Working Capital Fund: HUD Could Improve Management to Better Achieve Efficiencies and Help Ensure Customer Satisfaction

Moving to shared services is one way agencies can operate more efficiently. WCFs provide a way to centralize and simplify the funding of shared services. HUD's WCF was established in 2016 to provide HUD offices services on a cost-reimbursable basis. The fund currently finances services from external federal shared service providers—the Departments of the Treasury (Treasury) and Agriculture (USDA).

Congress included a provision for GAO to evaluate HUD's WCF. This report examines the extent to which HUD (1) delineated WCF roles and responsibilities and established performance measures, (2) established a transparent and equitable process to recover WCF costs, and (3) developed processes to obtain WCF customer feedback.

GAO analyzed agency documentation of WCF management and financial and budget data, using its work on effective WCF management and unexpended balances as criteria. GAO interviewed HUD, Treasury, and USDA officials and conducted three focus groups with WCF customer offices.

The Department of Housing and Urban Development's (HUD) Working Capital Fund (WCF) is a self-sustaining fund that collects fees from HUD customers to pay for services needed across the department. HUD's WCF finances human resource (HR) and financial management related services provided by external federal shared service providers.

HUD defines most roles and responsibilities in its WCF handbook—the primary reference guide for WCF operations—and has established performance metrics. In addition, in response to GAO's review, HUD updated its handbook in February 2020 to include more current and complete information on existing WCF policies and procedures. However:

HUD has not defined who is responsible for identifying and implementing opportunities for achieving efficiencies with service usage, including roles for the business process analyses it periodically conducts.

HUD has not assessed the results of the business process analyses, or how those results could contribute to supporting efficient service delivery.

Clearly defining WCF roles and assessing the results of its analyses can help HUD better manage the WCF and improve its ability to identify, monitor, and potentially realize cost savings and other efficiencies.

GAO found that HUD has a process designed to equitably and transparently recover the WCF's costs for externally provided federal shared services. Prior to February 2020, it had not fully documented existing policies for managing the WCF's unexpended balances and operating reserves. However, HUD has since established its operating reserve policy that reflects all of the ways that the operating reserve can be used, such as to provide pricing stability to customers and ensure continuity of WCF activities in case of funding disruptions. Written documentation of such policies is essential to ensure that funds are managed appropriately and consistently over time.

Finally, the WCF Committee has not conducted periodic reviews of shared services to help ensure effective management, strong performance, and customer satisfaction. Officials from both business line offices—the Office of the Chief Human Capital Officer (OCHCO) and Office of the Chief Financial Officer —stated that they use a variety of mechanisms to obtain customer feedback on services. However, WCF customers in two of three focus groups GAO held said that they have not been given opportunities to provide feedback on the overall quality of services they receive, and some participants shared specific concerns with HR services. Officials from OCHCO—the office that oversees HR services—told GAO they are aware of customer concerns, plan to take additional actions to obtain customer feedback, and acknowledged the need for periodic reviews called for in the WCF Committee Charter.

Until such reviews are conducted to regularly assess customer satisfaction, HUD will likely lack a comprehensive understanding of the extent to which customer needs are being met and could be missing out on opportunities to improve the performance and management of services for which it pays.

GAO is making three recommendations to HUD on its WCF: define roles for achieving efficiencies; assess results of its analyses; and conduct periodic reviews of business lines. HUD agreed with two and sought additional clarification on one. GAO clarified the recommendation based on further discussion with HUD.

Given the fiscal pressures facing the federal government, moving to  shared services—where services needed by multiple agencies or more  than one organization within an agency are consolidated and shared—is  one way agencies can operate more efficiently. Migrating to shared  services solutions may allow agencies and customer offices to benefit  from economies of scale and take advantage of specialized expertise that  they may not have.

Working capital funds (WCF) provide a mechanism for agencies to  centralize and simplify the funding and provision of shared services within  and between federal agencies. A type of intragovernmental revolving  fund, a WCF is a self-sustaining fund that collects fees from agency  customers to pay for services financed through the account. By aligning  the costs of shared services with individual usage, WCFs can improve price transparency and better position customers and managers to  exercise cost control through informed decision-making about the type  and quantity of services they consume.

