Senate Banking, Housing and Urban Affairs Committee
Subcommittee on Housing and Transportation
Hearing on Management Challenges Facing
the Department of Housing and Urban Development
Prepared Testimony of the Honorable Saul N. Ramirez, Jr.
Department of Housing and Urban Development
9:30 a.m., Tuesday, March 23, 1999
Good Morning Mr. Chairman, Ranking Member Kerry, and other distinguished members of the
Sub-committee. On behalf of Secretary Cuomo and the Department, I thank you for this
opportunity to testify regarding HUD's re-listing by the General Accounting Office as a high-risk
agency, the Department's view of that designation and the progress we at HUD have made
toward the elimination of our management deficiencies.
In early 1997 HUD was in a severe crisis. The GAO High-Risk Report, released at that time,
outlined serious, long-standing management deficiencies which caused HUD to be the only entire
agency in the federal government designated as high-risk.
Also, in 1997 there was a general perception that the Department could not solve its
problems and restore the public trust. It was apparent to all that major changes were needed.
Despite these many problems and perceptions there is clearly a need for HUD and what
- By fighting for fair housing, HUD ensures that every American has an opportunity to live
where they choose without fear of illegal discrimination;
- HUD programs increase the stock of affordable housing and enable tens of thousands of
low and moderate income Americans to fulfill the dream of becoming homeowners;
- HUD programs provide shelter and assistance for the unfortunate homeless;
- HUD's economic and community development programs are essential to the growth and
health of many cities, and have helped to turn blighted areas into vibrant and viable
- HUD programs encourage citizens to become involved in identifying and solving their
own problems and the problems of their communities; and this is real empowerment.
In June of 1997, Secretary Andrew Cuomo introduced the HUD 2020 Management Reform
Plan to ensure HUD's relevance and effectiveness into the 2 1 " Century, and to address the
management and operational deficiencies identified by the General Accounting Office, HUD's
Office of Inspector General and others.
These were the management and operational deficiencies for which HUD was cited:
- Internal control weaknesses, such as a lack of necessary data and management processes;
- Poorly integrated, ineffective and generally unreliable information and financial
management systems that did not meet the needs of program managers and weakened
their ability to provide management control over programs;
- Organizational deficiencies, such as overlapping and ill-defined responsibilities and authorities between headquarters and field organizations, and a fundamental lack of management accountability and responsibility; and,
- An insufficient mix of staff with the proper skills hampered monitoring and oversight of
HUD programs and the timely updating of procedures.
Since the announcement of the HUD 2020 Management Reforms, HUD has been hard at work
implementing its reforms with a view to restoring public trust by achieving and demonstrating
A General Accounting Office report released in January 1999, entitled Performance and
Management Series: Major Management Challenges And Program Risks, recognizes HUD's
progress in addressing these long-standing material weaknesses and management deficiencies.
In this report, GAO states that: "Given the severity of the management deficiencies that we and
others (e. g. HUD's Inspector General, external auditors) have repeatedly observed, it is not
realistic to have expected that HUD would have fully or even substantially implemented the
reform efforts and seen evidence of their success in the 2 years since our last report."
However, they also observed that: "HUD is making significant changes and has made credible
progress since 1997 in laying the framework for improving the way the Department is managed."
GAO credits HUD's 2020 Management Reform Plan as a major contributor to HUD's progress in
changing its operations and correcting its management deficiencies, stating that: "HUD's 2020
management reform and related efforts represent a good start...."
SUMMARY OF HUD ACTIONS TO ADDRESS DEFICIENCIES
The GAO report makes note of the Department's actions that directly addressed material
weaknesses and management deficiencies. For example:
- HUD has improved its financial reporting to the extent that its Inspector General was able
to provided qualified opinions on its financial statements for fiscal years 1996 and 1997,
compared with no opinion on the reliability of its financial statements for prior years.
- HUD deployed components for improving its information and financial management
systems and it reorganized its resources by function and established various consolidated
or centralized entities for single-family insurance operations, the payment of rental
assistance, assessments of HUD-owned or HUD-supported rental properties, and
- HUD has refocused and retrained its workforce.
