Attachment_I,_Draft_Revised_FCM.pdf

Office of Single Family Asset Management

Real Estate Owned

Financial Control Manual

February XX, 2018

DRAFT

Purpose: This manual describes HUD-Single Family Housing

Program’s uniform policies and procedures for processing and approving vendor invoices related to the Management and Marketing (M&M) of HUD’s properties. It also describes the minimum documentary evidence required of each type of Payment Request Transmittal. Compliance with the policies and procedures prescribed by this manual is mandatory for HUD personnel that process, review, and approve for payment M&M contractor invoices and other vendor invoices related to REO properties.

Effective Date: The policies and procedures outlined in this manual are effective for all vendor invoices processed on or after

November 1, 2017.

Revisions: The policies, procedures, and document requirements outlined in this manual may be subject to revisions by

Headquarters through formal transmittals.

TABLE OF CONTENTS

TABLE OF CONTENTS

Framework for Financial Control

GAO Standards for Internal Control

HOC Control Activities

1. Monitoring and Quality Control

2. Type and Content of Invoice Transmittals

3. Transmittal Disbursements Policies

4. Transmittal Processing Procedures

5. Electronic Bill Payment Process

6. SSC Review Procedures

7. Subordinate COR Review Procedures

8. COR Review Procedures

M&M Contractor Control Activities

9. M&M Contractor Invoicing Policies and Responsibilities

10. M&M Contractors Transmittal Procedures and Review Responsibilities

11. Mortgagee Compliance Manager Requirements

12. Field Service Manager Requirements

13. Asset Manager Requirements

Appendix 1 – HUD Step Process Overview

Appendix 2 – Laws and Regulations Applicable to Financial Control

Appendix 3 – Post Codes for Linking Supporting Documentation within P260

Appendix 4 – Risk Assessment Monitoring Form

Appendix 5 – SAMS User Guide and Study – Contents

Appendix 6 – Pass-through Expenses

Appendix 7 – FCM Modification Procedures

Framework for Financial Control

Background

The Federal Housing Administration (FHA) of the U.S. Department of Housing and Urban

Development (HUD) administers the single-family (SF) mortgage insurance program that insures approved lenders against the risk of loss on loans they finance for the purchase and rehabilitation of single-family homes. In the event of a default on an FHA-insured loan, the lender acquires title to the property by foreclosure, a deed-in-lieu of foreclosure, or other acquisition method, files a claim for insurance benefits and conveys the property to HUD. The conveyed property becomes real estate owned (REO) inventory that is managed until sold by FHA’s Office of Single Family Asset

Management (OSFAM). The REO Division of OSFAM is the largest single seller of real estate in the U.S.

Since 1999, HUD has outsourced the disposition of its REO inventory to Management and

Marketing (M&M) Vendors. Using market-based best practices for REO asset disposition, HUD has developed the third generation of its Management and Marketing program (M&M) that streamlines its operations and capitalizes on the expertise of potential vendors. The REO Division of OSFAM’s operations are housed in each of HUD’s four Homeownership Centers (HOCs) that cover different geographic jurisdictions. The REO Division contracts with three categories of M&M contractors to perform specific responsibilities in the REO disposition process. These contractors oversee pre- and post-conveyance mortgagee compliance, asset management and field service activities that result in the sale of REO inventory. The REO Division monitors the M&M contractors performing these property disposition activities and their contractual compliance with prescribed foreclosure, conveyance, field service and asset sales processes and procedures. The HUD step process for disposition of REO properties from pre-conveyance to asset sale is displayed in Appendix I.

The Improper Payments Elimination and Recovery Act of 2010 requires HUD to address risks and establish pre- and post-payment internal control related to single-family program REO disposition.

The REO Division is responsible for assessment of payment transmittal risk factors that contribute to susceptibility to significant improper payments in the single-family property program. In addition, in accordance with OMB Circular A-123-Revised, Management’s Responsibility for

Internal Control, HUD is required to establish and maintain internal controls. Although M&M

Contractors bear the primary responsibility to ensure that the invoice transmittals are accurate, complete, and otherwise legitimate, and certify the transmittals for payment, HUD has a fiduciary responsibility to verify the validity of the M&M Contractor’s certification before it processes the transmittal for payment.

This manual establishes the framework for financial control of the entire property disposition process from pre-conveyance of property to HUD through closing of the sale. The Committee of

Sponsoring Organizations of the Treadway Commission (COSO) established a Framework for

Internal Control that has been adopted by the U.S. General Accountability Office (GAO) in its

Standards for Internal Control in The Federal Government. This is the framework upon which this financial control manual is based. The processes, policies and procedures described in the sections that follow are requirements for the REO Division in its pursuit of two key financial control objectives: (1) reasonable assurance that improper payments would not be made or would be detected in the normal course of business and (2) payments were supported as a valid use of government funds.

GAO Standards for Internal Control

The financial controls in this manual conform to the five standards prescribed by GAO for adequate internal control and are designed to reduce the risk of improper SF property disposition payments. The five prescribed standards “define the minimum level of quality acceptable for internal control in government and provide the basis against which internal control is to be evaluated. These standards apply to all aspects of an agency’s operations: programmatic, financial and compliance.”