The Department of Housing and Urban Development’s (HUD) WCF is  intended to provide for the efficient and effective delivery of goods and  services to HUD customers on a cost-reimbursable basis. The WCF is  expected to reduce overlap and duplication of efforts by providing a joint  platform for administrative and programmatic needs across HUD  customer offices. Currently, the WCF is used to finance externally  provided services from federal shared service providers. However,  according to officials, HUD plans to expand the scope of services  financed through the WCF to include other externally and internally  provided services. As it expands, it will be important that HUD ensure that  the WCF is managed as effectively as possible to maximize its potential  to achieve its mission.

The joint explanatory statement accompanying the Consolidated and  Further Continuing Appropriations Act, 2015 included a provision for us to  evaluate HUD’s working capital fund. HUD’s WCF was established in  2016, and the WCF began to collect reimbursement from customers to  directly pay for the costs of HUD’s shared services in 2017. This review  examined the extent to which HUD (1) clearly delineated roles and  responsibilities and established and reviewed performance measures and  goals for the WCF, (2) established a transparent and equitable process to  recover the WCF's costs and align incentives for efficient operations, and  (3) developed processes for obtaining customer feedback on WCF  services.

We assessed the management of HUD’s WCF against our framework for  effective WCF management, which is described in the text box below.  We shared these operating principles with HUD at the beginning of our  review. HUD officials told us that they used this framework to develop the  foundation of the WCF. In addition to the operating principles, we also  assessed the management of HUD’s WCF against federal standards for  internal controls, where applicable.

Working Capital Fund (WCF) Key Operating Principles  In 2011, we identified four key operating principles that offer a framework to effectively manage WCFs. By incorporating these  principles in written guidance, agencies promote consistent application of management processes and provide a baseline for agency  officials to assess and improve management processes.

Clearly delineate roles and responsibilities: Appropriate delineation of roles and responsibilities promotes a clear  understanding of who will be held accountable for specific tasks or duties.

Measure performance: Performance measures that are aligned with goals can be used to evaluate whether, and if so how,  WCF activities are contributing to the achievement of goals.   Ensure self-sufficiency by recovering the agency’s actual costs: Transparent and equitable pricing methodologies allow  agencies to ensure that rates charged recover actual costs and reflect customers’ service usage. If customers understand how  rates are determined or changed including the assumptions used, customers can better anticipate potential changes to those  assumptions, identify their effect on costs, and incorporate that information into budget plans.

Build in flexibility to obtain customer input and meet customer needs: Opportunities for customers to provide input about  WCF services, or voice concerns about needs, in a timely manner enable agencies to regularly assess whether customer needs  are being met or have changed.

For the first objective, we reviewed HUD’s documentation of WCF roles  and responsibilities, including the WCF Committee Charter—which  establishes the framework for the fund’s governance—the WCF  Handbook, and relevant processes and procedures. In addition, we  reviewed the WCF’s goals and associated performance metrics on  financial management, stakeholder engagement, and the timeliness of  usage data. In doing so, we reviewed the WCF performance scorecard— which is used to track and report on performance metrics—as well as the  data HUD collects to assess the fund’s performance.

For the second objective, we reviewed documentation of HUD’s billing  and cost allocation process to assess whether and how the process is  designed to recover the WCF’s actual costs. We reviewed other  documents, such as the WCF billing model, customer invoices, and  usage reports to understand how HUD shares pricing and cost allocation  information with customers. We obtained data on net operating results,  the difference between net expenses and funds received, for fiscal years  2016 through 2018—the only years available at the time of our review— from HUD and its unaudited WCF annual financial statements. We  determined these data were sufficiently reliable to present HUD’s  reported cost recovery. In addition, to assess how HUD manages the  WCF’s unexpended balances, we used our key questions for assessing  balances in federal budget accounts, as criteria. To assess the  management of unexpended balances in HUD’s WCF against these key  questions, we reviewed HUD’s WCF Handbook and analyzed budget  documents from fiscal years 2016 through 2018. We found the budget  data to be sufficiently reliable for our purposes.

