Subcommittee on Housing and Transportation

Hearing on HUD's Performance Management

Prepared Testimony of Mr. Stanley J. Czerwinski
Associate Director
Housing and Community Development Issues
General Accounting Office

10:30 p.m., Tuesday, September 26, 2000 - Dirksen 538

Mr. Chairman and Members of the Subcommittee:

We are here today to discuss the management challenges facing the Department of Housing and Urban Development (HUD) as it tries to transform itself from a federal agency whose major programs were designated as "high-risk" in our last High-Risk Series update in January 1999. As you know, HUDís housing and community development programs directly or indirectly affect the lives of millions of Americans. HUD is responsible for making housing more affordable for about 4.5 million low-income people by insuring loans for multifamily rental housing and providing rental assistance. It is also helping to revitalize over 4,000 localities through community development programs, encouraging homeownership by providing mortgage insurance for about 7 million homeowners who otherwise might not have been able to qualify for loans, and managing about $508 billion in insured mortgages and $570 billion in guarantees of mortgage-backed securities. Given the magnitude of HUDís responsibilities, congressional oversight of HUDís management becomes vital for ensuring that the Department carries out its mission efficiently and effectively while maintaining the integrity and accountability of its programs and activities at the highest possible level.

This hearing and our comments today are cast against the backdrop of the powerful statutory framework that the Congress has put in place over the last decade to improve performance management and the accountability of the federal government. Through the passage of major management reform legislation such as the Government Performance and Results Act (GPRA), the Chief Financial Officers Act, and the Clinger-Cohen Act, the Congress has provided federal agencies with the tools for transforming themselves into high-performing organizations. While

the proper implementation of this framework holds much promise for promoting, creating, and sustaining high-performing federal organizations, this transformation does not come easily or quickly. Old ways of doing business must first be critically reexamined and new approaches must be developed and institutionalized. This process takes time and sustained commitment by all levels of management.

Our statement today will focus on (1) HUDís progress in addressing the major management challenges we have identified in the past and our plans for updating the risk status of HUDís programs; (2) issues HUD faces in ensuring that the reforms it has implemented are sustainable and will result in its becoming a high-performing federal agency, including our plans for monitoring HUDís activities; and (3) the importance of congressional oversight in ensuring that federal agencies like HUD, successfully manage for results in the 21st century. Our statement draws from a large body of completed as well as ongoing GAO work, including our reviews of various HUD programs, our reviews of HUDís strategic and performance plans, and work we have done across the federal government on management reform initiatives and performance-based organizations. In addition, it draws from reports issued by outside sources such as HUDís Inspector General, National Academy of Public Administration, and other consulting groups, as well as information recently reported to us by HUD.

In summary:

management improvement initiatives and provide the continuing attention necessary for these initiatives to be implemented successfully. We believe that GPRA provides a framework to help the Congress oversee an agencyís management reform efforts. For example, the information generated through the actís planning and reporting processes can help the Congress make more informed decisions about such issues as whether an agency has the right mix of programs, is pursuing and achieving the right goals, is achieving real results with positive outcomes, and is effectively coordinating its programs to meet national needs.

HUDís Progress in Addressing its Management Challenges

The four primary areas of concern that we identified at HUD in our January 1999 report are as follows:

Weak internal controls: These include weak management of the Section 8 subsidy payment process, which provides $18 billion in rental assistance; a lack of control and management of staff resources to manage and monitor its real estate inventory, an inadequate early warning system to prevent losses through defaults in its single-family and multifamily insurance programs, and inadequate information or unreliable data.

Inadequate information and financial management systems: These systems, which HUD uses to manage its programs, such as the Federal Housing Administrationís mortgage insurance programs, were inadequate because they were poorly integrated, ineffective, and generally unreliable. They neither satisfied managementís needs nor provided adequate control over HUDís programs.

An ineffective organizational structure: An ineffective organizational structure has also contributed to management problems throughout HUD that cut across most of its housing and community development programs. Organizational problems included overlapping and ill-defined responsibilities and authorities between HUD headquarters and field organizations and a fundamental lack of management accountability and responsibility.

An insufficient mix of staff with the proper skills: HUD lacked assurance that it had the right number of staff with the proper skills to meet the needs of major program areas, such as the monitoring of its multifamily property managers. Imbalances occurred when significant reductions in HUDís staffing levels during the 1990s were not accompanied by any reductions in or consolidations of programs until after 1997.

