Attachment_J,_Current_FCM.pdf

Office of Single Family Asset Management

Real Estate Owned

Financial Control Manual

September 2013 i

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 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, 2013.

Revisions: The policies, procedures, and document requirements outlined in this Manual may be subject to revisions by Headquarters through formal Transmittals.

H56750 Highlight The policies, procedures, and document requirements outlined in this Manual may be subject to revisions by Headquarters through formal Transmittals

H56750 Callout Have there been any such "transmittals."

ii

Effective

TABLE OF CONTENTS

PART I - HOC CONTROL ACTIVITIES

FRAMEWORK FOR FINANCIAL CONTROL

1. MONITORING AND QUALITY CONTROL

2. TYPE AND CONTENT OF INVOICE TRANSMITTALS

3. TRANSMITTAL DISBURSEMENTS POLICIES

4. TRANSMITTAL PROCESSING PROCEDURES

5. SSC’S REVIEW PROCEDURES

6. GTM’S REVIEW PROCEDURES

7. GTR’S REVIEW PROCEDURES

PART II - M&M CONTRACTOR CONTROL ACTIVITIES

8. POLICIES AND RESPONSIBILITIES FOR M&M CONTRACTOR INVOICING

9. M&M CONTRACTORS TRANSMITTAL PROCEDURES AND REVIEW RESPONSIBILITIES

10. MORTGAGEE COMPLIANCE MANAGER REQUIREMENTS

11. FIELD SERVICE MANAGER REQUIREMENTS

12. ASSET MANAGER REQUIREMENTS

13. APPENDIX 1 – HUD STEP PROCESS OVERVIEW

14. APPENDIX 2 – LAWS AND REGULATIONS APPLICABLE TO FINANCIAL CONTROL

15. APPENDIX 3 - HUD-APPROVED POST CODES (PCS)

16. APPENDIX 4 – SAMS USER GUIDE AND STUDY – CONTENTS

17. APPENDIX 5 – RISK ASSESSMENT MONITORING FORMS

H56750 Callout There are no more GTMs.

H56750 Callout All references to GTR need to be changed to COR.

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GTM

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GTR

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.

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This "dates" the document. I'll bet there will be a fourth generation.

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 should establish and maintain an environment throughout the organization that sets a positive and supportive attitude toward internal control and conscientious management.

Risk Assessment: Internal control should provide for an assessment of the risks the agency faces from both external and internal sources.

Control Activities: Internal control activities help ensure that management’s directives are 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 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 Service Support Contractor (SSC) and

Government Technical Representatives (GTRs), 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.

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H56750 Callout The SSC sort of drops in out of nowhere. Should say first what role it plays in the process.

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Need a comma after inventory.

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 GTR and Government Technical Monitor (GTM) positions, holding individuals accountable for their internal control responsibilities and holding M&M Contractors 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. GTMs and GTRs 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, GTR, 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)

Five appendices document the HUD Step Process for property disposition, laws and regulations governing this financial control manual, post codes for expense categories, the contents of the SAMS User Guide and

Study, 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, GTMs and GTRs. 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, SSCs and REO Division personnel in accordance with the Monitoring Plan’s requirements:

1.1 Monthly Meetings of GTRs and SSCs

Monthly, GTRs and SSCs will meet to share their experiences in reviewing and processing Transmittals and to alert the Principal GTR 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.

GTRs will communicate major issues, concerns and recommendations to the Principal

GTR.

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, GTRs 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.

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New term in a multi-COR environment is "primary."

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 should be discussed and resolved amongst OSFAM and REO Division personnel. Unresolved issues should 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 GTRs (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 GTR 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.

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Should be "These data." Data is a plural.

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 lockbox. 1

1.7 Tax Penalty Report Analysis

This process is designed to monitor tax penalty payments due from the M&M Contractor the Lenders/Mortgagees. An Ad Hoc Report of tax penalties may be requested from the HOC designee. The Ad Hoc Report will determine the following:

1.7.1. 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 form HUD-1

Settlement Statement.

