Therefore, we believe the Office of Public and Indian Housing (PIH) prepayment reported on HUD’s consolidated balance sheet and expenses reported on HUD’s consolidated statement of net cost were likely misstated as of September 30, 2016.

Lastly, weaknesses in the accounting for the EHLP loans receivable portfolio continued, which limited our ability to audit during the fiscal year. A data review was performed during the fiscal year as a result of serious deficiencies in the accuracy of the loan balances identified in our prior-year audit report.7 However, adjustments to correct the loan data were being made as of the end of our fieldwork. Therefore, we were unable to obtain sufficient, appropriate evidence to express an opinion on the fairness of the balances reported in the direct loan and loan guarantees line item reported on HUD’s consolidated

7 OIG Audit Report 2015-DP-0004, Loan Accounting System, issued December 9, 2014

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balance sheet as of September 30, 2016, related to EHLP. The total loan principal issued under this program was $246 million; however, we were unable to determine whether the current balance recognized on the consolidated balance sheet of $103.2 million was an accurate net realizable value of the portfolio.

Significant unreconciled subledger to general ledger differences. During the fiscal year, HUD initiated a subledger review and identified material differences between its subledgers and general ledger accounts. As of September 30, 2016, its subledger review was ongoing, and there was an unreconciled balance of $29.4 billion. These differences remained unresolved mainly because HUD could not identify and locate sufficient documentation to support material United States Standard General Ledger (USSGL) accounts. The reconciling differences were material and pervasive and impacted several USSGL accounts and financial statement line items. A total of $27.9 billion represented differences in unpaid obligation balances. The remaining $1.5 billion difference impacted the PIH prepayments (advances), liability for nonentity assets not reported on its statement of custodial activity (other liabilities), loan guarantee liability, and account receivable balances reported on HUD’s consolidated balance sheet. While progress had been made in the resolution of differences since September 30, 2016, differences remained that, combined, were material to the financial statements. Due to HUD’s inability to support the balances recorded in the USSGL with sufficient, adequate documentation, we were unable to rely on the balances presented in HUD’s consolidated balance sheet and the combined statement of budgetary resources.

Disclaimer of Opinion

Because of the significance of the matters described in the Basis for Disclaimer of Opinion section above, we were not able to obtain sufficient, appropriate audit evidence to provide an audit opinion on HUD’s principal financial statements and accompanying notes as of September 30, 2016 and 2015 (restated), and its net costs, changes in net position, and budgetary resources for the fiscal year then ended. Accordingly, we do not express an opinion on the financial statements.

Emphasis of Matter

Reissued Fiscal Year 2016 and 2015 Consolidated Financial Statements

In our audit opinion,8 issued November 15, 2016, one basis for our disclaimer was that HUD was unable to provide final consolidated financial statements and accompanying notes in a timeframe that would allow us to obtain sufficient, appropriate evidence to determine whether they were free from material misstatement. After we issued our disclaimer of opinion, we continued our review of HUD’s financial statement presentation and notes and identified material pervasive errors throughout 19 of HUD’s 31 notes9 with an absolute value totaling $278.5 billion and an error in the classification between budgetary and nonbudgetary credit program financing

8 OIG Audit Report 2017-FO-0004, Independent Auditor’s Report
9 During HUD’s reissuance of its consolidated financial statements, it determined to remove a note that was not required per OMB Circular A-136 and GAAP. Therefore, there are 30 notes in HUD’s reissued consolidated financial statements.

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accounts on HUD’s statement of budgetary resources with an absolute value totaling $557 million. In early December 2016, we brought these errors to the attention of HUD management, and HUD determined that reissuance was necessary. Therefore, HUD reissued its fiscal years 2016 and 2015 (restated) consolidated financial statements.

Through its correction process, HUD identified additional note errors and found an error in its presentation of FHA’s fiscal year 2015 restatement. FHA’s restatement included a $1.4 billion adjustment to its cumulative results of operations beginning balance on the statement of changes in net position. HUD made this adjustment to its consolidated statement of changes in net position but presented the change in the beginning balance, not as a correction of error,10 as reported correctly by FHA. In total, the absolute values of corrections to HUD’s notes and principle financial statements were approximately $516.4 billion and $3.4 billion, respectively. The notes that were impacted by the corrections were Note 1-Entity and Mission; Note 2- Summary of Significant Accounting Policies; Note 3-Entity and Non-Entity Assets; Note 4-Fund Balance With the U.S Treasury; Note 6-Investments; Note 7-Accounts Receivable (Net); Note 8- Direct Loans and Loan Guarantees, Non-Federal Borrowers; Note 12-Other Assets; Note 13- Liabilities Covered and Not Covered by Budgetary; Note 14-Debt; Note 16-MBS [mortgage- backed securities] Liability; Note 17-Other Liabilities; Note 18-Financial Instruments with Off- Balance Sheet Risk; Note 20-Funds from Dedicated Collections; Note 24-Net Costs of HUD’s Cross-Cutting Programs; Note 26-Commitments Under HUD’s Grant, Subsidy, and Loan Programs; Note 27-Apportionment Categories of Obligations Incurred; Note 28-Explanation of Differences between the Statement of Budgetary Resources and the Budget of the United States Government; Note 29-Reconciliation of Net Cost of Operations to Budget; and Note 30- Restatement of the Department’s Fiscal Year 2015 Financial Statements. Additional detail regarding the errors identified and corrected is further disclosed in note 30 of HUD’s consolidated financial statements.

We attributed these errors to pervasive weaknesses in all elements of HUD OCFO internal controls: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring. These weaknesses are further explained in the material weakness, Weak Internal Controls Over Financial Reporting Led to Errors and Delays in the Preparation of Financial Statements and Notes, described further in this audit report. This material weakness updated the financial reporting material weakness we reported in our fiscal year 2016 internal control audit report.11

As a result of what is described above, we are withdrawing our previously issued independent auditor’s report, dated November 15, 2016, and replacing it with this report, which removes the basis for disclaimer regarding our inability to review the final consolidated financial statements due to management-imposed delays in completing the statements. However, while we audited

10 The beginning balance, as adjusted, was not impacted (beginning balance + correction of error = beginning balance, as adjusted on the statement of net position).
11 OIG Audit Report 2017-FO-0003, Additional Details To Supplement Our Independent Auditor’s Report, issued November 15, 2016, material weakness, Weak Internal Controls Over Financial Reporting Led to Errors and Delays in the Preparation of Financial Statements and Notes

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the reissued consolidated financial statements and notes, our previous audit opinion of a disclaimer of opinion remains unchanged due to other material matters identified in our audit, which continue to support our disclaimer of opinion.

Restatement of Fiscal Year 2015 Financial Statements

At the time of issuance of this auditor’s report and as discussed in note 30 to the financial statements, the 2015 financial statements have been restated for the correction of errors related to (1) Ginnie Mae’s improper budgetary closing process and (2) FHA’s improper use of the raw data used to establish FHA’s maintenance and operating expense rate management assumption. Our opinion was not modified with respect to these matters.

However, there were other material misstatements in the fiscal year 2016 financial statements in which no adjustments had been made. Specifically, (1) regarding the use of the FIFO method to liquidate obligations under CPD’s formula grant programs, no adjustments had been made because the specific amounts of misstatements and their related effects were unknown and (2) regarding advanced funds held by grantees for IHBG grantees, which totaled as much as $260 million as of June 30, 2016, an amount could not be reasonably determined as of September 30, 2016, because HUD could not provide the information needed to quantify the amount. These amounts were not included in the financial statements due to HUD’s disagreement regarding the presentation of these advances. Additional details on these items can be found in note 30 to the financial statements.