For the second and third objectives, we conducted three focus groups  with HUD customer offices to obtain their perspectives on benefits and  challenges of paying for shared services through the WCF, billing and  payment methods, and communication with the WCF Division, among  other topics. To ensure that we obtained views from knowledgeable  officials across customer offices, we invited representatives from each of  the customer offices serving on the HUD WCF Committee—which  consists of both senior-level officials and budget and administrative  officers from each office—to participate based on their knowledge and  experience with WCF issues.

In a few cases, a committee representative designated an alternate  official with relevant experience and knowledge of WCF issues to  participate on their behalf. Ultimately, we obtained views from officials  representing 12 of the 17 WCF customer offices. We did not obtain  customer perspectives from the remaining five offices due to participants’  schedules or other conflicts. See appendix I for a list of the WCF  customer offices represented in our focus groups. To identify key themes  from these groups, we summarized all of the comments made during  each focus group and analyzed participants’ responses. The results of  our analysis are not generalizable to all HUD WCF customer offices.  However, the views we obtained provided valuable perspectives and  examples.

In addition to focus groups, for the third objective, we reviewed  documentation of ways that the WCF Division communicates with WCF  customers about cost allocation, usage, and billing for shared services.  We also spoke with HUD business line offices—the Office of the Chief  Financial Officer (OCFO) and Office of the Chief Human Capital Officer  (OCHCO)—regarding feedback mechanisms for obtaining WCF customer  input on the quality of the externally provided shared services.

For all objectives, we interviewed officials from HUD’s WCF Division, the  office that manages the WCF. We also interviewed officials from the  OCFO and OCHCO. Finally, we met with officials from the external  shared service provider agencies—the Departments of the Treasury  (Treasury) and Agriculture (USDA)—to obtain their perspectives.

We conducted this performance audit from January 2019 to March 2020  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

HUD’s Working Capital Fund Currently Finances Externally Provided Shared Services

HUD’s WCF was established in 2016 to provide a mechanism for the  department to centralize and fund federal shared services used across  HUD offices and agencies. According to its Committee Charter, the  three goals of the WCF are to: align incentives for efficient enterprise operations through users  paying for goods and services; establish accurate and timely cost estimates for goods and services;  improve planning, increase visibility and transparency, and support  the efficient and effective delivery of goods and services.

To begin WCF operations in fiscal year 2016, HUD transferred  approximately $44 million in funding from the salaries and expenses  accounts of OCFO and OCHCO to the newly established WCF. In fiscal  year 2017, the WCF began to bill its customers—17 HUD offices that  purchase services financed through the fund—directly for their estimated  use of services.

HUD’s WCF is different from other intragovernmental revolving funds that  we have previously reviewed in that it does not fund internally provided  services at this time. The WCF is currently used as a centralized  funding method to pay for the costs of four established shared services  agreements—or interagency agreements—between HUD and three  external shared service providers: USDA’s National Finance Center  (NFC) and Treasury’s Administrative Resource Center (ARC) and Shared  Services Programs. See table 1 for more information about the  agencies providing shared services to HUD.

According to WCF Division officials, HUD plans to expand the WCF in the  future to finance both internal and additional external goods and services.  For example, the WCF’s fiscal years 2019 and 2020 budget justifications  requested funding to centralize and support activities such as a Data  Management Initiative and the Real Estate Assessment Center’s (REAC)  physical and financial assessment services, respectively. However to  date, HUD did not receive budgetary authority to proceed with including  either activity in the WCF.

Several offices within HUD share responsibility for the management and  operations of the WCF, including the WCF Division and business line  offices. See figure 1 for information on the WCF’s financial operations and  entities involved.

HUD Does Not Fully Define Roles or Assess Results for Achieving Operational and Cost Efficiencies

HUD Defines Most WCF Roles and Responsibilities, Except for Achieving Efficiencies

HUD defines most of the roles and responsibilities for management and  oversight of the WCF. According to HUD policy and guidance documents:

The WCF Committee provides financial and operational oversight of  the WCF, including advising and supporting the WCF’s strategic  direction and providing annual approval of the WCF financial plan and  budget, among other responsibilities. The Committee includes  representation from OCFO leadership and all customer offices.

The WCF Division within OCFO oversees the financial management  of the fund, including managing day-to-day operations and  establishing cost accounting for all shared services and customers  that use the fund. In addition, the WCF Division supports customers  with WCF-specific services, such as billing and service usage reports.