However, there are instances as indicated in Section C.5.3.7.4 of the M&M

Contract where the M&M Contractor determines that it is in HUD’s best interest to have property taxes or special assessments paid from settlement proceeds.

In those instances, the M&M Contractor may instruct the closing agent to include these charges on the Form HUD-1 Settlement Statement.

1.7.2. As part of the 10% monthly review of closed cases, HOC staff will review the form HUD-1 Settlement Statement to determine if there are penalty and interest charges that are included on the HUD-1. Differences, if any between initial and final HUD-1 should be reconciled by the HOC staff. If discovered, HOC staff will inform a GTR, 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 GTR will revoke or suspend the authority given the

M&M Contractor in section C.5.3.7.4 of the contract to include charges on the

Form HUD-1, Settlement Statement, as seller expenses at closing.

1.7.3. At the conclusion of the review, the SSC prepares and submits a Risk

Assessment Monitoring Report to a GTR and REO Director for review and approval.

1.8 Vendor/subcontractor Invoice Payment Verification

GTRs 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

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

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SSC

H56750 Callout Why is the SSC preparing a report on a review conducted by HUD staff?

H56750 Highlight HOC staff will review

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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 GTR 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 5 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 Section 12.

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 GTR’s prior approval, M&M Contractors may use SFF Transmittals to request reimbursements for property tax payments made for HUD-owned properties.

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.

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/SAM2 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 Contractor: (a) receives the property assignment; (b) is authorized by a GTR to change the status of property(s) already assigned; or (c) sells the assigned property(s).

SFB Transmittals are used for Single Family Billing under the M&M II program.

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 and 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 and Study, 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

1. Antideficiency Act:

The Act prohibits:

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.

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

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.

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

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

1. Initial Technical Reviews

Support Services Contractors (SSCs) perform the initial technical review of Transmittals.

Before assigning individuals for the SSC function, the SSC Contractor should ensure that the assigned SSCs staff is trained and possess a thorough understanding of the provisions of the M&M contract. In addition, SSC Contractors should have knowledge of the review and documentation requirements prescribed in this Manual.

2. Final Technical Reviews, Payment Approvals and Program Monitoring

A GTR 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. GTR responsibilities include (a) approving transactions that require advance GTR approval, (b) performing final technical reviews of Transmittals, and

(c) authorizing Transmittals for payment. In addition, GTRs with AU authority review and approve Transmittals related to Lead-Based Paint contracts.

GTRs must have completed HUD’s GTM/GTR 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. 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 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, GTRs 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 GTRs.

Before issuing blanket approval, a GTR 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 GTR’s discretion.

Periodically, a GTR should 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 Contractor is responsible for stamping the documents as original.

3.6 Payment of Original Approved Invoices

Immediately after the Certifying Officer approves Transmittals for payment, all payee invoices and supporting third-party invoices are stamped “PAID” by an REO staff person to prevent reuse of those documents. The REO Director will assign this task to a staff member not involved in the preparation and review of Transmittals.

3.7 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.

3.8 Competitive Bidding

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

(Sections 13 and 14) of the M&M contract must comply with the following:

All procurements above $3,000 must be supported by at least two written quote from subcontractors/vendors.

Quotations from subcontractors/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.

3.9 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 GTR 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 2.2.

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, Service Support Contractors, GTMs and GTRs, combined with a Certifying Officer who, although an employee of the HOC and independent of the REO division, 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 Support Services Contractor performs 100% review of Transmittals

2. Level II

The HOC GTM is required to review and approve for payment 100% of transmittals. Review and approval is evidenced by the GTM’s signature on the transmittal.

3. Level III

The HOC GTR is required to review and approve for payment 100% of transmittals. Review and approval is evidenced by the GTR’s signature on the transmittal.