Prior-Period Financial Statements

In our report, dated November 18, 2015, we reported that FHA’s financial statements for fiscal years 2015 and 2014, respectively, fairly presented the financial position of FHA’s financial statements as of September 30, 2015 and 2014, and its net costs, changes in net position, and budgetary resources for the years then ended in accordance with GAAP. However, in fiscal year 2016, new information concerning material errors affecting the 2015 and 2014 FHA financial statements were identified. For this reason, the opinion expressed in FHA’s 2015 and 2014 audited financial statements was no longer appropriate because the financial statements as published at that time contained material misstatements. Accordingly, our opinion on FHA’s audited financial statements for 2015 and 2014 is withdrawn because the statements can no longer be relied upon and is replaced by the auditor’s report on the restated financial statements. As a result, the basis for disclaimer expressed on HUD’s consolidated 2015 and 2014 audited financial statements is expanded to include the material errors that affected those financial statements, which are further described in note 30.

FHA’s Loan Guarantee Liability

FHA’s loan guarantee liability is an actuarially determined estimate of the net present value of future claims, net of future premiums, and future recoveries from loans insured as of the end of the fiscal year. This estimate is developed using econometric models that integrate historical loan-level program and economic data with regional house price appreciation forecasts to develop assumptions about future portfolio performance. This year’s estimate is the mean value from a series of projections using many economic scenarios, and FHA’s single-family liability for loan guarantee estimates reported as of September 30, 2016, could change depending on which economic outcome

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prevails. This forecast method helps project how the estimate will be affected by different economic scenarios but does not address the risk that the models may not accurately reflect current borrower behavior or may contain technical errors. Our opinion was not modified with respect to this matter.

Other Matters

Required Supplementary Information

U.S. GAAP requires that certain information be presented to supplement the basic general- purpose financial statements. Such information, although not a part of the basic general-purpose financial statements, is required by FASAB, which considers it to be an essential part of financial reporting for placing the basic general-purpose financial statements into an appropriate operational, economic, or historical context. We did not audit and do not express an opinion or provide any assurance on this information; however, we applied certain limited procedures in accordance with auditing standards generally accepted in the United States of America, which consisted principally of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to the auditor’s inquiries, the basic financial statements, and other knowledge the auditor obtained during the audit of the basic financial statements. These limited procedures do not provide sufficient evidence to express an opinion or provide assurance on the information.

In its fiscal year 2016 AFR, HUD presents “required supplemental stewardship information” and “required supplementary information.” The required supplemental stewardship information presents information on investments in non-Federal physical property and human capital and investments in research and development. In the required supplementary information, HUD presents a “management discussion and analysis of operations” and combining statements of budgetary resources. HUD also elected to present consolidating balance sheets and related consolidating statements of changes in net position as required supplementary information. The consolidating information is presented for additional analysis of the financial statements rather than to present the financial position and changes in net position of HUD’s major activities. This information is not a required part of the basic financial statements but is supplementary information required by FASAB and OMB Circular A-136.

Other Information

Our audit was conducted for the purpose of forming an opinion on the basic financial statements as a whole. HUD’s agency financial report contains other information that is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the principal financial statements, and, accordingly, we do not express an opinion or provide assurance on it.

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Report on Internal Control

Additional details on our findings regarding HUD’s, FHA’s, and Ginnie Mae’s internal controls are summarized below and were provided in separate audit reports to HUD management.12 These additional details also augment the discussions of instances in which HUD had not complied with applicable laws and regulations; the information regarding our audit objectives, scope, and methodology; and recommendations to HUD management resulting from our audit.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A significant deficiency is a deficiency or combination of deficiencies in internal control that is less severe than a material weakness yet important enough to merit attention by those charged with governance. A material weakness is a deficiency or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis.

Our consideration of internal control was for the limited purpose described above and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. However, we noted in our reports the following eleven material weaknesses and seven significant deficiencies.

Material Weaknesses

A material weakness is a deficiency or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. We noted that the following deficiencies met the definition of a material weakness.

Weak Internal Controls Over Financial Reporting Led to Errors and Delays in the Preparation of Financial Statements and Notes
Internal controls over HUD’s financial reporting process were weak, causing HUD to be unable to provide yearend financial statements and accompanying notes in a timeframe that would allow for sufficient OIG audit review by the required date of November 15, 2016. After the issuance of HUD’s fiscal years 2016 and 2015 consolidated financial statements in its AFR, we identified pervasive material errors in the financial statements and notes totaling $557 million and $278.5 billion, respectively. We also identified $19.5 billion in changes that were made to the financial statements provided for audit and the financial statements published in HUD’s AFR, which were not communicated to us. Additionally, Ginnie Mae closed material accounts prematurely, causing material misstatements. Finally, HUD performed 2,868 journal vouchers to adjust transactional data in its general ledger, primarily due to data quality issues.

12 Audit Report 2017-FO-0003, Additional Details To Supplement Our Fiscal Years 2016 and 2015 (Restated) U.S. Department of Housing and Urban Development Financial Statements, issued November 15, 2016; Audit Report 2016-FO-0002, Federal Housing Administration Fiscal Year 2016 and 2015 (Restated) Financial Statements Audit, issued November 14, 2016; Audit Report 2017-FO-0001, Audit of the Government National Mortgage Association’s Fiscal Years 2016 and 2015 (Restated) Financial Statements, issued November 14, 2016

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Ineffective governance over HUD’s transition to an FSSP, Treasury’s Administrative Resource Center (ARC), and Ginnie Mae’s budgetary accounting created an ineffective financial reporting environment that could not prevent and detect errors in a timely manner. As a result, (1) we could not audit HUD’s yearend financial statements and accompanying notes by the required date, (2) HUD had to withdraw its fiscal year 2016 AFR and state that the published report could not be relied upon, (3) HUD’s fiscal year 2016 third quarter financial statement notes contained unsupported balances and errors totaling $477 million, and (4) HUD had to restate its fiscal year 2015 statement of budgetary resources due to an error with an absolute value of $2 billion. Further, HUD’s extensive reliance on manual journal vouchers increased the risk of error in its general ledger and financial statements.

HUD Assets and Liabilities Were Misstated and Not Adequately Supported

HUD did not properly account for, have internal controls over, or have adequate support for all of its assets and liabilities. Specifically, (1) CPD did not validate its accrued grant liabilities estimates; (2) HUD’s accounting for its cash management process did not include the recognition of receivables and payables when incurred and understated its prepayment balance; (3) HUD did not recognize a prepayment for funds advanced to its IHBG grantees that were used for investment; (4) EHLP could not be audited; (5) balances related to HUD’s loan guarantee programs were not reliable; and (6) HUD did not properly account for its property, plant, and equipment. These problems occurred because of continued weaknesses in HUD’s internal controls and a lack of communication between OCFO and the program offices. As a result, several financial statement line items were misstated or could not be audited as of September 30, 2016. Specifically, (1) CPD’s accrued grant liabilities estimates could not be audited; (2) HUD’s PIH prepayments and accounts receivable balances contained errors with an absolute value of approximately $476.2 million and $201.2 million, respectively, and accounts payable were understated by an unknown amount; (3) HUD’s expenses on its statement of net costs were overstated by $293.2 million; (4) loans receivable balances for EHLP could not be audited and were potentially misstated; (5) balances related to HUD’s loan guarantee programs were misstated by unknown amounts; and (6) HUD’s $297 million balance for property, plant, and equipment was not supported.

Significant Reconciliations Were Not Completed in a Timely Manner

Material differences between subsidiary ledgers and the general ledger were not resolved, and sufficient evidence to support financial statement line items was not maintained. Further, OCFO did not complete required cash reconciliations or intragovernmental reconciliations in a timely manner. In fiscal year 2016, HUD began using an FSSP for financial reporting but failed to define (1) roles and responsibilities between HUD and the FSSP and (2) policies and procedures for completing key reconciliations of material financial statement line items. HUD’s policies and procedures were not effective. The lack of these internal controls increased the risk of a material misstatement occurring in the financial statements and the potential for material misstatements to be undetected by management.