In 1999, we reported that HUD had made credible progress in addressing many of its management challenges, and since that time, we believe, the Department has continued to make progress. For example, HUD has

Although we believe that progress is continuing at HUD, much remains to be done. For example, we recently reported that HUD has had difficulty correcting the performance problems identified through its monitoring of its new contractors, hired to manage and market HUDís single-family property inventory, and that the contractors continue to have difficulty with property maintenance and security issues. Similarly, HUD encountered serious problems in converting to a new general ledger system, which prevented the Office of Inspector General from completing its audit of HUDís fiscal year 1999 financial statements by the mandatory deadline and resulted in HUDís receiving a disclaimer of opinion on its financial statements for that year. HUD also needs to continue its efforts to (1) verify tenant incomes to ensure that subsidized housing units are occupied by eligible families and that these families are paying correct rents and (2) modernize its information and financial management systems and reduce its reliance on older systems that do not meet its needs.

We are currently conducting our biennial assessment of the progress made by agencies across the federal government in addressing issues and programs that have been designated as high risk, including those at HUD. In making our determination of high risk at HUD and other federal agencies, we will consider the corrective measures that agencies have planned or have under way to resolve their management challenges, as well as the status and effectiveness of these actions. Some of the key factors we will consider in making our high-risk determination at HUD include the extent to which HUD has

In considering whether HUDís corrective actions will be substantially completed in the near term, we will be looking for a high level of assurance that the actions will be completed within the next 2 years. The agency will need to demonstrate concrete results to date, with a clear path toward addressing any remaining problems. We have shared these criteria with HUD officials.

To conduct our assessment of high risk, we will use HUDís strategic plans, annual performance plans and reports, accountability reports, and audited financial statements. This information will be supplemented by relevant GAO reports, Inspector General reports, and other independent analysis. Finally, the ultimate determination will be based on the independent and objective judgment of GAO.

Sustaining Reform and Becoming a High-Performing Agency

Many of the management challenges that HUD is trying to address are of long standing. They are complex and difficult problems that will not, and cannot, be easily or quickly resolved. Our management reform work across the federal government has shown that several key elements are often needed to implement and sustain major change initiatives such as HUD has undertaken, to ensure that these initiatives genuinely take root and resolve the problems they are intended to fix. These elements include

Based on our work to date, several of these elements appear to be present in HUDís management reform efforts. At the same time, we have not yet completed our work. In any event, we believe that vigilant monitoring of these issues will be critical over the next several years. Strong and continuing congressional leadership and oversight, and monitoring by HUDís Inspector General and GAO, will be necessary to ensure that the changes the department is trying to achieve are sustained and result in real reform.

However, sustaining change should not be HUDís final goal, but rather a means to achieve the end result of becoming a high-performing federal agency. Looking across the federal government we have found that changing a federal agency into a high-performing organization is not an easy task and often requires a cultural transformation under which

Our work has shown that high-performing organizations consistently strive to ensure that they have clearly defined and well-communicated organizational missions, values, and goals and that these values and goals drive their day-to-day activities to achieve expected results. When organizations transform their cultures so that achieving results becomes the driving concern of their daily operations, fundamental performance improvements occur, thereby helping the organization to deliver the products and services at the cost and with the quality that the American people expect of their government.

At HUD, as at other agencies across the federal government, we believe that a considerable amount of work still needs to be done to ensure that the departmentís commitment toward ongoing reforms ultimately translates into the efforts necessary for HUD to become a high-performing organization. In this regard, we are working with the cognizant congressional committees, to develop a significant body of work that we anticipate undertaking over the next 2 to 3 years. This work will explore the sustainability of HUDís management reforms as well as HUDís progress toward becoming a high-performing federal agency. Some of these reviews include assessments of HUDís

Managing for Results and the Importance of Congressional Oversight

The challenges we have discussed today are not exclusive to HUD. Rather, they are common to all government agencies attempting to meet the expectations and needs of the nation in the 21st century. The performance and accountability of these agencies needs to be enhanced to get the most out of the available federal resources and forge effective approaches to both new and long-standing national problems. GPRA provides the impetus for improving the effectiveness of federal programs by shifting the focus of management and decision-making from a preoccupation with staffing and activity levels to a broader focus on the results or outcomes of federal programs. GPRA has the potential to help the Congress and the executive branch ensure that the federal government provides the results that the American people expect and deserve. It also has the potential, if properly implemented, to help improve the publicís respect for and confidence in their government.