4. Level IV

Certifying Officer (CO) verifies that SFF, SFS, SAM, SFT, and SMC Transmittals and attachments are correct and proper for payment.

Ensure transmittals are signed/dated/with phone number/CO stamped and marked as approved for payment in P260.

Certifying Officer verifies SFT and SFF (Check) Transmittals and attachments are correct and proper for payment and confirm transmittal is in AU status in P260. Ensure transmittals are signed/dated/with phone number/CO-stamped. The SSCs will forward check transmittals to Kearney (the third party contractor) for Certification in P260

Certifying Officer (CO) performs verification of EFT payments

5. Disbursement

Service Center (Kearney)

Kearney receives check type transmittals and performs a verification of check payments

Verify that Transmittals are properly reviewed Validate that Transmittals are marked as authorized in SAMS

Validate that payments are processed correctly

Process Flow3- “Contractors” is misspelled in the second block. In 4th block, clarify who submits package to HOC (and to whom at the HOC is it submitted). Should there be timeframes associated with each of these so we have an idea of how long this process should take?

The number of days for each step in the process may vary for individual HOCs.

Process Overview4

4.1 Subcontractor performs a service.

4.2 Invoice is transmitted to the M&M Contractor.

4.3 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 promoted to Ready for Approval (RA) Status. The M&M Contractor or HOC scans the supporting documentation into P260.

4.4 For Transmittals created by M&M Contractors, a hardcopy of the Transmittal and supporting documentation are submitted to the designated HOC for processing.

4.5 Transmittal package arrives in HOC mailroom. The Program Assistant (PA) date stamps the paper copy of the Transmittal as received. The PA or designated staff accesses the

Transmittal through P260 and locates the corresponding Transmittal in RA Status to identify Transmittals to promote from HOC Acceptance (HA) Status. The PA then sorts the

Transmittals by Contract Area and places the Transmittal packages in an area designated for further processing by the Service Support Contractor (SSC).

4.6 The SSC retrieves his/her assigned Transmittal packages for processing and performs the initial technical review of the Transmittal package. The SSC’s review is comprehensive and includes a 100% review of the Transmittals submitted for processing. (Refer to Section 5 for the detailed review procedures.) Upon completion of the SSC review, the Transmittal is promoted to Preliminary Review (PR) Status in P260.

4.7 Transmittals in PR status will be placed in a designated area to be retrieved by the GTM. A

30% review will be completed and transmittal will be either promoted to Preliminary

Acceptance (PA) status in P260 or rejected and returned to the M&M Contractor for resolution of issues noted.

4.8 Transmittal packages in PA status are forwarded to a designated GTR who performs the final technical review for 100 % of all Transmittals processed by the SSCs. The objective of the GTR review is to confirm that the Transmittal is accurate, complete and to certify that the Transmittal is ready for payment. A GTR may either approve the Transmittal for payment in P260, which promotes the Transmittal to Authorized (AU) Status or reject and return the Transmittal to the M&M Contractor for resolution of issues noted.

4.9 Approved Transmittal packages are forwarded to the Operations Branch of the HOC.

There, the Certifying Officer (CO) reviews the Transmittal packages for completeness and accuracy. If approved, the Transmittal is promoted to Approved to Be Paid (AP) Status in

Please refer to P260 for HUD SSC/GTR User Guide with detailed instructions for creating, reviewing and approving Invoice Transmittals.

P260. However, Transmittals that are to be paid by check are not promoted to AP Status but are signed, stamped by the CO, and mailed by the SSC to Kearney for processing and payment

4.10 The GTR retrieves the approved Transmittal packages from the Operations Branch. The

Transmittals will be placed in a physical location to be retrieved by the SSC so that

Transmittal packages and supporting documentation can be filed by HOC area and by

Transmittal number.

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 on the system-generated Transmittal are accurately completed and the

Transmittal is an original.

2. 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.

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 appears on each invoice listed in the

Transmittal.

6. The M&M Contractor paid the invoice and provided a copy of check. (A stamp on the invoice indicating the check number is acceptable).