The five (5) standards for internal control that are the basis for financial control over REO

Division’s property dispositions are:

• Control Environment: Management and employees shall establish and maintain an environment throughout the organization that sets a positive and supportive attitude toward internal control and conscientious management that will help the agency in achieving its objectives.

• Risk Assessment: Internal control shall provide for an assessment of the risks the agency faces from both external and internal sources when seeking to achieve their objectives. The assessment will provide the agency the basis for developing the appropriate responses to risk.

• Control Activities: Internal control activities help ensure that management’s directives are and response to risk carried out. The control activities should be effective and efficient in accomplishing the agency’s control objectives.

• Information and Communications: Information should be recorded and communicated to management and others within the entity that need it, in a form, and within a time-frame that enables them to carry out their internal control and other responsibilities.

• Monitoring: Internal control monitoring should assess the quality of performance over time and ensure that the findings of audits and other reviews are promptly resolved.

The REO Division’s implementation of these internal control standards first emphasizes its control environment, then its assessment of risk and, thirdly, its monitoring of M&M contractors and payment processes. These three internal control standards provide structure for the performance of REO control activities in the marketing and management of single-family properties by M&M contractors. The processing, review, and approval of SF property expenses, first by M&M contractors, then by a Support Services Contractor (SSC), and finally by HUD personnel at the four HOCs as described in this manual, are the control activities of the REO

Division’s system of internal control that meets the fourth standard. Continuous monitoring and assessment of contractor performance and monthly and quarterly meetings between the SSC and

Contracting Officer Representatives (CORs), in addition to a quarterly analysis of detailed M&M expenses for trends and anomalies, provides the information and communication prescribed by the fifth internal control standard used in this financial control framework.

The REO Division has two distinct control environments: HOCs and the M&M contractors.

The HOCs are directly controlled by HUD personnel in HUD facilities. The HOCs rely on the agency’s control environment including oversight from HUD headquarters. M&M contractors are subject to HUD regulations and procedures in the marketing and management of REO inventory but are businesses that operate in separate control environments outside of HUD facilities.

Implementation of the standards for internal control for single-family property dispositions within the REO Division is summarized as follows:

• Control environment, the foundation for all other components of internal control, emphasizes the REO Division’s commitment to integrity, oversight of REO Division activities at HOCs, reporting lines between OSFAM and the HOCs, recruitment of competent housing specialists for Primary COR and Subordinate COR positions, holding individuals accountable for their internal control responsibilities, and holding M&M Contractors and the SSC responsible for their performance and adherence to contract requirements.

• Risk Assessment occurs through continuous assessment of contractor performance, patterns of contractor behavior, and compliance with policies and procedures as marketing and management conditions change in single-family housing markets. Primary COR’s and

Subordinate COR’s performance reviews and random inspections of M&M contractors, their identification of payment transmittal exceptions, anomalies and trends and a quarterly analysis of detailed expenses enables OSFAM and REO Division Directors to engage in a dynamic process of managing risk and changing policies and procedures to minimize susceptibility to improper payments.

• Monitoring provides the REO Division with evaluation of contractor and HUD personnel adherence to policy and procedure and alerts it to changing conditions and deficiencies in internal control requiring corrective action. Quality control procedures provide REO Directors with assurance that transmittal and other procedures are being followed and that assessments and reviews of specific areas of vendor and tax authority payments and earnest money and closing agent collections are monitored for compliance with disbursement and collection policies. These monitoring processes support and reinforce the risk assessment component of internal control.

• Information and Communications are provided through the reports required for risk assessments and monitoring activities and meetings amongst SSC, COR, M&M and OSFAM personnel.

These reports, meetings and discussions with contractors complement review and audit activities of the HUD Office of Inspector General, GAO and independent accountants and constitute the information and communication necessary for internal control.

• Control Activities are the policies and procedures established in this manual for processing, reviewing and approving payment transmittals by HOC personnel, M&M Contractors, and the

Mortgagee Compliance Manager contractor in Oklahoma City. The levels of responsibility for transmittal review and approval provide segregation of duties and oversight to ensure that required documentary evidence exists and properly supports all SF Property Disposition (PD) disbursements, invoice transmittals, and M&M vendor invoices.

Part I of this manual describes financial control activities for processing, reviewing and approving payment transmittals by HUD personnel within the HOC control environment.

Part II of the manual describes financial control activities for initiating and processing transmittals in the M&M Contractor control environment and includes separate requirements for each of the following contractor types:

• Mortgagee Compliance Managers (MCMs),

• Field Service Managers (FSMs),

• Asset Managers (AMs)

Three appendices document the HUD Step Process for property disposition, laws and regulations governing this financial control manual, and a Risk Assessment Monitoring Task List Review

Form.

This Framework for Financial Control is the internal control structure for managing the risk of improper payments in disposing of HUD single-family program properties, is an integral part of this manual and should be referred to in conjunction with the control activities described in Parts

I and II that follow.

Part I

HOC Control Activities

1. Monitoring and Quality Control

Risk assessments of M&M contractors and the market conditions affecting their payment transmittals must be continuously monitored by REO Division Directors, Subordinate CORs and CORs. In addition, quality control procedures performed by HOC personnel and overseen by Division Directors must be performed to provide assurance that policies and procedures in processing, reviewing and approving transmittals are being complied with.

