Insurance For Less

Scrutiny of the government’s use of taxpayer dollars has never been higher, which puts government-funded projects and the people monitoring them squarely under the microscope. As former inspector general for the Housing and Urban Development Department, I have witnessed firsthand the successes and failures of the current methods used to monitor government funds.

Given the national debt topped $15 trillion in November 2011, it is essential to make the most of every tax dollar spent on government projects. Each year, however, more and more dollars meant to fund vital federal programs are lost to waste, fraud and abuse. Aggressive, real-time monitoring would result in significantly fewer cases of impropriety.

Consider, for example, HUD’s compliance requirements. Under current rules, compliance is focused at the grantee level, leaving grantees to monitor subgrantees. During my nine years as inspector general, I uncovered immeasurable fraud and abuse at the subgrantee level. Many grantees assume by outsourcing phases of a program to subgrantees, they are not responsible for compliance in those aspects of the program. The lack of HUD involvement and grantees’ ignorance of their responsibilities make the subgrantee level ripe for innocent mistakes and outright fraud. These issues also render HUD unable to trace a grant through its entire life cycle, making comprehensive audits nearly impossible.

Another problem is monitoring starts after major program decisions have been made and many of the players have moved on. The process begins with inspectors general, other inspectors and auditors reviewing projects toward the end of the life cycle. Unfortunately, issues identified late in the game often result in finger-pointing, grant fund repossession and even court involvement. Steps in the right direction have been taken. HUD recently introduced new regulations for the Home Investment Partnerships Program that would require state and local governments to intensify oversight of projects, better assess risks, monitor subgrantees, increase the frequency of reporting to ensure accountability and establish specific time frames for completing the work. But there is more work to be done.

The independent Recovery Accountability and Transparency Board, which monitors grants under the $787 billion economic stimulus package, is another positive advance in funds oversight. But the board does not address subgrantees, making a true measure of the validity of spending impossible.

These organizations have made strides to introduce stronger internal monitoring agendas, but an ideal monitoring plan should include:

• Predictive analytics to assess risk and base monitoring to identify projects that are susceptible to problems.
• Recognition of the varied monitoring obligations for organizations involved in specific phases of a program.
• A final monitoring report that reviews key areas of operations, legal and regulatory requirements, and financial administration.
• Monitoring at the subgrantee level.

In an example of successful monitoring, the Lower Manhattan Development Corp. hired firms to oversee the $750 million cleanup of Ground Zero after the Sept. 11, 2001, terrorist attacks. These firms analyzed invoices for fraud, monitored compliance with internal controls, investigated and detected corrupt practices, and stopped fraud as it occurred, instead of after the fact. It is estimated the work of those firms, combined with monitoring by the Port Authority of New York and the New Jersey Office of Inspector General, saved more than $80 million.

The potential to save federal dollars through aggressive monitoring goes far beyond HUD and the cleanup of Ground Zero. Had the Defense Department engaged in aggressive monitoring in the 1980s, the Pentagon never would have signed on to purchase the infamous $436 hammer that became a symbol of government waste. And extensive monitoring could save the millions of dollars the Veterans Affairs Department spends each year to maintain unused buildings.

A properly designed and implemented compliance plan would save money and help government organizations ensure they are operating within the law. With a real-time plan, issues can be corrected immediately, giving taxpayers, government officials and fund recipients peace of mind that funds are properly spent.

Kenneth M. Donohue, principal and senior adviser at Reznick Government, is former inspector general for the Housing and Urban Development Department.