In referring to the impact of the management reforms, GAO cites Booz-Allen Hamilton's
independent study of HUD reforms released in March 1998, which said: "these reforms, when
implemented, should present a significant improvement in HUD's performance; lower the risk of
fraud, waste and abuse of its programs; and position the Department to better serve America's
HUD's 2020 Management Reforms have improved the efficiency and effectiveness of the
Department's operations and addressed critical management deficiencies thereby reducing its risk
of fraud, waste and program abuse.
In view of the progress made and cited by GAO, the Department believes that the HUD 2020
Management Reform Plan is the right plan to solve the program management and operational
problems identified by GAO.
HUD'S VIEW OF THE HIGH-RISK DESIGNATION
Now, I would like to briefly comment on GAO's continued designation of HUD as a
high-risk agency, despite acknowledging our progress.
At the beginning of their most recent high risk review, and in response to our inquiries, GAO
staff informed us that there were neither high-risk criteria nor a consistent high risk test applied
to all federal agencies.
Furthermore, they told us that the label of high risk was applied based on the
"professional judgment" of GAO staff.
We were also told that because HUD had four long-standing agency -wide problems, it was and
would remain a high risk agency. I was informed that this test of four problems had not been
applied uniformly to other agencies.
Secondly, GAO staff indicated that HUD would not be held to an unreasonable standard of
perfection and that redesignation was possible if HUD demonstrated reasonable progress in
implementing its reforms.
Later, we were told that the standard was "results", that is: Has HUD demonstrated that its
problems have been fixed? Was there substantial long-term results that bore out the success and
sustainability of its reforms?
The difference in the two standards, reasonable progress vs. results, is significant, since
one is attainable in two years and the other could take an undetermined amount of time.
The designation of an agency as high-risk has important consequences to the morale of its employees, the confidence of its constituents and the public at large.
To many people, it indicates that the employees and management of that agency do not take
seriously their responsibilities to safeguard the public trust. Certainly for HUD this is not true.
HUD employees, all over the United States, have demonstrated extraordinary professionalism and dedication to the HUD mission and customers.
This exemplary performance has been recognized both internally and externally. Vice President
Al Gore has awarded 40 Hammer Awards to HUD employees for their outstanding and
There is a significant difference between having management deficiencies and being, labeled high-risk.
Such a designation should be based on objective, measurable criteria and standards. Without
them it is difficult, if not impossible, to determine what actions can be taken, and within what
time frame, to remove that label.
I understand that GAO is examining the development of objective standards and criteria
in conjunction with the Maxwell School of Public Administration at Syracuse University.
We look forward to seeing the results of that project because the future credibility of GAO's
high-risk designation may depend on the outcome of their development of uniform and objective
HUD's ACTIONS TO ADDRESS MANAGEMENT DEFICIENCIES
We at HUD are extremely proud of the progress we have made in addressing the four management deficiencies. HUD staff has worked very hard to remove the designation of highrisk from our agency. I would like to briefly discuss specific actions which we have undertaken.
FIRST, REGARDING THE INTERNAL CONTROL WEAKNESSES:
We recognize that a strong internal control environment is essential to the restoration of
Under the HUD 2020 Management Reform Plan, HUD has taken these steps to strengthen its internal control environment:
- HUD has established a Risk Management Office within the CFO which provides
technical support and ensures that risk assessments are being performed by managers;
- HUD performed more Front End Risk Assessments in the last two years than in the prior
ten years. Where problems have been identified, corrective actions have been taken.
- In September 1998, 1100 HUD managers received training on the infernal control
responsibilities, using GAO's "Standards for Internal Control in the Federal Government"
and OMB Circular A-123. (Follow-up training in FY 1999 will focus on monitoring.)
- HUD has eliminated the conflicting staff roles of relationship management and program
management, by creating the new occupation of Community Builders to perform
marketing, outreach and customer service functions.
- Public Trust Officers perform the essential and critical program management and
administration functions of monitoring program performance, identifying successful and
unsuccessful performers and providing technical assistance, or referring major
compliance problems to the National Enforcement Center.
The creation of the Real Estate Assessment Center, the Troubled Agency Recovery Centers and
the Enforcement Center has directly impacted HUD's monitoring efforts, by providing more
detailed information to assess program performance and compliance with statutory and
regulatory requirements. This new operation will enable HUD to better target its monitoring and
technical assistance resources. Therefore, we expect to do more and better oversight of our
public trust responsibilities.