OCFO and OCHCO manage the provision of the services financed  through the WCF to customer offices. As the designated business line  offices, OCFO and OCHCO oversee the quality and timely delivery of  services, including monitoring service provider performance and  serving as the liaisons between HUD customer offices and service  providers concerning any issues with service quality.

WCF Customers place orders with the WCF Division to receive  services from the external service providers. In addition, customers  reimburse the WCF for their estimated use of those services.

However, HUD also performs additional actions to support the efficient  and effective delivery of goods and services consistent with the goals of  the WCF. Specifically, the WCF Division conducts business process  analyses to identify opportunities for efficiencies across the department.  Yet, there is no mention in guidance of the roles and responsibilities of  the WCF Division, business line offices, or other stakeholders in  identifying, monitoring, and implementing the actions recommended  because of these analyses.

In support of the WCF’s goal to support efficient and effective delivery of  goods and services, the WCF Division provides quarterly usage reports to  customers and business line offices and assists them with monitoring  their consumption and associated costs of shared services. WCF Division  officials told us they conduct a more detailed review of the data when they  find anomalies, such as unusually high volumes of transactions. WCF  Division officials told us that they will collaborate with the responsible  business line office to conduct a business process analysis, which is used  to identify actionable ways to address the cause of the high service  volume and costs in specific circumstances. A business process analysis  is generally conducted when there is an availability of resources, support  from the business line office, and potential for cost savings or operational  efficiencies.

For example, in 2018, in response to an increase in the volume of two  service areas overseen by OCFO—help desk calls and commercial  purchase order accruals—the WCF Division examined data and  determined that HUD could reduce its service volume and costs. See  text box below.

Working Capital Fund (WCF) Business Process Analysis

Help desk calls: The WCF Division found that an unnecessarily high number of customer calls to help desks for password  resets were contributing to higher costs to the department.  For example, more than 20 percent of customer calls to Treasury  ARC’s financial management help desk were from customers requesting password resets, which can be manually resolved  without calling the help desk and incurring a transaction fee. In fiscal year 2019, the cost to HUD per financial management  help desk call was about $128. According to the WCF Division Director, the WCF Division presented its findings to OCFO  leadership and the WCF Committee, including five recommendations targeted at reducing system password reset call volume  and future costs to the department.

Commercial purchase order transactions: Commercial purchase order accruals are more costly because they are manually  processed. Among other findings, the WCF Division’s analysis determined that changing OCFO’s current business process for  obligations below a certain threshold could reduce the volume of transactions processed. The OCFO official told us that OCFO  plans to implement one of the recommendations with a new process for recording those accruals in the first quarter of fiscal  year 2020 to reduce the volume of transactions. According to the WCF Division’s analyses, the implementation of this  recommendation could achieve potential annual costs savings of nearly $600,000.   However, OCFO has not taken actions to address seven remaining recommendations, which the WCF Division found could  produce additional benefits, including potential cost savings of more than $400,000 annually. The OCFO official told us that  OCFO plans to examine HUD’s fiscal year 2019 service usage to determine the effectiveness of the actions it has already taken  to reduce the help desk call and commercial purchase order transaction volume.

The estimated help desk call volume and associated cost to HUD for a given year, as agreed upon in  HUD’s agreement with Treasury ARC, is generally based on the average of the previous 2 years’ call  volume. As such, changes in usage in 1 year will not necessarily result in lower service costs in the  next year, but HUD may realize cost savings over time if usage is consistently lower.

While they have a process for identifying opportunities for efficiencies  through the business process analyses, WCF Division officials  acknowledged that they have not defined and documented the WCF  Division’s own roles and responsibilities with regard to the analyses. WCF  Division officials told us they are focused on other priorities, such as new  business line proposals. However, they told us that they are open to  defining these roles in the future.

There are additional reasons why the WCF Division has not defined and  documented roles and responsibilities for these activities. For example,  Division officials told us that the Division faces organizational challenges  which may limit its own ability to monitor and implement actions. First, as  previously discussed, the business line offices are responsible for  managing and overseeing the service lines. According to WCF Division  officials, the business line offices are primarily responsible for identifying  opportunities to achieve efficiencies with service usage, such as through  conducting business process analyses. As such, WCF Division officials  told us that they can support those offices by monitoring their usage and  helping to identify actions to reduce high service volume and costs, but it  is ultimately the business line offices’ responsibility to implement any  changes to their own processes to improve service usage.