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CPD’s Formula Grant Accounting Did Not Comply With GAAP, Resulting in Misstatements on the Financial Statements
CPD’s formula grant program accounting continued to depart from GAAP because of its use of the FIFO method13 for committing and disbursing obligations. Since 2013, we have reported that the information system used, the Integrated Disbursement Information System (IDIS) Online, a grants management system, was not designed to comply with Federal financial management system requirements. Further, HUD’s plan to eliminate FIFO from IDIS Online was applied only to fiscal year 2015 and future grants and not to fiscal years 2014 and earlier. As a result, budget year grant obligation balances continued to be misstated, and disbursements made using an incorrect USSGL attribute resulted in additional misstatements. Although FIFO has been removed from fiscal year 2015 and forward grants, modifications to IDIS are necessary for the system to comply with FFMIA and USSGL transaction records. The inability of IDIS Online to provide an audit trail of all financial events affected by the FIFO method prevented the financial effects of FIFO on HUD’s consolidated financial statements from being quantified. Further, because of the amount and pervasiveness of the funds susceptible to the FIFO method and the noncompliant internal control structure in IDIS Online, the combined statement of budgetary resources and the consolidated balance sheet were materially misstated. The effects of not removing the FIFO method retroactively will continue to have implications on future years’ financial statement audit opinions until the impact is assessed to be immaterial.

HUD’s Financial Management System Weaknesses Continued in 2016

HUD’s financial system weaknesses remained a material weakness in fiscal year 2016 due to the combined impact of many deficiencies and limitations. While HUD took steps to modernize its financial management system through the transition of key financial management functions to an FSSP in 2016, it encountered significant challenges after implementation that had not been resolved as of September 30, 2016. HUD’s inability to modernize its legacy financial systems and the lack of an integrated financial management system resulted in a continued reliance on different, legacy financial systems with various limitations. Program offices compensated for system limitations by using less reliable manual processes to meet financial management needs. These system issues and limitations inhibited HUD’s ability to produce reliable, useful, and timely financial information.

Material Asset Balances Related to Nonpooled Loans Were Not Auditable

In fiscal year 2016, for the third consecutive year, Ginnie Mae could not bring its material asset balances related to its nonpooled loan assets into an auditable state. Therefore, we were unable to audit the $4.2 billion (net of allowance) in nonpooled loan assets reported in Ginnie Mae’s

13 The FASAB Handbook defines FIFO as a cost flow assumption. The first goods purchased or produced are assumed to be the first goods sold (FASAB Handbook, Version 13, appendix E, page 30, dated June 2014). In addition, the Financial Audit Manual states that the use of “first-in, first-out” or other arbitrary means to liquidate obligations based on outlays is not generally acceptable (GAO-PCIE Financial Audit Manual, Internal Control Phase, Budget Control Objectives, page 395, F-3). In the context of HUD’s use of this method, the first funds appropriated and allocated to the grantee are the first funds committed and disbursed, regardless of the source year in which grant funds were committed for the activity.

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financial statements as of September 30, 2016. These assets related to (1) claims receivable, net ($709 million); (2) mortgage loans held for investment, net ($3.47 billion); (3) accrued interest receivable, net ($19 million); and (4) acquired property, net ($41 million). This condition occurred because Ginnie Mae lacked financial management systems capable of handling its loan- level transaction accounting requirements. Therefore, we were again unable to perform all of the audit procedures needed to obtain sufficient, appropriate evidence. As a result, we determined that our audit scope was insufficient to express an opinion on Ginnie Mae’s $4.2 billion in nonpooled loan assets as of September 30, 2016.

Ginnie Mae’s Internal Controls Over Financial Reporting Continued To Have Weaknesses

In fiscal year 2015, we reported that Ginnie Mae’s internal controls over financial reporting were not effective. This condition continued, and some new issues were identified in fiscal year 2016. These material weaknesses in internal controls were issues related to the (1) improper accounting for FHA’s reimbursable costs and accrued interest earned on nonpooled loans; (2) accounting for cash in transit; (3) revenue accrual accounting; and (4) several other accounting issues, such as advances, fixed assets, and financial statement note disclosures. The first three issues were repeat findings from prior years, and the last one was new in fiscal year 2016. These conditions occurred because of Ginnie Mae’s failure to ensure that (1) adequate monitoring and oversight of its accounting and reporting functions were in place and operating effectively and (2) accounting policies and procedures were developed, finalized, and appropriately implemented. As a result, the risk that material misstatements in Ginnie Mae’s financial statements would not be prevented or detected increased.

The Allowance for Loan Loss Account Balances Were Unreliable

In fiscal year 2016, we identified accounting issues related to Ginnie Mae’s allowance for loan loss accounts. Specifically, we noted that Ginnie Mae improperly (1) accounted for certain nonpooled loan accounting transactions in its allowance for loan loss accounts and (2) booked a provision for loan loss against a nonexisting asset account. Factors that contributed to these issues included (1) the delayed implementation of accounting policies and procedures related to the allowance accounts and (2) the lack of financial management systems capable of handling loan-level transactions. Due to a combination of all of these accounting issues, we determined the balance of the allowance for loan loss accounts reported in Ginnie Mae’s financial statements to be unreliable.

HUD’s and Ginnie Mae’s Financial Management Governance Was Ineffective14
Overall, we determined that HUD’s financial management governance remained
ineffective. Weaknesses in program and component internal control that impacted financial reporting were able to develop in part due to a lack of financial management governance processes that could detect or prevent significant program- and component-level internal control weaknesses.

14 This was classified as a material weakness, based on the findings on financial management governance reported in Audit Report 2017-FO-0003, Additional Details To Supplement Our Fiscal Years 2016 and 2015 (Restated) U.S. Department of Housing and Urban Development Financial Statement Audit, and Audit Report 2017-FO-0001, Audit of the Government National Mortgage Association’s Fiscal Years 2016 and 2015 (Restated) Financial Statements.

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In fiscal year 2016, Ginnie Mae’s executive management began to address the financial management governance problems cited in our fiscal years 2015 and 2014 audit reports. While significant progress was made this year, more work is needed to fully address the issues cited in our report. Specifically, these problems included issues in (1) keeping Ginnie Mae OCFO’s operations fully functional; (2) ensuring that emerging risks affecting its financial management operations were identified, analyzed, and responded to appropriately and in a timely manner; (3) establishing adequate and appropriate accounting policies and procedures and accounting systems; and (4) implementing an effective entitywide governance of the models used to generate accounting estimates for financial reporting. Some of these conditions continued because the implementation of the corrective action plans took longer than anticipated. This issue again contributed to Ginnie Mae’s inability to produce auditable financial statements for the third consecutive fiscal year.

HUD’s financial management governance remained ineffective during 2016. HUD’s transition to an FSSP for financial management services was punctuated by operational issues that were made worse by a lack of mature financial management governance practices. Additionally, as we have reported in prior-year audits, HUD did not have reliable financial information for reporting and continued using its outdated legacy financial systems. Weaknesses in program and component internal control that impacted financial reporting were able to develop in part due to a lack of financial management governance processes. As a result, there were multiple deficiencies in HUD’s internal controls over financial reporting, resulting in misstatements on the financial statements and noncompliance with laws and regulations.

Cash Flow Modeling Errors Were Not Detected

In fiscal years 2014 and 2015, FHA home equity conversion mortgage net loans receivable and liability for loan guarantee were not reported in accordance with GAAP. Specifically, FHA did not estimate its property maintenance and operating management assumption expense rate based on actual historical payments. This condition occurred because FHA failed to isolate the accrued expenses in its input data in modeling its maintenance and operating expense rate management assumption. Additionally, FHA failed to adequately review significant changes observed in its maintenance and operating expense input data until 2016. This failure caused an overstatement of FHA’s loan guaranty liability and an understatement of net loans receivable and related foreclosed property line items in fiscal years 2014 and 2015. According to FHA, the overstatement of the liability account and understatement of the asset account were $833 million and $540 million, respectively, in fiscal year 2015, and the overstatement of the liability account and understatement of the asset account were $830 million and $542 million, respectively, in fiscal year 2014.