HUD received its first-ever qualified audit opinion two years ago. This indicates a heightened
awareness by managers of their fiscal responsibilities, and the significant improvements in our
We have made significant progress in improving our procurement and contracting operations and
in curing the associated material weakness. Some of the steps we have taken are:
- HUD now has a Chief Procurement Officer who reports to the Deputy Secretary;
- We have established a Contract Management Review Board which has reviewed and
approved program organization's procurement strategies for all contracts over $1 million;
- HUD has established a process for a legal review of all contracts over $5 million;
- HUD has instituted a new certification program for Government Technical
Representatives, and has trained 174 staff; and,
- We integrated our procurement system and accounting system so that we can obtain
comprehensive financial reports on each contract.
We have also strengthened oversight of the audit resolution process by the consolidation of Audit
Liaison Officer functions in Headquarters and the field. We now have a process that makes
managers accountable for taking final actions, and gives the CFO responsibility for quality
THE SECOND DEFICIENCY WAS POORLY INTEGRATED, INEFFECTIVE AND
GENERALLY UNRELIABLE INFORMATION AND FINANCIAL MANAGEMENT SYSTEMS:
- One of the major reforms under HUD 2020 was to "Modernize and integrate HUD's
outdated financial management systems with an efficient state-of-the-art system". Much
work has been accomplished in the past two years. For example:
- HUD now has a fully compliant Department-wide general ledger;
- HUD has developed and deployed 11 new financial management systems. These systems
support a number of HUD activities, including budget formulation and outlay, grants
evaluation and monitoring, program accounting, procurement and real estate
- All of HUD's major accounting systems are in compliance with OMB Circular A-127 and
the Federal Managers Financial Integrity Act; and, we have established a firm schedule to
bring all other systems into compliance.
- HUD will have independent audits performed to evaluate the adequacy of the program
organizations' assessments of Federal Managers Financial Integrity Act compliance;
- HUD has developed a specific plan, with timetables, and quality assurance measures to
standardize data elements and verify the data quality in our systems.
- Of course, we recognize that the fiscal and financial nature of the Department's mission
requires accurate, reliable and timely financial and management information systems.
- We are committed and determined to complete our financial systems integration
improvements, as well as, the implementation of all corrective actions to address our
remaining material weaknesses in this area.
THE THIRD PROBLEM WAS ORGANIZATIONAL DEFICIENCIES:
- The Department has overcome this deficiency by :redefining its mission, establishing the
core business functions of housing, public housing, community development and fair
housing; instituting separate and distinct marketing, outreach and customer service
functions; and, consolidating major program services and operations.
- The lines of authority for program management and administration are clear and
consistent between headquarters and field offices.
- These organizational and operational changes are integrated by HUD's Business and
Operating Plan which defines the work plans and working relationships, between
headquarters and field organizations.
- The Business and Operating Plan establishes, for each organization and office,
measurable goals and performance standards which are linked to the HUD Annual
Performance Plan and the I-IUD budget, as required by the Government Performance and
Results Act (GPRA).
- For FY 2000 we will not only link the Annual Performance and Business and Operating
Plans to our FY 2000 budget, but also create new performance plans for management
accountability for specific goals and objectives.
- Our field offices and consolidated operations centers have established service agreements
and protocols which govern the responsibilities each has to the other for the provision of
services and products.
- We also developed the HUD 2020 Program Services and Operations Manual. This
manual provides a ready reference on how each Headquarters and field office
organization works under the HUD 2020 Management Reform Plan.
- It delineates HUD 2020 products, business processes, protocols, and the Business and
Operating Plan system.
- For each program and consolidated operation the manual also explains the mission,
organizational structure, reporting relationships, operating strategies and jurisdictional
- Both the Business and Operating Plans and the HUD 2020 Program Services and
Operations Manual are available to every HUD employee over the intranet, or HUDWeb.
- By restructuring, consolidating and redefining our mission we have eliminated the
overlap and confusion and established a different kind of public service enterprise which
is designed to empower people and communities, as well as to restore public trust in
THE FOURTH DEFICIENCY WAS AN INSUFFICIENT MIX OF STAFF WITH THE PROPER SKILLS:
- The 1997 GAO Report on HUD acknowledged the Department's steady progress in
making more effective and efficient use of existing resources and the upgrade in skills
levels because of improved training.
