Housing and Urban Development (HUD) FY2018 Audit Opinion
Updated January 10, 2019
Housing and Urban Development (HUD) FY2018 Audit Opinion
The Department of Housing and Urban Development
information, HUD and Congress may be better equipped to
(HUD) is the cabinet-level federal agency responsible for
improve HUD’s performance in these areas.
national housing and community development policy and
programs. As required by the Chief Financial Officers Act
How Are Audits Done?
of 1990 (CFO Act; 31 U.S.C. §902), as amended, HUD and
For each line item on an entity’s financial statement and
other federal government agencies annually issue audited
notes to the financial statement, an auditor will examine a
financial statements. Under the CFO Act, audits of federal
sample of the underlying economic events to determine the
agencies are the responsibility of the agency’s inspector
accuracy of the information reported. The auditor is
general (IG).
expected to give an unbiased professional opinion on
whether the financial statements and related disclosures are
HUD’s consolidated financial statements include the
fairly stated in all material respects for a given period of
activities of the Federal Housing Administration (FHA) and
time in accordance with Generally Accepted Accounting
Government National Mortgage Administration (Ginnie
Principles (GAAP). Although the Federal Accounting
Mae), both of which are part of HUD. FHA is a mortgage
Standards Advisory Board (FASAB) promulgates financial
insurer, and Ginnie Mae guarantees mortgage-backed
reporting and accounting standards for federal government
securities backed by federally insured or guaranteed loans.
entities, GAO is responsible for establishing auditing
In addition to their inclusion in HUD’s consolidated
standards for federal government agencies, including
statements, FHA and Ginnie Mae also release standalone
federal grant recipients in state and local governments.
financial statements that are separately reviewed by the
HUD IG.
Material misstatement in financial reporting can be
defined as information on a financial statement that
For FY2018, the HUD IG was unable to express an opinion
could potentially affect the reader’s decision or the
on HUD’s combined financial statements or Ginnie Mae’s
conclusions drawn by a reader about the financial
standalone statements (disclaimer of opinion). FHA
status of an agency.
received an unmodified opinion. (Types of audit opinions
are explained later in this In Focus.)
Audit Standards
GAO issues the Generally Accepted Government Auditing
The U.S. government is currently unable to obtain an
Standards (GAGAS), also commonly known as the “Yellow
unmodified opinion on its unitary Financial Report of the
Book,” which provides a framework for conducting federal
United States Government because agencies—such as HUD
government audits. The Yellow Book requires auditors to
and the Department of Defense (DOD)—with significant
consider the visibility and sensitivity of government
assets and budgetary costs received disclaimers of opinion
programs in determining the materiality threshold. Similar
on their FY2018 financial statements. Although these
to requirements in the private sector, GAGAS requires
agencies have significant budgetary costs, their size varies
federal financial reporting entities to disclose compliance
greatly; for example, HUD’s annual spending is less than
with laws, regulations, contracts, and grant agreements that
one-tenth that of DOD.
have a material effect on the entities’ financial statements.
Why an Audit?
Some organizations within the federal government use a
Government entities, including the U.S. government as a
hybrid of external and internal auditors. Whether external
unitary entity, issue annual reports that present their current
or internal auditors perform the function, they are required
financial position and condition, and discuss key financial
to adhere to the standards established under GAGAS.
topics and trends of the reporting entity. An audit of the
government’s financial information provides accountability
In addition to examining financial information, an audit
to Congress, oversight bodies, and the public about
evaluates the agency’s management assertion of internal
government agencies’ use of public resources. Financial
control over financial reporting. Audit of internal control
audits aim to provide reasonable assurance that the financial
includes the audit of computer systems at the entity-wide,
statements of an entity are free of material misstatements,
system, and application levels. GAGAS recommends using
whether caused by error or fraud.
specific frameworks for internal control policies and
procedures, including certain evaluation tools created
Annual audits of federal agencies, including HUD, (1)
specifically for federal government entities. An effective
provide critical insight into the reliability of financial data
internal control framework may help an organization
and the efficiency and effectiveness of internal operations;
improve its performance and governance.