In addition, given its location within OCFO, Division officials stated that  the WCF Division has more leverage with OCFO to work with those  officials to identify business process improvements. WCF Division officials  told us that they have not collaborated with OCHCO or made  recommendations for actions OCHCO could take to promote efficient and  effective usage of the service lines it oversees. While the Division hopes  to work with OCHCO to perform the same types of analyses, the WCF  Division Director told us that making recommendations to OCHCO would  be viewed as outside of its area of authority.

According to Division officials, it is the role of the WCF Committee to  provide oversight over the business line offices and ensure that such  actions are implemented. However, officials acknowledged that these  roles and responsibilities related to the business process analyses should  be more clearly delineated in the WCF Handbook.

Key operating principles for effective management of WCFs state that  agencies should clearly delineate roles and responsibilities by defining  key areas of authority and responsibility. In addition, federal standards for  internal control state that management should establish an organizational  structure, assign responsibility, and delegate authority to achieve the  agency’s objectives. As part of this, management should develop an  organizational structure with an understanding of the overall  responsibilities and assign those responsibilities to discrete units to  enable the organization to operate in an efficient and effective manner.

Without clearly defining and documenting these roles and responsibilities,  it is unclear who is responsible for identifying, monitoring, and  implementing actions through the business process analyses to address  inefficiencies with service usage across HUD. As a result, opportunities to  more efficiently and effectively deliver goods and services may not be  fully and consistently implemented across the department.

HUD Has Established Performance Metrics but Does Not Assess Results of Business Process Analyses to Understand How They Support Efficient Delivery of Services

HUD established eight total performance metrics which, according to  WCF Division officials, are intended to align with one or more of the  WCF’s three goals (see table 2). In fiscal year 2018, the WCF Division  developed a draft performance scorecard to measure and track WCF  performance in areas such as data and analysis, financial management,  and stakeholder engagement. Division officials told us that they use 2019  data as their performance baseline for the scorecard and will continue to  review and further develop the fund’s metrics and targets.

Part of one of the WCF’s goals is to support the efficient delivery of goods  and services. Some of the WCF’s metrics, such as those targeting  timeliness, will help the WCF Division improve its efficiency with respect  to managing the fund. For example, usage report timeliness measures  the number of weeks it takes for the WCF Division to share usage reports  with customers.

As previously discussed, the WCF Division conducts other activities, such  as its business process analyses, that are also intended to support  efficient service delivery. However, HUD does not assess the results of  the WCF Division’s business process analyses to better understand how  they contribute to the WCF’s goal. We previously reported that high- performing agencies continuously assess their efforts to improve  performance. As part of this, agencies use fact-based understandings of  how their activities contribute to accomplishing the mission and broader  results.

The WCF Division Director told us they have considered metrics to  assess broader results of WCF Division activities such as efficiencies, but  noted that it is difficult to quantify cost savings attributable to the WCF.  This is due, in part, to the fact that HUD’s service agreements are firm- fixed price contracts, meaning that a change in the volume of services  HUD consumes in a given year will not result in direct cost savings that  same year. However, HUD could assess the results of the WCF Division’s  business process analyses, which identified measurable operational and  cost efficiencies that HUD could achieve through implementing the  division’s recommendations.

For example, as previously discussed, in its analysis of help desk calls,  the WCF Division identified potential efficiencies that it could track that  would contribute to cost savings over time. While some of the  recommendations may not directly result in cost savings, the Division  identified other efficiencies such as process improvements that could  improve the quality of services that it is capable of tracking. For example,  the WCF Division determined that changes to HUD’s processes could  improve the accuracy of purchase order accrual estimates.

Assessing the results of the WCF Division’s business process analyses  would help HUD better understand how the Division’s efforts contribute to  its goal of supporting the efficient delivery of goods and services.   Without doing so, HUD risks not fully realizing more than $1 million in  total potential annual savings identified by the WCF Division’s analyses  and freeing up resources that could be realigned for other departmental  priorities. In addition to tracking progress towards its own goal, assessing  these results would allow HUD to demonstrate how the WCF Division  contributes to a 2018 cross-agency priority goal of improving the use,  quality, and availability of administrative shared services, as well as the  department’s related strategic objective to organize and deliver services  more efficiently.