These monitoring and quality control policies and procedures are described in detail in

OSFAM’s Monitoring Plan with the objective of assessing and controlling risks in the performance of contractors and the payment of property disposition expenses. Following are the emphasized areas of monitoring and quality control that are to be performed by OSFAM, SSC and REO Division personnel in accordance with the Monitoring Plan’s requirements:

1.1 Quarterly Meetings of CORs

Quarterly, CORs will meet to share their experiences in reviewing and processing transmittals and to alert the Primary COR on the SSC contract of potential improprieties. Among the topics for discussion are unusual transactions, unusual and repeated errors identified during reviews and transmittals with aggressive billing patterns. They will also discuss other matters that will enhance the effectiveness of the review process. CORs will communicate major issues, concerns, and recommendations to the Primary COR on the SSC contract.

1.2 Quarterly M&M Contractor Performance Reporting

At the end of each quarter, each HOC will assess the performance of the M&M contractors in its region and summarize the results of these assessments in a

Quarterly Assessment Report. OSFAM consolidates the four reports and prepares a national analysis of the property disposition program for submission to the

Office of the DAS and the FHA Commissioner. HOC Directors will review and approve their Quarterly Assessment Report and provide it to OSFAM. The

Quarterly HOC reports will include the following:

1. The assessment results and corrective actions, if any, resulting from annual or Ad Hoc review of M&M contractors completed within the prior quarter.

2. Review of results and corrective actions, if any, resulting from the quarterly field or remote review of financial transactions.

1.3 Quarterly Financial Field/Remote Reviews

Per the Monitoring Plan, CORs will perform a quarterly financial and contract performance review of each M&M Contractor. Details of the review procedures to be performed are contained in the Monitoring Plan.

1.4 Quarterly Detailed Expense Analysis

Each quarter, expense data from the Single-Family Asset Management System

(SAMS) is analyzed for comparison to historical cost, current market prices, regional variations, trends, and anomalies that require explanation. This data is summarized in a quarterly Detailed Expense Analysis Report for review by

OSFAM personnel and REO Division Directors at each HOC. Significant findings in the report and other items for further consideration shall be discussed and resolved amongst OSFAM and REO Division personnel. Unresolved issues shall be reported to the Director of OSFAM for further action.

1.5 Quality Control for REO Director or Designee

Each HOC has a Quality Control Plan documented for its region. REO Directors are responsible for the execution of their respective Quality Control Plan. In addition, the Quality Control measures are to be undertaken by REO Directors for the SAM, SFS, SMC, SFF, and SFT (See Section 2.1) Transmittal Types.

Collectively, the reviews will cover a minimum of 20% of SAM/SFS/SMC

Transmittals in each Contract Area, a targeted sample of SFTs and a minimum

3% sample of SFFs for each Contract Area.

SAM/SFS/SMC Transmittals- Review at least two SAM/SFS/SMC Transmittals per month per functional area (one AM Property Manager (PM) billing and one

FSM (PM) billing), totaling a minimum of three AM PM billings and 3 FSM PM billings per quarter. Each monthly review will rotate the AMs and FSMs reviewed in the Contract Area.

SFT Transmittals- Generate and review monthly activity reports (either Ad Hoc reports from SAMS or reports from P260) that identify the following: (1) cases where HUD has paid penalties and interest (Error Detection) on tax payments and

(2) activity that indicates duplicate payment amounts. The focus of the review is to determine if the payment is justified. A judgmental sample will be selected that is based on the number of cases that fall within selected sample parameters.

SFF Transmittals- Select a random sample of SFF Transmittals that have been reviewed and authorized by CORs (AU status) but have not been approved by the Certifying Officer (AP status). The REO Director is to ensure that at least

3% of SFFs authorized in each contract area are reviewed. In addition, REO

Directors are required to ensure that each COR is reviewed in the contract area.

The sampling methodology should be risk-based for each payment type

(i.e., large expenditures), and review will include error detection, an assessment of timeliness to process the transmittals and other risk related factors.

Findings are to be reported to all parties responsible for reviewing and approving invoices and payment transmittals.

Detailed Assessment and Review Procedures

1.6 Accounting for Earnest Money Collections

For each cancelled sale, the earnest money is either returned to the purchaser or forfeited to HUD. The M&M Contractor is responsible for the collection of these funds and forwarding them to the HUD lockbox1.

1.7 Tax Penalty Report Analysis

This process is designed to monitor tax penalty payments due from the M&M

Contractor, the Lender or the Mortgagee. An Ad Hoc Report of tax penalties may be pulled from P260. The Ad Hoc Report will be used to determine the following:

1. Payment of real estate taxes and special tax assessments that are processed by the M&M Contractor and paid by HUD, are included on the Settlement

Statement or TRID Closing Disclosure. However, there are instances as indicated in the M&M contract where the M&M Contractor determines that it is in HUD’s best interest to have property taxes or assessments paid from settlement proceeds. In those instances, the M&M Contractor shall obtain COR approval for the Title Company to include these charges on the Settlement Statement or TRID Closing Disclosure.