FHA’s Controls Over Financial Reporting Related to Budgetary Resources Had Weaknesses

In fiscal year 2016, we identified financial reporting control deficiencies related to FHA’s monitoring of its budgetary resources. Specifically, we found that errors were not prevented or detected in a timely manner. These errors were related to the (1) discrepancies identified between proprietary and budgetary accounts and (2) system-generated accounting report used for financial reporting. Additionally, FHA’s monitoring of its unliquidated obligation balances was not effective. We attributed these conditions to FHA’s ineffective monitoring and processing controls. As a

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result, errors with an absolute amount totaling $680.2 million were not prevented or detected in a timely manner. Finally, FHA missed the opportunity to recapture $276.5 million in invalid obligations.

Significant Deficiencies

A significant deficiency is a deficiency or combination of deficiencies in internal control that is less severe than a material weakness yet important enough to merit attention by those charged with governance. We determined that the following deficiencies met the definition of a significant deficiency.

Weaknesses in HUD’s Administrative Control of Funds System Continued

We have reported on HUD’s administrative control of funds in our audit reports and management letters since fiscal year 2005. HUD continued to not have a fully implemented and complete administrative control of funds system that provided oversight of both obligations and disbursements. Our review noted instances in which (1) the Office of Multifamily Housing Programs did not follow HUD’s administrative control of funds; (2) funds control plans were out of date or did not reflect the controls and procedures in place with the transition to an FSSP; (3) program codes were not included in funds control plans and funds control documentation; and (4) OCFO staff processed accounting changes without proper review, approval, and sufficient supporting documentation. These conditions existed because of (1) decisions made by HUD OCFO, (2) failures by HUD’s allotment holders to update their funds control plans and notify OCFO of changes in their obligation process before implementation, (3) a lack of compliance reviews in the current year, and (4) a lack of policies and procedures requiring documentation of system accounting changes. As a result, HUD could not ensure that its obligations and disbursements were within authorized budget limits and complied with the Antideficiency Act.

HUD Continued To Report Significant Amounts of Invalid Obligations

Deficiencies in HUD’s process for monitoring its unliquidated obligations and deobligating balances tied to invalid obligations continued. Specifically, some program offices did not complete their obligation reviews in a timely manner, and we discovered $204.4 million in invalid obligations not previously identified by HUD. We discovered another $93.4 million in inactive obligations, indicating potentially additional invalid obligations. We also discovered $34.6 million in obligations that HUD determined needed to be closed out and deobligated during the fiscal year that remained on the books as of September 30, 2016. We attributed these deficiencies to ineffective monitoring efforts and the inability to promptly process contract closeouts. Lastly, we noted that, as of September 30, 2016, HUD had not implemented prior- year recommendations to deobligate $100.5 million in funds. As a result, HUD’s unpaid obligation balances on the statement of budgetary resources were potentially overstated by $432.9 million.

HUD’s Computing Environment Controls Had Weaknesses

HUD’s computing environment, data centers, networks, and servers provide critical support to all facets of its programs, mortgage insurance, financial management, and administrative operations. In fiscal year 2016, we audited application controls over the New Core Interface Solution, which exchanges data between the financial systems at ARC (Oracle Financials) and

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HUD. We found that some access controls within the New Core Interface Solution were not effective and some of the application security documentation was inaccurate. These weaknesses occurred because of limited resources to perform the required tasks. As a result, some contractors had inappropriate access to sensitive budget and general ledger financial transactions. Further, inaccurate security documentation could lead to inappropriate decisions. In addition, although HUD had taken action to address information system control weaknesses reported in prior years, several of those weaknesses remained. Without adequate general and application controls, there was no assurance that financial management applications and the data within them were adequately protected.

Ginnie Mae Did Not Provide Adequate Oversight To Ensure Compliance With Federal Regulations and Guidance
Ginnie Mae did not provide adequate oversight of its pool processing agent for the Integrated Pool Management System (IPMS) to ensure that adequate controls over business processes complied with Federal regulations and guidance. Specifically, (1) IPMS does not have adequate controls that automatically track overrides in the system, (2) IPMS does not have automated controls to prevent a pool processor from making changes to the master data without prior approval, and (3) Ginnie Mae lacked policies and procedures for data management. These conditions occurred because Ginnie Mae did not have policies for monitoring overrides and IPMS does not sufficiently track the use of overrides or generate a report that captures changes. As a result, Ginnie Mae’s data were susceptible to an increased risk of improper use of authority, which could cause financial harm to Ginnie Mae by attaching its guarantee to mortgage-backed securities.

FHA’s Controls Related to Claims Had Weaknesses

In fiscal year 2016, we found that (1) the designation of two A43C (Claims) system edits, which are used in processing claims, was inappropriate and (2) FHA continued to have a significant delay in billing noncompliant lenders for partial claims for which the promissory note was not provided within 60 days. The system edit issue occurred because FHA lacked periodic monitoring to ensure that the designation of the error codes was appropriate. The lack of alignment between FHA’s policy and the regulatory requirements and persistent delays in initiating the collection process for noncompliant mortgages contributed to FHA’s not claiming amounts due in a timely manner. The system edit issue creates a significant vulnerability in FHA’s systems application controls, and its risk of improper payments is increased because FHA relied heavily on system edits to ensure that hundreds of thousands of single-family claim requests worth more than $15 billion in fiscal year 2016 were processed correctly. Additionally, delays in implementing the collection process for noncompliant mortgagees with unsupported partial claims caused unsupported partial claims to remain in the loans receivable inventory longer, which is neither a good cash management practice nor a good strategy to help improve the health of the Mutual Mortgage Insurance fund.

Weaknesses in FHA’s Controls Over Model Governance

FHA had not fully implemented an effective model risk management governance framework. Specifically, it had not finalized or implemented policies and procedures relating to (1) model documentation, (2) model assumption sensitivity analysis testing, and (3) data management and validation. This condition occurred because FHA had not made establishing a model governance

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framework a priority. FHA’s failure to fully implement a control mechanism, such as the model risk management governance framework, increased the risk of inconsistencies and errors in financial reporting occurring without being detected or prevented.

Weaknesses Were Identified in Selected FHA Information Technology Systems

Our review of the general and application controls over FHA’s Single Family Premium Collection System – Periodic (SFPCS-P) and Single Family Acquired Asset Management System (SAMS) found (1) weaknesses in SFPCS-P, which included the system’s being incorrectly classified as a low-impact system instead of a moderate-impact system; (2) that software products used by SFPCS- P were outdated; (3) that the interface reconciliation from HUD’s Single Family Insurance System (SFIS) to SFPCS-P was not sufficiently performed; (4) that SFPCS-P had not participated in HUD’s disaster recovery exercise for more than 4 years; (5) that segregation of duties for SFPCS-P developers was not effectively implemented; and (6) that SFPCS-P security documents contained inaccurate information. Additionally, we found (1) weaknesses in SAMS, which included that the interface reconciliations from SFIS to SAMS were not sufficiently performed and (2) least privilege and segregation of duties requirements were not fully implemented for SAMS users.

We completed an additional review of the general and application controls over SFIS and the Claims system and determined that the information system control weaknesses previously identified in SFIS and Claims were being addressed. However, we found (1) weaknesses in Claims, which included inconsistencies in error code, and (2) that the configuration information and the history of system changes were not retained for more than 5 years. Further, we found (1) weaknesses in both SFIS and Claims systems, which included that application and user access controls were not effectively implemented or adequately managed, and (2) that management did not adequately implement effective application configuration management. We also found that HUD Application Release Tracking System documents for FHA applications were not processed and maintained properly. These conditions occurred because some application controls were not sufficient. As a result, the appropriate confidentiality, integrity, and availability of critical information may have been negatively impacted. In addition, the information used to provide input to the FHA financial statements could have been adversely affected.