7. The payee on the hardcopy 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 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.

H56750 Highlight Transmittal is an original

H56750 hardcopy Transmittal

14. SFT and SFF Check Transmittals are signed/dated/with phone number/CO-stamped. The SFT and SFF Check Transmittals are sent to Kearney on a daily basis. Kearney reviews and then places the transmittal in AP status.

Upon completion of the SSC review, the SSC promotes the Transmittal to PR status, or recommends rejection of the Transmittal. If the Transmittal package has been accepted for further processing, it is forwarded to a GTR for review and approval. The GTR’s review and approval promotes the

Transmittal to AU Status. If the Transmittal package has been recommended for rejection, the GTR will review and reject or approve the Transmittal. Rejected (RJ Status) Transmittal packages are returned to the M&M Contractor for correction and resolution.

Once the Transmittal is forwarded to the Operations Branch for certification and is promoted to

Approved (AP) status, the staff retrieves and distributes the Transmittals back to the assigned GTM.

Transmittals and tax bills are paid by check are mailed to Kearney on a daily basis if necessary. A copy of the signed Transmittal and invoice is retained for filing. The SSC prepares a list of all

Transmittals sent to Kearney and places the corresponding Transmittal packages in the central mail location no later than 2:00 pm daily for mailing. The SSC then queries P260 to obtain the

Transmittal status approval dates. The information queried is used to create reports in Excel.

Transmittals that are paid by EFT are automatically disbursed. Copies of the signed Transmittals and invoices are filed in a logical and sequential order to ensure accessibility and retrieval when necessary..

H56750 Highlight , the staff retrieves

H56750 Callout To whom does "staff" refer? HUD? SSC?

H56750 Highlight mailed to Kearney

H56750 places the corresponding Transmittal packages in the central mail location

5. SSC’S REVIEW PROCEDURES

Overview

The SSC’s 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’s specific objectives and review procedures are further detailed in the sections below:

5.1 Review Objectives

The primary objectives of the SSC’s review of Transmittal packets are to:

1. Perform the initial comprehensive review of each Transmittal packet;

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

3. Resolve issues raised as a result of the review process; and

4. Recommend the Transmittals for approval by a GTR or recommend rejection of

Transmittals deemed inaccurate and/or incomplete.

5.2 SSC’s Review Coverage

The SSC will perform the following review procedures:

1. Place a “check mark” (√) or similar tick mark on each line of the Transmittal indicating that s/he has performed the prescribed detailed review.

2. 100% review of the information on the Transmittal, including signatures and dates for

SFF, SFT, and SMC/SFS/SAM Transmittals.

3. Detailed review of individual line items as follows:

For SFT and SFF Transmittals:

a) 100% review of individual line items for all SFF Transmittals

b) 100% review of individual line items on each SFT Transmittals

For SAM/SFS/SMC Transmittals:

a) 100% review of individual line items;

b) 100% review of marketing fees;

c) 100% verification of summaries and reconciliation at the end of each Transmittal if applicable;

d) 100% review of CLINs for SFS Transmittals; and

e) 100% review of CLINs for SAM Transmittals

Resolve issues raised

5.3 Detailed Review Procedures of Individual Line Items on SFF, SFT and SAM/SFS/SMC

Transmittals

The SSC will perform a 100% review according to the procedures prescribed for the respective Transmittal Type and Transaction Type in Section 8 of this Manual.

5.4 Consistent Errors

The accuracy and competency of the SSC’s review is a primary component of HUD’s internal controls and, consequently, the results of the SSC review should be subject to continuous monitoring and assessment by a GTR.

5.5 Required Evidence for Performance of the Minimum Review Procedures

The SSC tick marks each line item on the SFF, SFT, and SMC/SFS/SAM Transmittal reviewed as evidence of his/her compliance with the review procedures.