2. As part of the 10% monthly review of closed cases, HOC staff will review the

Settlement Statement or TRID Closing Disclosure to determine if there are penalty and interest charges that are included on the Statement or Disclosure.

Differences, if any between initial and final Settlement Statement or TRID

Closing Disclosure shall be reconciled by the HOC staff. If discovered, HOC staff will inform a COR, who is responsible for demanding corrective action and reimbursement from the M&M Contractor as appropriate. If corrective action is found to be unacceptable, a COR will revoke or suspend the authority given the M&M Contractor in the contract to include charges on the

Settlement Statement or TRID Closing Disclosure, as seller expenses at closing.

3. At the conclusion of the review, the HOC staff prepares and submits a

Risk Assessment Monitoring Report to the REO Director for review and approval.

1 The data requested for this portion of the assessment is always for the previous three months.

1.8 Vendor or Subcontractor Invoice Payment Verification. CORs will randomly select 15-20 invoices from SFF transmittals processed during the Quarterly

Financial Assessment to verify the propriety of the M&M Contractor’s payments requested for reimbursement.

1.9 Random Inspections of Vacant Properties and Major and Unusual Repairs.

During their Quarterly On-Site Reviews, randomly selected properties repaired during the previous quarter are inspected. The reviewer will have on hand, copies of the signed inspection reports and work orders. A COR will conduct a visual inspection of the repairs to verify that the claimed repairs have been completed.

1.10 Risk Assessment Monitoring Documentation. A three-part Risk Assessment

Monitoring Form is included in Appendix 4 for use by OSFAM or HOC personnel who perform quarterly financial field reviews, HOC financial reviews, and overall financial control risk assessments.

2. Type and Content of Invoice Transmittals

2.1 Types of Invoice Transmittals.

Five transmittal types may be prepared to request reimbursement/disbursement under the M&M program. The type of services provided and requested for reimbursement/ disbursement determines the type of transmittal initiated and the disbursement process followed. The web-based, on-line P260 Portal (P260) is used for the administrative approval process for all transmittal types. Transmittals are initiated by M&M Contractors and HOCs, and are automatically generated by

P260. A discussion of the transmittal types is provided below. Detailed procedures for processing transmittals are provided in the FCM.

2.1.1 Invoice Disbursement of Single Family Financial (SFF) Transmittals

M&M Contractors and HOCs initiate SFF Transmittals to request reimbursement for pass-through expenses and to request direct payments to lead-based paint inspectors, closing agents and certain contractors. In rare instances, with a COR’s prior approval, M&M Contractors may use

SFF transmittals to request reimbursements for property tax payments made for HUD-owned properties.

2.1.2 Tax Disbursements (SFT) Transmittals

M&M Contractors use SFT transmittals to request direct payments to tax authorities for property taxes and related penalties and interest accrued on

HUD-owned properties. SFT transmittals are based on actual tax bills obtained by M&M Contractors.

2.1.3 M&M Fee Disbursements or Single-Family Billing (SMC/SFS/SAM)

Transmittals

Single Family billings are automatically generated based on activity that relates to services provided by Mortgage Compliance Managers (SMC

Transmittals), Field Service Managers, (SFS Transmittals) and Asset

Managers (SAM Transmittals). P260 automatically creates

SMC/SFS/SAM Transmittals from data found in P260 that relates to property assignments, property types, changes in property status, property assignment dates, property sales, property sale types, property sales proceeds, negotiated management and marketing fee rates, and the M&M

Contractor’s contract-year status (Base, Option Year 1, Option Year 2, etc.).

The M&M Contractor is responsible for entering into the P260 portal the required data in each field at the time that the M&M Contractor: (a) receives the property assignment; (b) is authorized by a COR to change the status of property(s) already assigned; or (c) sells the assigned property(s).

HUD’s Housing Program Policy Specialist at Headquarters’ (HQ) has been given authority to create and modify the master file information for each M&M Contractor including Contract Line Items (CLINs) and CLIN unit prices based on information in signed contracts and contract modifications.

2.2 Transmittals for Vendors without Access to P260

HOCs and HQ make non-contract payments to vendors who do not have access to the SAMS and or P260 and are therefore unable to prepare a transmittal. HUD staff persons who are not assigned to perform review and approval duties must prepare the transmittals for such payments. Typically, these payments are to reimburse Mortgagees, to settle claims with homebuyers, or for other goods and services purchased directly by HUD. Approval of payments not supported by source or original documentation must be approved by the HOC Director or the

HQ SFAM Office Director.

2.3 System Generated Transmittal Identifiers

A system-generated unique identifier is assigned to each disbursement transmittal processed within P260 or SAMS for efficient identification. This unique identifier is comprised of twelve alphanumeric characters in four distinct fields:

AAA The first three characters identify the transmittal type – SFF, SFT, or SMC/SFS/SAM.

AA The next two characters identify the originating HUD office or the contract area in which the properties are located.

NN The next two digits show the applicable fiscal year.

NNNNN The final five digits identify the unique disbursement transmittal number that is generated internally by SAMS or P260. These numbers begin with 00001 for each HUD office at the start of the fiscal year and are sequentially incremented by one for each transmittal processed.