Report on Compliance With Laws and Regulations

In connection with our audit, we performed tests of HUD’s compliance with certain provisions of laws and regulations. The results of our tests disclosed five instances of noncompliance that are required to be reported in accordance with Government Auditing Standards, issued by the Comptroller General of the United States, or OMB Bulletin No. 15-02, Audit Requirements for Federal Financial Statements. However, the objective of our audit was not to provide an opinion on compliance with laws and regulations. Accordingly, we do not express such an opinion.

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HUD’s Financial Management Systems Did Not Comply With the Federal Financial Management Improvement Act
In fiscal year 2016, we noted a number of instances of FFMIA noncompliance15 within HUD’s financial management system. HUD’s continued noncompliance was due to New Core implementation challenges and a reliance on a number of legacy financial systems.

HUD Continued To Not Comply With the HOME Investment Partnership Act

HUD continued to not comply with section 218(g) of the HOME Investment Partnership Act (also known as the HOME Statute) regarding grant commitment requirements. HUD’s misinterpretation of the plain language in the Act, the implementation of the cumulative method and the FIFO technique, and the current recapture policies continued to result in HUD’s noncompliance with HOME Statute requirements. As a result, HUD continued to incorrectly permit some jurisdictions to retain, commit, and disburse HOME Investment Partnerships Program grant funds beyond the statutory deadline. HUD will continue to be noncompliant with related laws and regulations until the cumulative method is no longer used to determine whether grantees meet commitment deadlines required by the HOME Statute. Allowing grantees to disburse funds from commitments made outside the 24-month statutory period may have caused HUD to incur improper payments.

HUD Did Not Comply With Treasury Financial Manual’s Rules on Cash Management or 2 CFR Part 200
Since the implementation of its cash management policies in fiscal year 2013, PIH has made significant progress toward compliance with Treasury Financial Manual rules on cash management.16 However, despite considerable efforts by HUD’s Office of Housing Voucher Programs, public housing agencies (PHA) maintained Federal cash in excess of their immediate disbursement need for extended periods. Specifically, Moving To Work program PHAs held between $432.4 million and $466.5 million for the majority of the fiscal year and even after offsets performed in August and September 2016, held $212 million in excess of their immediate disbursement needs. Further, PHAs accumulated $168.3 million from January to June 2016 and most likely accumulated additional excess funds from July through September, none of which had been offset as of September 30, 2016. These conditions occurred because HUD lacked an automated system and real-time expense data needed to fully implement its cash management policies. Since PHAs maintained these funds in excess of immediate disbursement needs for extended periods and were unable to quickly offset the funds against future disbursements, HUD

15 Compliance with section 803(a) elements of FFMIA include (1) system requirements, (2) accounting standards, and (3) USSGL at the transaction level.
16 Before fiscal year 2013, HUD provided housing assistance payments to its PHAs that far exceeded their need and did not have a process in place to offset excess funding. To address this problem, PIH implemented the following cash management polices: (1) determine future disbursement based on previous need, (2) perform quarterly cash reconciliations and offset excess funding as it is identified, and (3) offset amounts that accumulated before the implementation of these new processes.

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did not comply with Treasury’s cash management regulations17 or 2 CFR (Code of Federal Regulations) Part 200,18 increasing the risk of funds being susceptible to fraud, waste, and abuse.

HUD Did Not Comply With the Improper Payments Elimination and Recovery Act of 2010

Our Improper Payments Elimination and Recovery Act (IPERA) audit19 found that HUD did not comply with IPERA in fiscal year 2015 because it did not conduct its annual risk assessment in accordance with OMB guidance or meet its annual improper payment reduction target. Specifically, HUD did not assess all low-risk programs on a 3-year cycle or consider all nine required risk factors, making the review incomplete and noncompliant with section 3(a)(3)(B) of IPERA. HUD also failed to meet or exceed the annual improper payment reduction targets for its high-priority program, Rental Housing Assistance Programs (RHAP), causing noncompliance with section 3(a)(3)(E) of IPERA. This is the third year in a row that HUD did not comply with IPERA. Additionally, we found that information published in the AFR did not meet the reporting requirements of OMB Circular A-136, significant improper payments in HUD’s RHAP continued, and HUD’s improper payment estimate and methodology for RHAP continued to have deficiencies during fiscal year 2015.

Ginnie Mae Did Not Comply With the Debt Collection Improvement Act of 1996

In fiscal year 2016, Ginnie Mae’s noncompliance with the Debt Collection Improvement Act (DCIA) of 1996 continued. Specifically, as reported in fiscal year 2015, Ginnie Mae had not remediated its practice of ensuring that all debt collection tools allowed by law had been considered before deciding to discharge certain uninsured mortgage debts owed to Ginnie Mae. This condition occurred because Ginnie Mae’s management continued to take the position that DCIA did not apply to Ginnie Mae; therefore, it did not need to comply with DCIA requirements. As a result, Ginnie Mae may have missed opportunities to collect tens of millions of dollars in debts related to losses on its mortgage-backed securities program.

Results of the Audit of FHA’s Financial Statements

We performed a separate audit of FHA’s fiscal years 2016 and 2015 (restated) financial statements. Our report on FHA’s financial statements20 includes a qualified opinion on FHA’s

17 Treasury Financial Manual, Vol. 1, Part 4A, Section 2045.10, Cash Advances Establishing Procedure for Cash Advances, section 3, states, “It is the responsibility of grantor agencies to monitor the cash management practices of their recipient organizations to ensure that Federal cash is not maintained by them in excess of immediate disbursing needs. Agencies must establish systems and procedures to assure that balances are maintained commensurate with immediate disbursing needs, excess balances are promptly returned to the Treasury; and advance funding arrangements with recipient organizations unwilling or unable to comply are terminated.”

18 Regulations at 2 CFR 200.305 state, “For non-Federal entities other than States, payments methods must minimize the time elapsing between the transfer of funds from the United States Treasury or the pass-through entity and the disbursement by the non-Federal entity.” The regulations further state, “Advance payments to a non-Federal entity must be limited to the minimum amounts needed and be timed to be in accordance with the actual, immediate cash requirements of the non-Federal entity in carrying out the purpose of the approved program or project.”

19 Audit Report 2016-FO-0005, Compliance With the Improper Payments Elimination and Recovery Act, issued May 13, 2016
20 Audit Report 2017-FO-0002, Audit of Federal Housing Administration Fiscal Years 2016 and 2015 (Restated) Financial Statements Audit, issued November 14, 2016, was incorporated into this report.

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financial statements, along with discussion of two material weaknesses and three significant deficiencies in internal controls.

Results of the Audit of Ginnie Mae’s Financial Statements

We performed a separate audit of Ginnie Mae’s fiscal years 2016 and 2015 (restated) financial statements. Our report on Ginnie Mae’s financial statements21 includes a disclaimer of opinion on these financial statements, along with discussion of four material weaknesses, one significant deficiency in internal control, and one instance of noncompliance with laws and regulations.

Objectives, Scope, and Methodology

As part of our audit, we considered HUD’s internal controls over financial reporting. We are not providing assurance on those internal controls. Therefore, we do not provide an opinion on internal controls. We conducted our audit in accordance with Government Auditing Standards and the requirements of OMB Bulletin 15-02. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

We also tested HUD’s compliance with laws, regulations, governmentwide policies, and provisions of contract and grant agreements that could have a direct and material effect on the financial statements. However, our consideration of HUD’s internal controls and our testing of its compliance with laws, regulations, governmentwide policies, and provisions of contract and grant agreements were not designed to and did not provide sufficient evidence to allow us to express an opinion on such matters and would not necessarily disclose all matters that might be material weaknesses; significant deficiencies; or noncompliance with laws, regulations, governmentwide policies, and provisions of contract and grant agreements. Accordingly, we do not express an opinion on HUD’s internal controls or its compliance with laws, regulations, governmentwide policies, and provisions of contract and grant agreements.