5.6 Representations/Acknowledgments

The SSC signs and dates the Transmittal at the conclusion of their review and forwards the

Transmittal package to a GTR for their review.

By signing the Transmittal, the SSC acknowledges that s/he understands the documentation and approval requirements of the M&M Contract relative to the items contained in the Transmittal; s/he has performed, at a minimum, the review procedures required by this manual; s/he understands the objectives and requirements of the review procedures; s/he has communicated all unresolved exceptions identified during his/her review to a GTR, in writing; s/he is reasonably satisfied that the Transmittal is accurate;

and s/he has recommended that a GTR approve the Transmittal.

Detailed SCC Review Procedures

5.7 SSC’s Review Process – SFF Transmittals

M&M Contractors and HOCs initiate SFF Transmittals to request reimbursement for allowable pass-through expenses and direct payments to inspectors, closing agents and other contractors. The SSCs’ review process is to verify the following:

1. The M&M Contractor prepared the Transmittal completely and accurately.

2. The M&M Contractor signed and dated the required certification on the Transmittal.

3. M&M Contractor billed HUD only for goods and services it is authorized to purchase under its M&M Contract.

4. The Contractor’s invoice detail and totals match the detail and total on the Transmittal and on the corresponding P260 screen.

5. The M&M Contractor provided the required supporting documentation for each line item on the Transmittal. This will include, but is not limited to, vendor invoices clearly

H56750

M&M Contractor billed HUD only for goods and services it is authorized to purchase under its M&M Contract showing the contractually required details about the vendor and the goods and services procured; proof of inspection and/or receipt of the goods and services procured; where applicable, proof of compliance with the bidding requirements; and a copy of the checks written to the vendor as proof of payment.

6. Each line item amount listed on the Transmittal is consistent with the amounts on the vendor/subcontractor invoices AND the vendor/subcontractor’s invoices are mathematically accurate.

7. The goods and services were acquired for the benefit of properties in HUD’s inventory and under the management of the M&M Contractor at the time the goods and services were acquired.

8. The M&M Contractor has not previously billed the property or case number.

9. The M&M Contractor assigned the correct Post Code to each line item and did not use the ALLOCATE Code (“AC”) improperly.

H56750 did not use the ALLOCATE Code (“AC”) improperly

5.8 SSC’s Detailed Review Procedures – SFF Transmittals

Condo/HOA Fees (FSM PWS 5.2.5.1)

Documents Review Procedures

- Completed and signed system-generated Transmittal.

- Original M&M invoice.

- Copy of invoice from Condo/HOA Association – invoice should provide a breakdown of the fees by month and year.

- Breakdown of fees for penalties and interest assigned that includes acquisition date, FSM assignment date, billing period and responsible party identified.

- In Super-Lien states, follow local law, or established practice. Normally HUD will pay outstanding of dues prior to established timeframe, i.e. date of default, date of foreclosure, date of redemption, etc.

- If after closing, a copy of the HUD-1 as evidence that it was not paid at closing.

- Evidence documenting that M&M Contractor notified MCM to collect penalties and interest attributable to the mortgagee.

- Evidence (copy of check) that the M&M Contractor paid penalties and interest incurred by HUD due to late payment by the M&M Contractor.

- Case Invoice Listing Screen.

Verify that:

1. All required fields on the system-generated Transmittal are complete and accurate and is an original.

2. M&M has signed and dated the Transmittal and invoice

3. The detail and total on the M&M Contractor’s invoice matches the detail and total on the Transmittal.

4. Each line item on the Transmittal is supported by a copy of an invoice from a condominium or homeowners’ association.

5. The M&M Contractor’s or payee’s name, address and telephone number appears on each invoice listed in the Transmittal.

6. The M&M Contractor or payee on the hard copy Transmittal corresponds with the name on the corresponding P260 screen.

7. The case number and property address on the invoice corresponds with the case number and address on Transmittal.

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

9. The M&M Contractor provided evidence that it sought to recover penalties and interest due from mortgagee.

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