SAMS User Guide, Section 4 – Disbursements provides detailed descriptions of the procedures and tasks involved in identifying, recording, and ensuring the prompt handling of payment requests associated with each of the four disbursement types.

3. Transmittal Disbursements Policies.

In processing transmittals, HUD personnel must comply with the following policies:

3.1 Compliance with Laws and Regulations

3.1.1 Anti-Deficiency Act:

The Act prohibits:

1. Making or authorizing expenditure from, or creating or authorizing an obligation under, any appropriation or fund in excess of the amount available in the appropriation or fund unless authorized by law.

2. Involving the government in any obligation to pay money before funds have been appropriated for that purpose, unless otherwise allowed by law.

3. Accepting voluntary services for the United States, or employing personal services not authorized by law, except in cases of emergency involving the safety of human life or the protection of property.

4. Making obligations or expenditures in excess of an apportionment or reapportionment, or in excess of the amount permitted by agency regulations.

3.1.2 Prompt Payments Act of 1982:

The Act requires federal agencies to pay their bills on time, to pay interest and/or penalties when payments are made late and to take discounts only when payments are made by the discount date and are economically justified.

3.2 Authorized Personnel for Transmittal Review and Approval

3.2.1 Initial Technical Reviews

The SSC performs the initial technical review of transmittals. Before assigning individuals for the SSC function, the SSC Contractor shall ensure that the assigned SSC staff is trained and possesses a thorough understanding of the provisions of the M&M contract. In addition, SSC

Contractor staff shall have knowledge of the review and documentation requirements prescribed in this Manual.

3.2.2 Final Technical Reviews, Payment Approvals, and Program Monitoring

1. A COR designated to a HUD M&M contract, is responsible for monitoring and assessing the M&M Contractors’ financial and program performance, as well as monitoring their compliance with the terms and conditions of their respective contracts. COR responsibilities include (a) approving transactions that require advance COR approval, (b) performing final technical reviews of transmittals, and (c) authorizing transmittals for payment. In addition, CORs with AU authority review and approve transmittals related to Lead-Based Paint contracts.

2. CORs must have completed HUD’s COR training before assuming the position, and must be thoroughly familiar with the requirements of the HUD M&M contract as well as the documentation and review requirements prescribed in this manual.

3.2.3 Non-contract services and other goods directly acquired by HUD

The initial approval for the purchase of goods and non-contract services acquired by HOCs and HQ shall be approved in writing as follows. The review process will be similar to the other transmittals.

$2,500 or less .....................................REO Director

$2,501 - $25,000 ................................HOC Director

$25,001 and above .............................Deputy Assistant Secretary (DAS) for SF Housing

3.3 Blanket Approvals

Upon proper approval by the HOC Director or DAS, as noted above, CORs may give blanket approval for goods or services for which a continuous need exists, such as termite treatments in states that have high incidences of termite infestations, and for point-of-sale inspections where such inspections are required by local laws. The blanket approval must include an expiration date not beyond the contract period. However, the blanket approval is rescinded if there is a change in COR.

Before issuing blanket approval, a COR must:

1. Establish that a continuous need exists for the goods or services;

2. State on the approval that a continuous need exists for the service;

3. Establish that the price for the good or service is fairly consistent and was determined to be fair and reasonable;

4. Indicate on the approval that the contractor may not bill for expenses incurred before the date of the blanket approval;

5. Indicate on the blanket approval that the approval can be rescinded at any time at the COR’s discretion.

Periodically, a COR shall reassess the need for the blanket approval and price reasonableness and document whether the blanket approval is still necessary

3.4 Segregation of Duties and Responsibilities

In assigning tasks related to processing transmittals, HOCs and REO Directors must ensure that the duties for preparing and reviewing transmittals are segregated functions and will not be performed by the same staff person.

3.5 Transmittal Contents and Original Invoices

An original invoice on the contractor’s letterhead must support all transmittals. In cases where the M&M Contractor or HUD staff cannot obtain an original invoice, transmittals may be processed if the invoice is stamped “Pay as Original.” If the transmittal originates from the M&M Contractor, the M&M Contractor is responsible for stamping the documents as original.

3.6 Transmittal Corrections

If HUD’s review identifies errors and/or omissions in the original transmittal submitted for reimbursement, M&M Contractors will be required to submit a revised transmittal that has been properly signed before it will be re-processed.

The revised transmittal shall be indicated as “Revised” on the transmittal. The

M&M Contractor is responsible for stamping the documents as original.

3.7 Competitive Bidding

Procurements of goods and services permitted as allowable pass-through expenses

(appropriate section) of the M&M contract must comply with the following:

1. All procurements above $2,500 must be supported by at least three written quotes from subcontractors or vendors.

2. Quotations from subcontractors or vendors must include (i) the name of the subcontractor/vendor; (ii) contact person and telephone number(s), or e-mail addresses; (iii) description of the tasks or goods; (iv) prices; (v) the property address or case number, where applicable; and (vi) the date of the quotation.

3.8 Cost Allocation to Properties

All transmittal payments shall be assigned to HUD-owned, or custodial, property case numbers unless:

1. The payment cannot be identified with a specific property. Examples of such payments include document shipping costs and fees for contract services and administrative support services.