Our review of the reissued fiscal years 2016 and 2015 consolidated financial statements entailed reviewing the revised consolidated financial statements to (1) validate that appropriate revisions were made to the financial statements and notes to correct all errors that were identified and (2) confirm that the financial statements and notes are presented in conformity with OMB Circular A-136 and United States GAAP.

With respect to information presented in HUD’s “required supplementary stewardship information” and “required supplementary information” and management’s discussion and analysis presented in HUD’s fiscal year 2015 AFR, we performed limited testing procedures as required by the American Institute of Certified Public Accountants Clarified Statements on Auditing Standards, AU-C 730, Required Supplementary Information. Our procedures were not designed to provide assurance, and, accordingly, we do not provide an opinion on such information.

21 Audit Report 2017-FO-0001, Audit of the Government National Mortgage Association’s Fiscal Years 2016 and 2015 (Restated) Financial Statements, issued November 14, 2016, was incorporated into this report.

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Because of the matters described in the Basis for Disclaimer of Opinion section above, we were not able to obtain sufficient, appropriate audit evidence to provide a basis for an audit opinion.

Agency Comments and Our Evaluation

We reviewed management’s response to the reissued draft independent auditor’s report, which can be found in its entirety in appendix A. We noted that HUD is generally in agreement with our report. HUD states that it does not fully agree with our assessment of the issues, conclusions, or resulting recommendations; however, it does not provide specific points of disagreement. Further, HUD appears to agree with the basis of our report because it agrees that “there needed to be greater internal controls and stronger oversight.” While we generally agree with most of HUD’s comments, we do not agree with the following.

In regard to the FSSP implementation, HUD states, “The successful transition puts HUD in a place to make significant strides toward strong financial management and data-driven decisions.” However, we reported that the implementation failed to meet expectations. The audit report22 stated, “A year after the transition, HUD had inaccurate data resulting from the conversions and continued to execute 97 percent of programmatic transactions in its legacy applications. In addition, HUD did not decommission all of the applications it wanted to, including its core financial system, nor did it achieve the planned cost savings.” Further, the lack of planning for this transition compromised HUD’s financial reporting and made it unable to provide financial statements in time for audit, and the statements it did provide contained pervasive material errors. Instead of being a “successful transition” and making “significant strides toward strong financial management” as stated in the comments, the new financial reporting process is more complex, which makes it increasingly more difficult to incorporate late financial reporting changes from its component entities.

HUD states that the “presentation of the financial information was inaccurate” and describes the errors in its financial statements and notes as “inconsistencies.” Since the financial information reported was not correct, these statements are misleading because they imply that the information reported was correct but was merely presented inconsistently. Further, HUD states, “Overall, the combined adjustments to the consolidated financial statements resulted in a net adjustment of $3 million, but no changes in HUD’s financial position or impact to our programs.” HUD management is downplaying the severity of the condition and impact of the errors identified, which were significant enough to cause it to recall its published AFR and reissue its fiscal year 2016 consolidated financial statements and notes. While the errors identified may not have changed HUD’s financial position, as HUD states at the bottom of its financial statements, “The accompanying notes are an integral part of these statements.” These notes contained errors of $516.4 billion.

While we have audited HUD’s reissued statements, we have not fully evaluated any of the new process improvements HUD discussed in its response. We look forward to evaluating these processes as part of our fiscal year 2017 audit.

22 Audit report 2017-DP-0001, New Core Project: Shared Service Implementation Failed To Meet Expectations, issued February 1, 2017

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Results of Audit

Material Weakness: Weak Internal Controls Over Financial Reporting Led to Errors and Delays in the Preparation of Financial Statements and Notes23

Before the issuance of HUD’s 2016 and 2015 (restated) consolidated financial statements, we reviewed what was submitted to us for audit and noted pervasive material errors in the financial statements and accompanying notes totaling $557 million and $278.5 billion, respectively.24 We also identified differences of $19.5 billion in amounts presented in three note disclosures between what was submitted to us for audit and what was published in HUD’s AFR. We found that the errors in the statements and notes and discrepancies between what was provided for audit and what was published occurred due to extensive weaknesses in HUD’s internal controls over financial reporting. As a result, HUD withdrew its AFR to correct the material errors and notify users that the fiscal years 2016 and 2015 consolidated financial statements could not be relied upon.

Subsequent Review of HUD’s Fiscal Years 2016 and 2015 (Restated) Consolidated Financial Statements
Our subsequent review of HUD’s fiscal years 2016 and 2015 (restated) consolidated financial statements found an extensive number of material errors. Specifically, we found errors in (1) HUD’s notes to the financial statements and (2) the statement of budgetary resources. We also identified discrepancies between the final financial statements submitted to us for review and the financial statements presented and published in HUD’s AFR.

Errors in financial statement note disclosures. We found that 19 of 31 financial statement notes (61 percent) contained errors with an approximate absolute value totaling $278.5 billion. Of the $278.5 billion in errors, $159.4 billion in errors was due primarily to (1) incorrect data entry, (2) omission of restated balances, or (3) incorrect data provided by HUD’s component entities (FHA and Ginnie Mae). The remaining $119.1 billion in errors was due to inappropriate rounding adjustments. We found several instances in which rounding was performed to the nearest billion and hundred billion,

23 This updates the material weakness, Weak Internal Controls Over Financial Reporting Led to Errors and Delays in the Preparation of Financial Statements and Notes, reported in OIG audit report 2017-FO-0003. All other material weaknesses and significant deficiencies found during this audit are contained in OIG audit report 2017-FO-0003. See the Background and Objectives section for more information.

24 HUD’s fiscal years 2016 and 2015 (restated) consolidated financial statements were not provided in time for audit. Refer to the Background and Objectives section and the Emphasis of Matter paragraph in our independent auditor’s report.

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while OMB Circular A-136 requires the highest level of rounding to be at the nearest million. This practice caused amounts to not agree with supporting files or underlying Ginnie Mae and FHA information. Some of the errors identified flowed through to other note line items or note columns and caused errors in the totals presented. The absolute value of these additional errors was not included in our total.

Errors in the consolidated statement of budgetary resources. We identified errors in the split between budgetary and nonbudgetary columns on HUD’s statement of budgetary resources with an absolute value totaling $557 million.

Discrepancies in consolidated financial statements presented in AFR. We identified differences in amounts presented between what was submitted to us on November 10, 2016, and certified as final consolidated financial statements and what was published in HUD’s AFR in the following three note disclosures: Note 20-Funds from Dedicated Collections; Note 26-Commitments Under HUD’s Grant, Subsidy, and Loan Programs; and Note 14-Debt. The total absolute value of the differences was $19.5 billion. While two of these changes corrected errors in the original submission to us, the other change was for inappropriate rounding. OCFO did not inform us of these changes after it submitted final financial statements for our review. By submitting to us a final version of the consolidated financial statements for audit that was different from the version presented in its AFR, HUD OCFO misrepresented that we had audited its published consolidated financial statements. This misrepresentation may have led the reader to believe that we had audited the three changed notes, when we had not.

We communicated these errors to HUD management in early December 2016 and advised it to review its fiscal years 2016 and 2015 consolidated financial statements to determine whether it agreed that they contained material misstatements and would need to be revised and reissued.

Extensive Weaknesses in HUD’s Internal Controls Over Financial Reporting

The errors described above occurred because HUD OCFO failed to design and implement an adequate system of internal controls over financial reporting necessary to mitigate the challenges and risks in its complex financial reporting process. These challenges and risks were exacerbated with the transition of HUD’s legacy general ledger application to an enterprise resource management application housed in an FSSP. This move replaced known processes with poor or undefined and untested processes. The transition also increased the workload on HUD’s financial reporting division, and to remedy the issue, HUD’s management outsourced some of its roles to staff and contractors, which were unfamiliar with HUD’s financial reporting process and did not receive adequate training. HUD’s management was more focused on completing the transition to an FSSP on schedule than adequately setting defined requirements and testing systems to ensure appropriate internal controls over financial reporting.

