Why Is $59 Billion Missing From HUD?

0 Comments | Insight on the News, Nov 6, 2000 | by Kelly Patricia O'Meara

Billions of dollars are missing from the U.S, Department of Housing and Urban Development's books. Some HUD officials blame computer glitches; others allege widespread graft.

The Department of Housing and Urban Development (HUD) has earned a failing grade from the House Government Reform subcommittee on Government Management for the way the agency manages taxpayers' money. Subcommittee chairman Stephen Horn, R-Calif., is said to be furious that HUD's most recent financial report shows the agency is unable to balance its checkbook and cannot account for $59 billion.

For most Americans, it is incomprehensible that $59 billion could be missing from the ledger of a single agency. But despite years of earning failing grades -- as well as years of being unable to account for tens of billions of dollars -- the Clinton/Gore management team at HUD has continued to shell out hundreds of millions of dollars to the same contractors hired to ensure financial systems are in place and working. It doesn't take a certified public accountant to see that HUD Secretary Andrew Cuomo's financial house is not in order, and Susan Gaffney, the inspector general (IG) of HUD, tells Insight, "It's more serious than you know."

This dire yet brutally honest evaluation by the IG came in response to questions about her testimony concerning HUD's 1999 audit, delivered before Horn's subcommittee in May. And HUD's 1999 audit still has not been completed even as the agency is nearing the starting date for the 2000 audit. Instead, Gaffney submitted a 14-page "summary" for 1999, providing a laundry list of systemic reasons for HUD's financial woes. Indeed, it took Insight a day and a half just to make sense of the IG's simplified testimony concerning these financial shenanigans.

Beyond the fact that $59 billion is unaccounted for and that auditors have had to make manual adjustments to the checkbook system retroactively, it is glaringly apparent in the IG's report that taxpayers should consider themselves lucky that the amount isn't much higher. What also is more than evident is that the IG devoted most of her testimony to explaining failed processes at HUD rather than focusing on any specific examples of theft, conversion, embezzlement and other larceny.

For instance, according to Gaffney's testimony, she could not sign off on the 1999 audit because of "the undetermined effects of the conversion problems of the general ledger from the Program Accounting System [PAS] to HUD's Central Account and Program System [HUDCAPS] during the fiscal year, the integrated state of HUD's reconciliation efforts and their documentation for the general ledger accounts for the fund balance with Treasury, and the late manual posting of numerous and significant adjustments (some as late as Feb. 25, 2000) directly to the financial statements, for which we lacked sufficient time to test their legitimacy."

What the IG is saying is that HUD's finances are in a shambles because, during 1999, the agency was converting to a new computer system, the field offices didn't balance their checkbooks on a monthly basis and manual postings were made to the financial statements so late that the IG had no time to review whether the postings were correct. Gaffney does report in one section of her testimony that "242 adjustments, totaling about $59.6 billion, were made to adjust fiscal year 1999 activity."

The IG, however, does not explain where the "adjustments" were made, for what services or from which region or field office. But she tells Insight that HUD's financial problems stem from glitches within the agency's computer systems.

"The material weakness," explains the IG, "is that HUD does not have a single financial ledger system in place and this year they tried to implement that. The effort was flawed to say the least. The financial systems flowing in were incompatible and the system rejected transactions, and the rejected transactions weren't corrected in the new ledger system. HUD does not have a reliable and accurate statement of its financial condition."

Apparently, the HUDCAPS system that has been going online since 1997 and is supposed to correct the agency's overwhelming financial-management problems now is being scrapped. According to Gaffney, just last week she was made aware that Chief Financial Officer Victoria Bateman has decided that HUDCAPS does not do the job and that a new add-on system is being implemented. It's anyone's guess when the new system will be fully integrated with the old "new" system which, to date, has done nothing to enhance HUD's ability to account for the billions of dollars in missing tax money.

According to one source familiar with HUD's finances who spoke on condition that he not be identified, blaming computer glitches is what is done when they want to hide fraud. "The history of effort and expenditures that has been poured into correcting deficiencies at HUD does not support a theory of incompetence. If you don't have decent accounting systems it's because someone wants to make sure you don't. It's standard operating procedure that if one system is being replaced you keep the old one up and running while you work out the kinks in the new one -- they're run parallel. In this case, they took down a system that was running, replaced it with a system that wasn't and then cried, `Oh, we can't balance the books!' They can't say the resources don't exist to correct the problem. If Cuomo can find hundreds of community builders to run around neighborhoods, he can find enough people to balance the checkbooks."