2. The payment is traceable to a specific property, but at the time the payment request was processed, the property was not in HUD’s inventory. The obligations for such payment requests must have been incurred when the property was in HUD’s inventory. For example, closing agent fees for preparation and recording of quit claim deeds.

Upon execution of contract services with allocable expenses, a COR for the contract will submit a written memorandum to the Director of the

Office of Single Family Asset Management, (Memo to: Assistant

Secretary for Housing and Associate Deputy Assistant Secretary for

Single Family), identifying (i) the subset of properties subject to the allocation and (ii) the allocation percentage to each property within the subset. Any changes to the allocation will be documented in the same manner.

If the expense to be allocated is a non-contract expense and originated at the HOCs or at HQ, the written allocation instruction must include approval by the appropriate tier level based on the dollar amount of the expense – See Section 3.2.3.

4. Transmittal Processing Procedures

Responsibilities for Processing, Reviewing & Approving Transmittals

The following table and flow chart illustrate the internal control and review processes in place at the HOCs which are designed to prevent improper payments. These internal controls and processes utilize REO division-specific resources such as M&M Contractors, a SSC, Primary

CORs, and Subordinate CORs, combined with a Certifying Officer who, although an employee of the HOC, is independent of the REO division and holds responsibility for final approval of transmittal payments. M&M Contractors bear the primary responsibility to ensure that transmittal requests are complete, accurate, and otherwise legitimate; however, HUD has a fiduciary responsibility to verify the validity of the M&M Contractors’ certifications before processing transmittals for payment.

Listed below are the roles and responsibilities of those responsible for initiating, preparing, reviewing, and approving invoice transmittal packages:

Review Hierarchy

1. Level I The SSC performs 100% review of transmittals. Review and recommendation for approval or rejection is evidenced by a “yes” or “no” recommendation in P260, the SSC’s signature and tick marks on the 1106 and line items, electronic signature in P260, and updating the status to PR in P260.

2. Level II The HOC Subordinate CORs are required to review and approve for payment or reject 100% of the transmittals submitted by the M&M

Contractor. Review and approval or rejection is evidenced by the

Subordinate COR’s electronic signature in P260 and updating the status of the transmittal to AU or RJ in P260.

3. Level III The HOC CORs are required to review and authorize for payment or reject 100% of transmittals submitted by the M&M Contractors.

Review and approval or rejection is evidenced by the COR’s electronic signature in P260 and updating the status of the transmittal to AU or RJ in P260.

4. Level IV The Certifying Officers verify that SFF, SFS, SAM, SFT, and SMC transmittals and attachments are correct and proper for payment and ensure transmittals are signed, dated, and include the phone number of the CO. The transmittal shall be updated as approved or rejected for payment in P260. Review and approval or rejection is evidenced by the Certifying Officer’s electronic signature in P260 and updating the transmittal to AU or RJ status. The Certifying

Officers perform verification of EFT payment.

Transmittal Processing Steps. The transmittal is received (electronic signature) in P260, with scanned supporting documents. Processing begins when the HOC logs the transmittal into HA

Status.

Contractor creates

Transmittal in P260:

Scan all supporting

Documentations

Contractor reviews

Transmittal and enters data into

P260.

RA Status: Ready for Review

Vendor Performs

Service

Work Notification issued to the

HOC

HOC logs into P260 within in one (1) business day of receipt:

HA Status: HOC Accepted.

Update Prompt Pay date to HA date

SSC performs 100% Transmittal

Review & line item review within 3 business days of receipt:

PR Status: Preliminarily Review

Subordinate COR performs 30%-line item review within 3 business days from PR status:

PA Status: Preliminarily

Approved

COR performs 10%-line item review within 3 business days from PA status:

AU Status: Authorized

Rejected

Transmittal

RA Status:

Rejected

Notification issued to the

Contractor

EFT/Check

Process Overview2

1. The subcontractor performs a service.

2. The invoice is transmitted to the M&M Contractor.

3. The M&M Contractor or HOC (for vendors without access to P260) receives an invoice and creates a transmittal in P260 (OP) Status. Upon completing the required fields, the transmittal is updated to Ready for Approval (RA) Status. The

M&M Contractor or HOC scans the supporting documentation into P260.

4. The M&M Contractor creates the transmittal in P260 and scans and uploads the supporting documentation for processing. The M&M Contractor signs the transmittal electronically in P260.

5. The HOC receives the transmittal work notification in P260 and logs the transmittal into P260 within one (1) business day of receipt. The transmittal is updated to (HA) HOC accepted status and the prompt pay date changed to the (HA) date.

6. The SSC performs the 100% review of the transmittal and supporting documentation, inserts tick marks on the transmittal at the data elements and line items, makes a “yes” or “no” recommendation for rejection, and updates the transmittal to Preliminary Review (PR) status.

7. The Subordinate COR will review the transmittal and perform at a minimum a

30% review of the line items and data elements. The transmittal is updated to Preliminary Approval (PA) status if approved by the Subordinate COR, or if rejected by the Subordinate COR, the transmittal is updated to Rejected (RJ) status and is available to the M&M Contractor for resolution of the issues noted.

