HUD Audit Shows $516.4 Billion In “Errors Corrected”

Real Estate/Housing is an industry full of swindlers, fraudsters, and many who take advantage of those who are uninformed or disadvantaged. It is no wonder that a bombshell audit by the Inspector General for the Department of Housing & Urban Development shows the federal government’s stake in the industry emulates or even amplifies that culture. To the tune of over $500 billion.

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.

In the initial summary of the audit, we see the large scale of the errors within HUD’s financial statements. What are errors? They aren’t (for the most part) estimates of assets and liabilities that changed due to inflation or deprecation, they are literally errors with the amounts stated. Often errors in accounting are typos, a few missing entries, wrong dates, change from GAAP to non-GAAP standards, and so on. Changes in methods of accounting rarely occur for government entities, and errors should be few and far between, especially with the intergovernmental oversight that exists in the United States.

The scale of errors within this audit are nearly unheard of. The yearly budget for Housing and Urban Development is around $32 Billion. The correction of errors, $516.4 Billion, is nearly 16 times that. That would be like a private corporation corrected 16 times their operating budget. No, not burning through billions in cash and taking little in as many retail companies and Snap, Inc. are famous for, but finding that many errors in their finances. In one audit. This wasn’t a compilation of audits over 20 years, this was one audit. This is without the parts of HUD that could not be audited due to improper accounting and non-compilation with FASAB.

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.

So what does this all mean? Is this just standard procedure and the conservative media is using the fact this is accounting gibberish many of us do not understand to try to make the Obama Administration look reckless or even corrupt? Well, we don’t know. We don’t know because of the biggest problem, the Inspector General simply does not know. Not because the Office of the Inspector General does an inadequate job, but because the OIG is dependent on the department they oversee to receive information requested. Because of the improper methods of accounting, rejections by management to see litigation information, and no reasons given for discrepancies between ledgers and sub-ledgers.

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.

Basically, for 3 years and counting the Inspector General has been unable to audit the Department of Housing & Urban Development due to obstructions and incompetence. Whether the incompetence is on purpose is the issue at hand, and one that the House Oversight Committee and related sub-committees must get to the bottom of this so we can see the extent of possible mismanagement, and prevent future errors in the future.

We [OIG] 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.

The full 126-page audit from March 1, 2017 is available at HUD’s Inspector General’s Website.

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About the Author

Justin Farrell

Justin is Conservative and accounting student. He is a Correspondent/Editor for Halsey News Network, as well as our in-house meme master.
Send any tips or inquiries to justin@halseynews.com and be sure to follow me on Twitter @JustinFarrell96

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