[CIVIC_VALUES] Why Is $59 Billion Missing From HUD?

["Catherine Austin Fitts" <catherine@solari.com>]

A good rule of thumb is that $59 billion is:

The price of $590,000 nice homes at $100, 000 per home. That is enough to
house all the homeless people in America

The price of one year of apartment rent for 10,000,000 apartments at $5,900
for annual rent

Produced by 590,000 American taxpayers working their entire lives at $36,000
median income to pay the taxes to pay for it....



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http://www.insightmag.com/archive/200011065.shtml



  11/06/2000

  Why Is $59 Billion Missing
  From HUD?


  By Kelly Patricia O’Meara
  omeara@insightmag.com


  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.”
         And the source adds, “Furthermore, if I wanted to rip off HUD,
  this is exactly how I would do it. Don’t run parallel systems, don’t
  bother to balance the books and then radically reengineer the system
  all at the same time that you double the volume of work. It’s a system
  ripe for financial fraud. The point is that you have to know what
  checks were authorized in a specific place and how they sort out, and
  if you balance the books monthly it becomes very easy to zero in on
  where the fraud is taking place. What the IG has missed is that it’s not
  about knowing a problem exists, it’s about fixing the problem — you
  want to know where and why you’re missing $59 billion. A huge
  computer system isn’t needed for HUD to balance the books;
  monthly statement reconciliation is all that is necessary.”
         The source continues: “Everything that has transpired at HUD is
  not an accident, and it sure isn’t a computer glitch. When you take the
  different material violations of the most basic financial-management
  rules and compare them to the time and effort put in to have first-rate
  systems, it is impossible to explain it as anything other than significant
  financial fraud. The losses could be far greater than $59 billion, but
  they don’t know for sure because the audit isn’t completed. Secretary
  Cuomo is a very smart control freak, so it’s ludicrous to think that he
  doesn’t know what is going on. There are several ways to correct
  these problems. Most are basic, but if you want to use the big
  sledgehammer, the Office of Management and Budget [OMB] and
  Congress have the ability to make HUD balance the books or [they]
  shut down the money supply. They are the guardians at the gate. But
  that is the most telling thing about this problem — OMB and the
  appropriators have been silent. This is exactly what happened right
  before the savings-and-loan scandal.”
         So is it possible that a problem within the agency’s computer
  systems is the cause of tens of billions of dollars being unaccounted
  for or missing? Not if you ask whistle-blower Jack Ballinger.
         In 1994 Ballinger began working for the New York City
  Housing Authority (NYCHA) as a contract inspector. He worked his
  way up through the system and was made manager of a new section,
  the Computer Operations and Reports Section. He was there only a
  few weeks when he became aware of major problems in payments to
  contractors. What he found was the main financial-management
  computer system, known as Financial Management Services (FMS),
  contained files verifying payments of more than $50 million on nearly
  150 contracts that did not show up on the computer system used by
  the bookkeepers and investigators to track the services provided.
  Called CAD, this system should have been keeping track of the
  inspections, the inspector, dates of inspection and inspection results.
         Realizing the gravity of the problem, Ballinger reported the
  missing files. Shortly thereafter the new section was disbanded, his
  staff was sent back to their previous positions and he was transferred
  to Coney Island as a boiler inspector. Nonetheless, he was joined in
  calling for an investigation by a dozen other “clean” inspectors.
  Ballinger first requested an investigation by the New York City
  Department of Investigations. When nothing happened, he contacted
  Bill DiBlasio, then the IG for HUD in New York (and now Hillary
  Rodham Clinton’s campaign manager); HUD IG Gaffney in
  Washington; Rep. Rick Lazio, R-N.Y.; and HUD Secretary Cuomo,
  whose agency provides more than 90 percent of the funding that
  NYCHA receives.
         Despite overwhelming evidence of corruption — including audio-
  and videotapes of bribes being offered and accepted, as well as one
  inspector telling his story of an organized group of inspectors
  receiving bribes — there was no serious investigation of the
  misappropriation of funds within the NYCHA. “The IG,” says
  Ballinger, “said it was a paperwork mistake and cleared up. But not
  one person who looked at this could see it as a paperwork problem,
  and this has been going on for almost two years. There were
  hundreds of contracts being reported and monitored through that
  computer system and it would have taken someone a lot of work to
  pick out 143 that weren’t there every month. I can’t say that the
  inspections haven’t been done, but there is no record of the work
  being done on these 143 files. Still they were getting paid. It’s almost
  funny how sloppy they are about it. They leave a trail because they
  know that no one will be held accountable.”
         The financial problems Ballinger uncovered in the NYCHA are
  similar to those at HUD. For instance, the IG’s testimony to Congress
  also raises the issue of a wide variety of people having access to the
  accounting system with no controls or audit trail to tell what
  transactions are taking place and under whose guidance. The IG
  states, “HUD uses a powerful utility system to resolve data
  discrepancies by directly altering the data in the HUDCAPS financial
  tables. … There were an excessive number of users with access to
  the utility, including users from four different contractor firms as well
  as HUD program offices. We questioned the need for the high
  number of users and the database administrator agreed not all the
  users on the list require access to perform their jobs. Allowing
  uncontrolled use of such a utility exposes HUD’s financial data to
  damage and fraudulent activities.”
         Gaffney is saying that just about anyone can get into HUD’s
  financial system, including many who don’t have any business or
  authorization to be in it . Once in, intruders can change numbers, take
  money and engage in financial fraud without anyone catching or
  stopping them.
         While Gaffney cannot force changes within HUD, as IG she can
  bring the problems to light. Unfortunately, the testimony she provided
  to Congress did little more than alert members to the already-known
  fact that there are serious financial-management problems under
  Cuomo at HUD. The IG’s report provides no specific data to help
  lawmakers, who have oversight of this agency, recommend
  appropriate and necessary changes. In fact, it is possible members of
  Congress had the same difficulty deciphering the IG’s testimony as
  everyone else with whom Insight has spoken. Despite the fact that the
  entire report by the IG to Congress deals with financial
  mismanagement at HUD, not once in all of her 14 pages of testimony
  did Gaffney so much as use the word “money.”
         How much HUD’s missing $59 billion is of concern to
  lawmakers is anyone’s guess. Chairman Horn, as well as Senate
  Governmental Affairs Committee Chairman Fred Thompson of
  Tennessee and Senate Appropriations subcommittee on VA-HUD
  Chairman Kit Bond of Missouri, did not return Insight’s calls about
  these matters.


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