8. Transmittal packages in PA status are available to a COR who performs the final technical review for 100% of all transmittals processed by the SSC, and updated to PA status by a Subordinate COR. The objective of the COR review is to confirm that the transmittal is accurate, complete, has available funding and to certify that the transmittal is authorized for payment. A COR may update the transmittal to Authorized (AU) status or (RJ) status. If the transmittal is updated to (RJ) status it is available to the M&M Contractor for resolution of the issues noted.

9. Authorized transmittal packages are available to the Operations Branch of the

HOC. There, a Certifying Officer reviews the transmittal packages for completeness and accuracy. A Certifying Officer may update the transmittal to Authorized (AP) status or (RJ) status. If the transmittal is updated to (RJ) status it is available to the M&M Contractor for resolution of the issues noted.

2 Please refer to P260 for the appropriate User Guide with detailed instructions for creating, reviewing, and approving invoice transmittals.

Example:

The following example describes the SSC process followed to review an SFF transmittal for a condominium fee reimbursement. The SSC determines that:

1. All required fields and data elements on the system-generated transmittal are accurately completed and the transmittal is an original.

2. The M&M Contractor has signed and dated the transmittal.

3. The detail and total on the M&M Contractor's invoice match the detail and total on the 1106 Transmittal.

4. Each line item on the transmittal is supported by an original or certified copy of an invoice from a condominium or homeowners' association.

5. The payee's name, address and telephone number appear on each invoice listed in the transmittal.

6. The M&M Contractor paid the invoice and provided a copy of the proof of payment. If payment is made by check (A stamp on the invoice indicating the check number is acceptable). If made electronically, the form of payment, date, amount paid, and the M&M Contractors personnel initials are affixed.

7. The payee on the transmittal corresponds with the payee's name on the corresponding P260 screen.

8. The case number and property address on the invoice corresponds with the case number and address on the transmittal and in P260.

9. The HOA/Condo fees were incurred during the period that HUD owned the property.

10. The HOA/Condo fees were not paid at settlement, if the invoice was received after the property closed.

11. The M&M Contractor provided evidence that a demand letter was issued to notify the MCM Contractor to recover penalties and interest due from the Mortgagee.

12. The M&M Contractor provided evidence that penalties were paid.

13. The P260 case invoice listing screen is reviewed to verify that there are no duplicate payments for each case.

5. Electronic Bill Payment Process

HUD REO utilizes an electronic bill payment process that allows HUD M&M Contractors to scan and send their payment requests through P260, HUD’s case management system utilized by HUD and its M&M contractors to manage case level activity. The required documentation for each transmittal is uploaded into P260 in a format designed to maximize efficiency. M&M Contractors originate their payment request via a transmittal through P260 and then, they sign the 1106 Transmittal via an electronic signature.

Responsibilities to Process, Review, and Approve Transmittals

Legal Authority

The Electronic Signatures in Global and National Commerce (ESIGN) Act, Pub. L. 106-229, § 1 (June 30, 2000), 114 Stat. 464, codified at 15 U.S.C. §§ 7001-7006. The ESIGN Act encourages agency acceptance of electronic signatures. The ESIGN Act also grants agencies with interpretive authority the ability to specify performance standards to assure accuracy, record integrity, and accessibility of records that are required to be retained.

Definition of Electronic Signature

The ESIGN Act defines electronic signatures as “any electronic sound, symbol, or process attached to or logically associated with a contract or record and executed or adopted by a person with the intent to sign the record.”

Information Retained in the P260 Enterprise System

P260 provides a Status History for each transmittal process within the Enterprise system.

The report provides detailed information such as the Status, Status Date, Created by, Name, Phone Number, Emails, and Comments.

In addition to the Status History report, P260 generates a replica of the transmittal form displaying the name and date in which HUD staff performed the review, clearly identifying who performed each level of approval within P260.

Evaluation

Below are status codes used to define the various procedures to authorize a transmittal for disbursement.

Status Description

OP Open - Transmittal created by the M&M Contractor

RA

Ready to Approve -Transmittal is ready for submission by the M&M contractor for HUD to review for approval and disbursement.

HA HOC Accepted - The HOC has received the transmittal for review.

PR

HOC Preliminarily Reviewed - The SSC performed a 100% review of the invoice and ledger line items. In addition, the contractor has made a recommendation to HUD if the transmittal should be rejected or proceeds with processing.

PA

HOC Preliminarily Approved - The Subordinate COR performs a 100% review of the invoice and 30% ledger line item review. The Subordinate COR has the ability to approve or reject the transmittal.

AU

Authorized - The COR performs a 100% review of the invoice and 10% ledger line item review. The COR has the ability to approve or reject the transmittal.

AP

Approved to be Paid - The Certifying Officer certifies the transmittal for payment. The Certifying Officer has the ability to approve or reject the transmittal.

DB

Disbursement requested- The transmittal is ready for Disbursement and submitted to U.S. Treasury for release.

EF

Electronic Funds Transfer Paid - Payment was issued (EFT) to the Payee via bank routing number.

Exception Codes

RJ Rejected - The transmittal was rejected

CC

Check Cleared - Payment was issued via check and the payment has cleared the

U.S. Treasury.

CA Cancelled - The transmittal was cancelled.

EC EFT Cancelled - Payment was cancelled by the U.S. Treasury.