Specifically, we noted weaknesses in each element of internal controls: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring.

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  • Information and communication: HUD OCFO management did not fully understand how the FHA and Ginnie Mae restatements would impact the notes. Information was not clearly communicated internally within OCFO or between HUD and its component entities (FHA and Ginnie Mae) to explain the full impact of restatements or changes that occurred in the presentation of the statements from the prior year to the current year. As a result, information was incorporated into HUD’s final financial statements incorrectly.
  • Control activities and monitoring: HUD’s financial reporting process did not provide enough time for a thorough review by staff that had adequate experience preparing and reviewing HUD’s financial statements and notes. Late in the fiscal year, HUD management decided to allocate additional resources to the financial reporting process and assigned contractors to work on key elements of the financial statements and notes. However, the contractors were not familiar with HUD’s financial information or its financial reporting process and did not have access to necessary financial systems. Due to this fundamental lack of understanding, the contractors transferred information from the supporting files to the notes incorrectly, which went undetected by HUD management due to inadequate monitoring and review of the process.
  • Control activities, risk assessment, and monitoring: The consolidation of FHA and Ginnie Mae information into HUD’s consolidated financial statements is inherently risky because it involves several complex manual steps. Yet there were no controls in place to mitigate this risk. As a result, information was incorporated into HUD’s final financial statements incorrectly, which went undetected by HUD management.
  • Risk assessment and control activities: The addition of an FSSP greatly complicated HUD’s already complex reporting process. HUD decided not to test the new process until the third quarter, allowing errors or problems with the new process to go unidentified for more than 9 months of the fiscal year before attempting to address them. This delay did not allow sufficient time to resolve problems and errors identified for yearend reporting.
  • Control environment, control activities, and information and communication: HUD OCFO management appeared not to understand the note preparation process or the level of expertise and training required to prepare and review HUD’s notes due to a lack of policies and procedures.

    As a result of these serious internal control weaknesses, HUD published final consolidated financial statements in its AFR that contained pervasive material errors. Therefore, users of HUD’s financial statements could not rely upon them, and HUD had to recall its fiscal year 2016 AFR.

    HUD management revised its fiscal years 2016 and 2015 consolidated financial statements to (1) correct the errors that we identified, (2) correct other balances that were impacted by the errors, and (3) correct other errors identified by OCFO during its review. The revised statements were provided to us for audit, and we audited them in their entirety to determine whether they were consolidated and presented in accordance with OMB Circular A-136 and GAAP. We found that all of the errors we identified had been corrected. We also noted additional changes made by OCFO and determined that they were properly supported.

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Conclusion

We identified material, pervasive errors in HUD’s fiscal years 2016 and 2015 (restated) consolidated financial statements published in its AFR and communicated those errors to HUD management. HUD concurred and withdrew and reissued its consolidated financial statements to address the errors we identified and other needed corrections. These errors occurred because of pervasive weaknesses in OCFO’s internal controls over financial reporting, primarily attributed to the transition of its general ledger system to an FSSP without adequate requirements for gathering and testing of the financial reporting process. Our analysis of the fiscal years 2016 and 2015 consolidated financial statements determined that this failure resulted in (1) more than $278.5 billion in misstatements in the notes to the financial statements, (2) a $557 million error in HUD’s statement of budgetary resources, and (3) $19.5 billion in line item amounts presented in HUD’s AFR that differed from those that were presented for audit. Most importantly, HUD had to recall its fiscal year 2016 AFR because of the material misstatements contained in the consolidated financial statements and state that the published report should not be relied on.

HUD was able to make revisions to correct the errors identified and make other corrections that were later identified by OCFO. OCFO reissued its financial statements, which included corrections totaling $516.4 billion to its notes and $3.4 billion to its financial statements. We reissued our audit opinion in our independent auditor’s report upon completion of our audit of HUD’s reissued fiscal years 2016 and 2015 consolidated financial statements. While HUD had corrected the material errors and reissued its statements, our opinion remained unchanged from a disclaimer of opinion due to other material matters identified during the previous audit of HUD’s fiscal years 2016 and 2015 consolidated financial statements, which are further discussed in our independent auditor’s report and OIG audit report 2017-FO-0003.

Recommendations25
We recommend that the Acting Chief Financial Officer

  1. 1A.  Evaluate the current content of HUD’s financial statement note disclosures to identify outdated or irrelevant information that may not be needed, while maintaining compliance with OMB Circular A-136 and presenting the reader with the information necessary to understand HUD’s financial statements.
  2. 1B.  Work with FHA and Ginnie Mae to reevaluate the note consolidation process to determine changes that can be made to the process to ensure compliance with financial reporting requirements.
  3. 1C.  Reassess HUD’s current consolidated financial statement and notes review process to ensure that (1) all reviewers have sufficient financial reporting experience; (2) it includes steps to verify that the notes match HUD’s financial statements, are sufficiently supported, and accurately include FHA and Ginnie Mae information; and

25 The recommendations listed here are in addition to recommendations made in OIG Audit Report 2017-FO-0003, Additional Details To Supplement Our Fiscal Years 2016 and 2015 (Restated) U.S. Department of Housing and Urban Development Financial Statement Audit.

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(3) the review can be completed within the required timeframe needed to allow for audit.

1D. Develop a plan to ensure that restatements to HUD’s consolidated financial statements are properly reflected in all notes impacted by the restatement.

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Appendixes

Appendix A
Auditee Comments to Reissued Independent Auditor’s Report

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Appendix B
Schedule of Questioned Costs and Funds To Be Put to Better Use

Audit report number

Unsupported 1/

Funds to be put to better use 2/

2017-FO-0001

$248,016,624

2017-FO-0002

$55,350,830

276,567,940

2017-FO-0003

500,689,142

Totals

55,350,830

1,025,273,706

  1. 1/  Unsupported costs are those costs charged to a HUD-financed or HUD-insured program or activity when we cannot determine eligibility at the time of the audit. Unsupported costs require a decision by HUD program officials. This decision, in addition to obtaining supporting documentation, might involve a legal interpretation or clarification of departmental policies and procedures.
  2. 2/  Recommendations that funds be put to better use are estimates of amounts that could be used more efficiently if an OIG recommendation is implemented. These amounts include reductions in outlays, deobligation of funds, withdrawal of interest, costs not incurred by implementing recommended improvements, avoidance of unnecessary expenditures noted in preaward reviews, and any other savings that are specifically identified.

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Appendix C

HUD’s Fiscal Years 2016 and 2015 (Restated) Consolidated Financial Statements and Notes

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Ambassador John Bolton: Unmasker Susan Rice “Has Serious Legal Problems”,

On Sunday night activist and author Mike Cernovich identified former ambassador and National Security Advisor Susan Rice as the Obama administration leaker and unmasker.

We know it’s you @AmbassadorRice. Bloomberg and NY Times both sat on the story to protect Obama. Have a nice time before Congress.

https://t.co/8vx9SqYffK

.@AmbJohnBolton says Susan Rice defrauded the intelligence system: “She’s got real legal problems here.” #MAGA #Dobbs @POTUS pic.twitter.com/IIqdBN5AS0

— Lou Dobbs (@LouDobbs) April 3, 2017
Mike Cernovich wrote on The Medium:

The White House Counsel’s office identified Rice as the person responsible for the unmasking after examining Rice’s document log requests. The reports Rice requested to see are kept under tightly-controlled conditions. Each person must log her name before being granted access to them.

Upon learning of Rice’s actions, H. R. McMaster dispatched his close aide Derek Harvey to Capitol Hill to brief Chairman Nunes.

“Unmasking” is the process of identifying individuals whose communications were caught in the dragnet of intelligence gathering. While conducting investigations into terrorism and other related crimes, intelligence analysts incidentally capture conversations about parties not subject to the search warrant. The identities of individuals who are not under investigation are kept confidential, for legal and moral reasons.

