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.
Deputy Secretary
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.

BACKGROUND

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 HUD does:

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:

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 competence.

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:

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 communities."

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 innovative contributions.

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 evaluation criteria.

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 public trust.


  • Under the HUD 2020 Management Reform Plan, HUD has taken these steps to strengthen its internal control environment:
  • 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 financial systems.

    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:

    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 assurance.

    THE SECOND DEFICIENCY WAS POORLY INTEGRATED, INEFFECTIVE AND
    GENERALLY UNRELIABLE INFORMATION AND FINANCIAL MANAGEMENT SYSTEMS:

    THE THIRD PROBLEM WAS ORGANIZATIONAL DEFICIENCIES:

    THE FOURTH DEFICIENCY WAS AN INSUFFICIENT MIX OF STAFF WITH THE PROPER SKILLS:

    CONCLUSION

    That concludes my statement. I am now prepared to answer your questions.



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