Shared service gets some blame for HUD's financial woes

The Department of Housing and Urban Development's inefficient use of a shared financial management service contributed to mistakes that forced the agency to restate two years of financial statements, according to a new report from the agency's inspector general.The IG's report, issued on March 1, looked at the agency's restated fiscal 2016 and 2015 consolidated financial statements. The IG said it found the total amount of errors corrected in HUD's notes and consolidated financial statements were $516.4 billion and $3.4 billion.

The delays in reporting timely fiscal 2015 and 2016 financial statements, resulted from weak internal financial reporting capabilities, the IG found, including the agency's balky transition of core financial systems to a federal shared service provider housed at the Treasury Department.

In an earlier report on the shared services switch, HUD's Office of the Inspector General found that, "[a] year after the transition, HUD had inaccurate data resulting from the conversions and continued to execute 97 percent of programmatic transactions in its legacy applications. In addition, HUD did not decommission all of the applications it wanted to, including its core financial system, nor did it achieve the planned cost savings."

The department pushed back on these conclusions. In reply comments dated Dec. 13, 2016, HUD Assistant Chief Financial Officer for Systems Joseph I. Hungate III said the transition to shared services "provides the foundation on which the Department can achieve greater accuracy, timeliness and transparency in financial management."

The transition has been dogged by problems for some time, however. Former agency CFO Doug Criscitello told FCW that part of the problem is the complexity of legacy agency systems.

HUD, said Criscitello, "is the poster child" for dysfunctional financial management systems. It has highly siloed operations that include the Federal Housing Administration, Federal Housing Finance Agency, and Government National Mortgage Association. Those silos tend to have their own individual cultures that complicate implementing a common financial management shared services solution, he said.

Criscitello, now head of the MIT Center for Finance and Policy, said HUD had been making progress in getting its financial management house in order in the late 1990s and early 2000s, but the push towards shared services came "at an inopportune time" for the agency, which had been developing its own internal system.

"HUD needs a strong financial management capability. The commitment for that needs to come from the highest level," he said. The agency's budget director and deputy chief financial officer "need to be bigger players" inside the agency too, he added.