On Monday night former Ambassador John Bolton told Lou Dobbs that if Susan Rice is the “unmasker” she is in serious legal trouble.

Ambassador John Bolton: This is stunning news. And you can’t, even somebody as senior as the National Security Advisor, can’t just decide they’d like to unmask names to find out whose name is involved in a particular intercept… If she said that even somebody as senior as her but her real motivation was political she was committing a kind of fraud on the intelligence gathering system and if she participated in that kind of fraud to help the political misuse of that intelligence she’s got serious legal problems here.

Susan Rice ordered spy agencies to produce ‘spreadsheets’ on Trump, aides

Former President Barack Obama’s national security adviser Susan Rice ordered U.S. spy agencies to produce “detailed spreadsheets” of legal phone calls involving Donald Trump and his aides when he was running for president, according to former U.S. Attorney Joseph diGenova.

“What was produced by the intelligence community at the request of Ms. Rice were detailed spreadsheets of intercepted phone calls with unmasked Trump associates in perfectly legal conversations with individuals,” diGenova told The Daily Caller News Foundation Investigative Group Monday.

“The overheard conversations involved no illegal activity by anybody of the Trump associates, or anyone they were speaking with,” diGenova said. “In short, the only apparent illegal activity was the unmasking of the people in the calls.”

Other knowledgeable official sources with direct knowledge and who requested anonymity confirmed to TheDCNF diGenova’s description of surveillance reports Rice ordered one year before the 2016 presidential election.

Also on Monday, Fox News and Bloomberg News, citing multiple sources reported that Rice had requested the intelligence information that was produced in a highly organized operation. Fox said the unmasked names of Trump aides were given to officials at the National Security Council (NSC), the Department of Defense, James Clapper, President Obama’s Director of National Intelligence, and John Brennan, Obama’s CIA Director.

Joining Rice in the alleged White House operations was her deputy Ben Rhodes, according to Fox.

Critics of the atmosphere prevailing throughout the Obama administration’s last year in office point to former Obama Deputy Defense Secretary Evelyn Farkas who admitted in a March 2 television interview on MSNBC that she “was urging my former colleagues,” to “get as much information as you can, get as much intelligence as you can, before President Obama leaves the administration.”

Farkas sought to walk back her comments in the weeks following: “I didn’t give anybody anything except advice.”

Col. (Ret.) James Waurishuk, an NSC veteran and former deputy director for intelligence at the U.S. Central Command, told TheDCNF that many hands had to be involved throughout the Obama administration to launch such a political spying program.

“The surveillance initially is the responsibility of the National Security Agency,” Waurishuk said. “They have to abide by this guidance when one of the other agencies says, ‘we’re looking at this particular person which we would like to unmask.’”

“The lawyers and counsel at the NSA surely would be talking to the lawyers and members of counsel at CIA, or at the National Security Council or at the Director of National Intelligence or at the FBI,” he said. “It’s unbelievable of the level and degree of the administration to look for information on Donald Trump and his associates, his campaign team and his transition team. This is really, really serious stuff.”

Obama Worked With Intelligence Officials To Thwart Trump BEFORE He Was Nominee

BY Andrew West

The candidacy and presidency of Donald Trump have had an incredibly galvanizing effect on American politics, with liberals going to absurd lengths to stymy the President.
Never mind the #Resist “movement” that is currently underway, in which politicians and celebrities on the left have been working overtime in an effort to normalize the idea of thwarting a sitting, fairly elected President. It would be unrealistic to pretend that Donald J. Trump, businessman and reality television personality, is a conventional President. He’s not, and there is no one out there pretending that he is, but it is downright deplorable to wish ill on any American, let alone an elected official who will determine the prosperity and safety of your life.

Of course, Trump faced a massive leftist revolt during the primaries as well. Not only was there physical violence at several of his campaign stops, all spurred on by mobs of democratic agitators, there was an intrinsic and explosive campaign to delegitimize his entire candidacy. Every other day a tweet or sound byte would be released in which a talking head from the mainstream media would denounce Trump’s total being, calling him “unqualified” for the White House.

Now, a bombshell report shows us that not only was the media working tirelessly to completely dismantle The Donald during the 2016 election, but it seems that President Obama was involved with a high-level plan to ruin Trump’s chances at winning the election and/or maintaining the presidency once he arrived in the Oval Office.

“On Friday, Fox News’ Adam Housely reported that Rep. Devin Nunes (R-CA), head of the House Intelligence Committee, visited the White House in order to view intelligence information without making his source public information. Housely reports that ‘the surveillance that led to the unmasking started way before Trump was the GOP nominee.’ He added, the person who did the unmasking was ‘very well known, very high up, very senior in the intelligence world, and is not in the FBI. This led to other surveillance, which led to other names being unmasked.’ Housely added that this had nothing to do with Russia, but was designed toward ‘hurting and embarrassing Trump and his team.’ Housely said that his own sources were ‘just frustrated with the politicization of our intelligence agencies.’

“That’s not all.

“As reported by The New York Times months ago and confirmed by a former Obama administration high-ranking official, it now appears that in the waning days of the Obama era, intelligence officials compiled as much information as they could on Team Trump and handed it over to the Senate Intelligence Committee.

“On Friday, NBC News reported:

“‘Obama administration officials were so concerned about what would happen to key classified documents related to the Russia probe once President Trump took office that they created a list of document serial numbers to give to senior members of the Senate Intelligence Committee, a former Obama official told NBC News.’”
We also know now that Obama is still working to end the Trump presidency early, as it has been widely reported that the former President has assembled a team of Washington insiders to continue digging into the Trump White House, hoping to discover any chinks in his armor.

Supreme Court Rules AGAINST Obama, Says He Violated Constitution

We always hear about how Obama was a “constitutional law professor” but the guy showed no signs of that during his time in office.

From Young Conservatives

This week, the Supreme Court called Obama out on his disregard for the Constitution and ruled against him…

From Washington Free Beacon:

The Supreme Court ruled that President Obama violated the Constitution when he maintained an acting agency appointment after the Senate refused to confirm him.

The court ruled Tuesday that Obama appointee Lafe Solomon illegally served as acting general counsel to the National Labor Relations Board from 2010 to 2013. Solomon, who once violated the agency’s ethics rules, should have vacated the position in accordance with the Federal Vacancies Reform Act of 1998 (FVRA) after the Senate refused to take up his nomination to serve as permanent general counsel in 2011, the court found in a 6-2 opinion authored by Chief Justice John Roberts. The appointment was an “end-run around” the Constitution.

Nice to see the court defending our founding document like this.

I doubt liberals will even hear about this story let alone care.

However, it’s just another example of Obama’s disdain for the Constitution when it gets in his way.

Thank goodness that guy is gone.

You Won’t Believe What Hollywood Is Going To Do With Obama

The Obama White House is getting the Hollywood treatment as a workplace comedy.

According to the Hollywood Reporter (THR), Universal Pictures and Anonymous Content are developing a “high-concept workplace comedy” based on the book proposal From the Corner of the Oval by Beck Dorey-Stein, a former White House stenographer.

Breitbart reports,

Stein’s book has been picked up by Random House Publishing Group division Spiegel & Grau.

“The book doesn’t promise a revealing look inside the inner workings of the Obama administration, but focuses more on the White House as a workplace and on the relationships between the staffers,” THR reports.

“From the Corner of the Oval follows a young woman living in Washington D.C. who is at an all-time career low when, through a twist of fate, she goes from serving cocktails to lobbyists to being hired as a stenographer in the Obama White House,” THR says of the book’s synopsis. “The ultimate fish out of water, she stumbles into an elite world and finds herself navigating a series of misadventures in life and love.”

The film will be produced by Anonymous Content’s Michael Sugar, whose previous work includes the Oscar-winning drama Spotlight.

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