- Nevertheless, GAO continued to criticize the Department for problems in the deployment
of staff and the ability to analyze and determine resource needs.
- Secretary Cuomo decided in 1997 that the Department would not address the mandates
for downsizing and deficit reduction by simply assigning each organization a pro rata.
- Secretary Cuomo challenged the leadership and employees of the Department to reexamine the fundamental purposes and programs of the Department, and to identify real
opportunities for doing our business in different ways.
- We believe firmly that after an exhaustive study of GAO, OIG, NAPA, OMB and
congressional studies concerning the Department's problems, the HUD 2020 Management
Reform Plan has provided a better roadmap and realistic alternatives for achieving our
mission with a better trained and better focused workforce.
- This is how we are making better use and getting more productivity out of our current
- The Real Estate Assessment Center is the epitome of economy of scope and scale because
it has not only begun to perform physical inspections and financial statement analyses of
our multifamily housing inventory, but also to enhance oversight of singlefamily
- The Section 8 Financial Management Center consolidates all rental assistance payment
processing and financial management for both the Housing and Public Housing rental
- The Troubled Agency Recovery Centers provide centralized and dedicated staff resources
for managing and administering new techniques and methods to address the performance
deficiencies of problem housing authorities. Outstationed staff are located in close
proximity to ailing housing authorities.
- The CFO Accounting Center has consolidated all field accounting, both programmatic
and administrative, so that the Department can achieve a greater measure of consistency,
uniformity and efficiency of accounting operations.
- The Singlefamily Homeownership Centers have exploited the advantages of electronic
business systems, so that the Department now conducts homebuying via the internet,
markets REO properties via kiosks in a variety of accessible public places and has
reduced the mortgage endorsement approval process to less than 48 hours.
- The National Enforcement Center performs all compliance and enforcement functions for
the Department, except for civil rights enforcement. The Center uses a broad range of
financial, technical, and administrative analyses to determine whether a program
participant should undergo compliance or enforcement actions.
- These organizational and operational improvements are a major part of the reason that the
Department has been able to successfully retrain and refocus our workforce.
- Therefore, we are confident that we have appropriately staffed our new operations and
assigned employees who are trained or retrained to perform their duties and
- You might ask: "Well how did you determine the right mix of people with skills to
perform their new work assignments?"
- The Department used an OPM approved methodology to redeploy staff to these critical
areas identified by the GAO and OIG. We have now created the best alignment between
workload and staffing in the history of the agency.
- · The independent analysis of HUD 2020 performed by Booz-Allen and Hamilton
concluded that HUD had used "acceptable analytical techniques for establishing staffing
levels" and "HUD 2020 is a sound, well thought-out reform plan. It is tailored
specifically to solve long-standing structural problems, uses appropriate reinvention
strategies for HUD's specific challenges, and addresses the agencies core problems"
- HUD is now working with the National Academy of Public Administration to develop
and implement a resource estimation and allocation process for the future.
- HUD has continued to make a major commitment to training. We have provided training
for the employees of the new consolidated operations centers, such as, multifamily project
managers, single family housing specialists, assessment auditors and inspectors,
enforcement specialists and other newly created occupations.
- For employees who continued in previously held positions with new business processes,
we provided training on the new policies, procedures and data systems.
- It is interesting to note that in GAO's 1997 Report, HUD was cited for training
deficiencies based on interviews with HUD's managers. However, the current report
indicates that those managers who were interviewed acknowledged overwhelmingly that
HUD's training is effective and that their staff are now well trained for their jobs.
- In closing let me say that we are committed to completing our reforms and making
progress in improving internal controls, modernizing our information and financial
management systems, strengthening our organization and training and deploying our staff
- I believe that the facts show that the reforms initiated under the HUD 2020 Management
Reform Plan are effectively addressing the concerns expressed by GAO and others.
- America's communities need a HUD that is effective and competent. I assure you that we
at HUD take this responsibility very seriously.
That concludes my statement. I am now prepared to answer your questions.
Home | Menu | Links | Info | Chairman's Page