(2) review compliance with statutes and financial
regulations; and (3) uncover potential problems. With such
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Housing and Urban Development (HUD) FY2018 Audit Opinion
Types of Audit Opinions
Results of FY2018 HUD Audit
Auditors form audit opinions by first examining the types
For FY2018, the HUD IG issued a disclaimer of opinion on
of risks an organization might face and the types of controls
HUD’s consolidated financial statements and Ginnie Mae’s
that exist to mitigate those risks. Once the risks and controls
standalone financial statements, whereas FHA received an
to mitigate those risks have been determined, the auditors
unmodified opinion on its standalone financial statements.
are to examine the supporting evidence and determine
Although the IG identified a material weakness and
whether management is presenting the financial statements
significant deficiencies with FHA’s internal controls and
fairly in all material respects. Although many entities
information technology systems, these issues did not
usually receive an unmodified opinion in the federal
prevent the IG from being able to issue an unmodified
government, the auditor may express other types of
opinion on FHA’s financial statements.
opinions based on the circumstances. There are four types
of audit opinions an auditor may express:
The IG identified material weaknesses, significant
deficiencies, and instances of noncompliance with
Unmodified Opinion. An unmodified opinion (clean
applicable laws and regulations in its audits of HUD’s and
opinion) states that the financial statements present fairly,
Ginnie Mae’s financial statements. Some of these issues
in all material respects, the consolidated balance sheets, the
were specific to certain activities, offices, or accounts,
related consolidated statements of net cost and changes in
whereas others were related to HUD’s and Ginnie Mae’s
net position, the combined statements of budgetary
processes and systems more broadly. The specific issues the
resources, and the related notes to the consolidated financial
IG cited as the basis for its disclaimer of opinion on the
statements in accordance with GAAP. This is the opinion
HUD audit were (1) several issues related to the accounting
expressed in the standard report. In certain circumstances,
for certain formula grant and disaster relief grant programs
explanatory language might be added to the auditor’s
administered by HUD’s Office of Community Planning and
standard report, but not affect the auditor’s unmodified
Development (CPD), as well as for HUD’s property, plant,
opinion on the financial statements.
and equipment; and (2) the disclaimer of opinion on Ginnie
Mae’s standalone financial statements. In regard to Ginnie
Modified Opinion. A modified opinion states that, except
Mae, the basis for the disclaimer of opinion included
for the effects of the specific matter(s) identified in the
questions about its reporting of nonpooled loan assets and
opinion, the financial statements present fairly in all
FHA reimbursable costs.
material respects in conformity with GAAP.
Considerations for Congress
Adverse Opinion. An adverse opinion states that the
Congress may use the findings of the HUD audit to inform
financial statement(s) do not present fairly in accordance
or enhance its oversight of HUD’s efforts to remediate
with GAAP.
these identified areas. Possible policy responses could
include the implementation of process improvements,
Disclaimer of Opinion. A disclaimer of opinion states that
investments in information technology systems, changes in
the auditor is unable to express an opinion on the financial
accounting practices, and implementing effective internal
statements. The auditor’s report should give all of the
controls. As noted in the IG’s audit report, HUD has taken
substantive reasons for the disclaimer. Reasons for a
steps to address some of the issues the IG identified. For
disclaimer of opinion include financial statements that do
example, Ginnie Mae is in the process of implementing a
not conform to GAAP and financial management systems
new database project in response to previous IG findings,
that are unable to provide sufficient evidence for the auditor
but it was not fully implemented by the end of FY2018.
to express an opinion.
Limitations of Audits
CRS Products
Independent audit opinions provide reasonable assurance
CRS Report R44894, Accounting and Auditing Regulatory
that financial statements present fairly in all material
Structure: U.S. and International, by Raj Gnanarajah
respects, but for the following reasons do not fully
CRS In Focus IF10701, Introduction to Financial Services:
guarantee:
Accounting and Auditing Regulatory Structure, U.S. and
International, by Raj Gnanarajah
The auditors use statistical methods for random
sampling and look at only a fraction of the economic
events or documents during an audit. It is cost—and
time—prohibitive to recreate or examine all economic
Other Resource
events at an entity;
HUD CFO Reports, Fiscal Year 2018 (FY2018) Agency Financial
Report, November 2018
Some line items on the financial statements involve
subjective decisions or a degree of uncertainty as a
result of using estimates; and
Raj Gnanarajah, Analyst in Financial Economics
Audit procedures cannot eliminate potential fraud,
Katie Jones, Analyst in Housing Policy
although it is possible that an auditor may find fraud
Maggie McCarty, Specialist in Housing Policy
during the audit process.
IF11066
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Housing and Urban Development (HUD) FY2018 Audit Opinion
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