The P260 Enterprise System has built in restrictions determined by user access, to ensure that authorized personnel can only perform functions associated with their review process. For example, the Certifying Officer’s only function is to Approve (AP) or Reject (RJ) a transmittal after the COR promotes the transmittal to Authorized (AU) status.

Personal Identify Verification (PIV)

Access to P260

All employees and contractors who require access to HUD’s information systems must go through a Personal Identify Verification (PIV) process that is managed by The Office of Security and Emergency Planning (OSEP). Once approved, the employee or contractor will be issued a HUD User ID (HID for employees, CID for contractors).

Subsequently, the employee or contractor will submit a DIAMS request for application access to the P260 Enterprise systems with the appropriate level access. After the employee or contractor gains access to the Enterprise system, he or she will have a unique User Name (H or C ID number) and password to enter the system.

Electronic Signature and Authorization

Each HUD employee and M&M contractor must have a unique User Name (H or C ID number) and password to access the P260 Enterprise system. In turn, this action authorizes the user to sign transmittals at their appropriate level of accessibility. All involved parties (i.e., M&M

Contractor, SSC, Subordinate CORs, CORs and Certifying Officers) in the approval process can be identified via their H or C number within P260.

STEPS TO PROCESS TRANSMITTALS

1. The M&M Contractor creates the transmittal in P260 scanning all applicable documents to include required supporting documentation as outlined in the Financial

Control Manual for the specific transmittal type. The M&M Contractor will upload the supporting documentation to the corresponding case number under the designated category and subcategory as an attachment into P260.

2. The M&M Contractor will sign the transmittal electronically in P260.

3. The HOC receives a transmittal work notification in P260 and promotes the transmittal to HA (HOC Accepted) status.

4. In HA status, the SSC performs the 100% review of the transmittal, 100% review of the line items, and makes a “Yes or No” recommendation for rejection P260. The SSC then updates the transmittal to PR status.

5. The Subordinate COR will review the transmittal and perform at a minimum a 30% review of the line items and data elements. The transmittal is updated to Preliminary

Approval (PA) status if approved by the Subordinate COR, or if rejected by the

Subordinate COR, the transmittal is updated to Rejected (RJ) status and is available to the M&M Contractor for resolution of the issues noted.

6. Transmittal packages in PA status are available to a COR who performs the final technical review for 100% of all transmittals processed by the SSC, and updated to PA status by a Subordinate COR. The objective of the COR review is to confirm that the transmittal is accurate, complete and to certify that the transmittal is authorized for payment. A COR may update the transmittal to Authorized (AU) status or (RJ) status.

If the transmittal is updated to (RJ) status it is made available to the M&M Contractor for resolution of the issues noted.

7. Authorized transmittal packages are available to the Operations Branch of the HOC.

There, a Certifying Officer reviews the transmittal packages for completeness and accuracy. A Certifying Officer may update the transmittal to Authorized (AP) status or (RJ) status. If the transmittal is updated to (RJ) status it is made available to the

M&M Contractor for resolution of the issues noted.

6. SSC Review Procedures

Overview

The SSC review encompasses a 100% verification of all data elements on a transmittal and all supporting documents to ensure that the data, as reported is complete and accurate, and to verify that the required supporting documents accompany the transmittal payment request. The SSC specific objectives and review procedures are further detailed in the sections below:

6.1 Review Objectives: The primary objectives of the SSC review of transmittal packages is to:

1. Perform the initial comprehensive review of each transmittal package;

2. Verify that all data elements on the transmittal and all supporting documentation are complete and accurate;

3. Adequately and completely document in P260 issues raised as a result of the review process; and

4. Make a “yes” or “no” recommendation in P260 for rejection of transmittals deemed inaccurate and or incomplete.

6.2 SSC Review Coverage

The SSC is required to:

1. For SFF, SFT, and SAMS/SFS/SMC Transmittals, print the 1106 and place a check mark or similar tick mark on the data elements of the signature page of the 1106 transmittal, and each line item of the SFF, SFT, SMC/SFS/SAM Transmittal indicating that the prescribed detailed review has been performed. Upon completion of the review, sign, date, scan and upload the reviewed 1106 transmittal into P260.

2. Review 100% of the information on the transmittal, including signatures and dates for SFF, SFT, and SMC/SFS/SAM transmittals.

3. Conduct a detailed review of individual line items as follows:

For SFT and SFF Transmittals:

1. 100% review of individual line items for all SFF transmittals

2. 100% review of individual line items on each SFT transmittals

For SAM/SFS/SMC Transmittals:

1. 100% review of individual line items;

2. 100% review of marketing fees;

3. 100% verification of summaries and reconciliation at the end of each transmittal if applicable;

4. 100% review of CLINs for SFS transmittals; and

5. 100% review of CLINs and supporting documentation for SAM transmittals

The SSC will “acknowledge” 100% completion of the review, indicate the “yes” or “no” recommendation for rejection in P260, and update the status to (PR). This action will record the user-id and date stamp. Tick marks must be shown on the

1106 transmittal data elements and line items. If the transmittal is recommended for rejection, legible and understandable comments to support the recommendation for rejection must be included as appropriate in P260.

6.3…