However, our work has consistently shown that integrating GPRA into an agencyís operations does not come quickly or easily. It has been almost 3 years since the requirements of GPRA were implemented across the executive branch, and although substantial efforts have been undertaken and progress has been made, much of the actís potential remains unrealized. For example, our reviews have shown that much more progress is needed to link agenciesí performance goals to their budget presentations, so that the performance consequences of budget decisions can be clearly understood. Similarly, most agenciesí plans have not sufficiently addressed how the agencies will use their human capital to achieve results.

Our work has found that fully integrating GPRA into agenciesí operations requires dedicated and persistent leadership. Managers must use goals and performance data as a basis for their organizations day-to-day operations and for holding units and individuals accountable for results. It requires leadership on the part of the Office of Management and Budget to ensure that performance data are used to make informed budget decisions and that agencies take the implementation of GPRA seriously. Finally, it requires the Congress in its various capacitiesóoversight, authorization, appropriation, and confirmation of political appointeesóto use GPRA in its efforts. For example, the Congress, in its oversight role, can monitor federal management improvement initiatives to ensure that they do not become hollow, paper-driven exercises that are not integrated into the agenciesí day-to-day activities. In particular, the concepts, practices, and products associated with GPRA can help the Congress in its decision-making and strengthen its oversight in the following areas:

Attacking activities at risk of fraud, waste, abuse, and mismanagement: The annual planning process of GPRA provides an excellent tool to help address high-risk functions and programs and to ensure that clear accountability for progress is established. For example, our work has shown that precise and measurable goals for resolving mission-critical management problems are important to ensuring that agencies have the institutional capacity to achieve their more results-oriented programmatic goals.

Improve the economy and efficiency of federal programs: In many federal programs areas, such as housing, a range of service delivery mechanisms and program tools are used to deliver programs and services. GPRA provides the opportunity to examine these program structures and strategies to ensure that the agencies have the best, most cost-effective mix in place to meet their goals. Such an examination can also help identify opportunities to improve performance and reduce costs.

Reassess what the federal government does: GPRA is perfectly suited to help the Congress and the executive branch identify and address programs that may have outlived their usefulness. Performance goals that focus on the results of programs and performance reports that show what has been accomplished can provide the Congress with critical information on the value of continuing certain programs.

Redefine the beneficiaries of federal programs: GPRA can also help the Congress as it considers redefining program beneficiaries. By examining agenciesí goals and progress made in achieving those goals, congressional decisionmakers can determine where federal benefits could be better targeted to improve results and/or cut costs.

Rationalize crosscutting program efforts: Virtually all of the results that the federal government strives to achieve require the concerted and coordinated efforts of two or more agencies. If GPRA is implemented properly, the Congress will receive new information on crosscutting programs. This information can help the Congress identify agencies and programs with similar missions, and consider the associated policy, management, and performance implications of crosscutting programs.

Build the capacity to gather and use performance information: Under GPRA, agencies are to communicate to the Congress how they will verify and validate the performance information that they will use to show whether goals are being met. The Congress can then use the information provided by the agencies to obtain a clearer picture of their contributions to improvements in citizensí lives.

In conclusion, Mr. Chairman, the management challenges that HUD faces today have developed over decades and will certainly take some time to be fully resolved. We believe that the agency is making credible progress in overcoming its management challenges consistent with its 2020 Management Reform Plan. However, HUDís ultimate success will depend on its ability to sustain the efforts that it currently has underway. This sustainability is critical if HUD is to complete the transformation into a high-performing federal agency and be in a position to deliver the programs and services that the American people expect and deserve from their federal government.

The Congress has provided HUD and other federal agencies with the tools they need to focus on results. It is now up to these agencies to implement these tools properly and deliver the expected results. However, only the Congress, in its various capacities of oversight, authorization, appropriation, and presidential appointee confirmation, can ensure that the transformation to performance-based organizations is completed successfully and that federal agencies are held accountable for results. Our goal is to continue to help and support the Congress in these efforts.

Mr. Chairman, that concludes our prepared statement. We would be happy to answer any questions that you or Members of the Subcommittee may have.

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