WCF Handbook Includes Current and Complete Information on Policies and Procedures

In response to our review, HUD updated the WCF Handbook—the  primary reference guide for customers and stakeholders on WCF  operations—to include more current and complete information on WCF  policies and procedures. For example, prior to February 2020, we found  that the Handbook was not reconciled with more recently developed draft  WCF procedures for contract and budget execution, and invoicing and  payments. The WCF Handbook now includes these procedures, which  contain detailed information about administrative and funds control  responsibilities. For example, the procedures describe the WCF Division  Director’s cash management responsibilities and designation as the  WCF’s Funds Control Officer, as well as roles of WCF customer program  and budget officers.

In addition, during the course of our review, the WCF Division updated its  Handbook to include current information on other policies and  procedures. For example, the Handbook now reflects the WCF’s  performance metrics, which we previously discussed were initially  developed by the WCF Division in 2018, and changes to other key  policies, such as the implementation of the WCF’s full cost recovery  model in 2019.

HUD now has reasonable assurance that its primary reference guide, the  WCF Handbook, provides a current and complete understanding of  existing WCF policies, consistent with federal standards for internal  controls.

HUD Has Established a Process to Recover the WCF’s Costs and Has Fully Developed and Documented Policies for Its Unexpended Balances

HUD Has a Process Designed to Equitably and Transparently Recover the WCF’s Estimated Costs

The WCF’s price and cost allocation methodology is designed to  equitably and transparently recover HUD’s annual costs for externally  provided shared services financed through the fund. According to HUD  officials, the WCF has roughly recovered its costs of financing HUD’s  annual shared service agreements since its establishment in 2016. To  recover its costs, the WCF Division has a process to divide HUD’s total  cost of shared services among the 17 customer offices based on their  estimated service usage.

For fiscal years 2016 through 2018, the WCF reported a negative  accumulated operating result of $400,372, meaning that it reported it  recovered nearly all of its costs since its inception. During this time  period, the WCF reported years of positive and negative net operating  results. Revolving funds such as the HUD WCF are designed to break  even over the long term; therefore, year-to-year fluctuations are to be  expected. Table 3 provides a detailed breakdown of HUD’s reported  cost recovery.

According to WCF Division officials, its shared service providers set  annual prices for each service line at the outset of the fiscal year using  their own pricing methodologies. The service providers then bill HUD in  aggregate for an agreed-upon price under annual interagency  agreements at firm-fixed prices.

As illustrated in figure 2, the WCF Division determines how much each  customer office will pay into the WCF for its respective share of HUD’s  total shared service costs using internally developed cost drivers and  customers’ expected service usage. The cost drivers were selected by  the WCF Committee, and are subject to annual review. According to WCF  Division officials, the cost drivers are generally similar to those  established by the external providers to maintain a clear connection  between customer usage and provider charges. In some cases, however,  the provider uses a nonunit based cost driver, such as “level of effort.” In  those instances the WCF Division uses cost drivers which vary from the  providers. According to HUD documentation, “employee count” is a  common alternative driver used to fairly and equitably distribute costs  among customers.

In addition to the direct costs of HUD’s shared services, HUD officials told  us that the WCF received authority to collect reimbursement from HUD  customers for the WCF Division’s overhead costs in fiscal year 2019.  The WCF’s overhead covers operational expenses, including: WCF  Division staff salaries and benefits, travel, support contracts, supplies and  materials, and training. Customers are billed for a percentage of the  overhead based on their share of HUD’s total shared service costs. This  charge is included as an individual line item in customers’ WCF billing  statements.

The WCF Division shares information on pricing and its cost allocation  process with customers in several ways. The WCF Handbook includes  the billing process, which describes the method for allocating costs  among customers. The WCF Division provides customer offices with a  billing model which illustrates how costs are allocated across customers  by service line. Customer invoices are broken out to show how customers  are charged for each service. In addition, the WCF Division provides  quarterly usage reports to customers to help them understand their  service consumption. According to WCF Division officials, the WCF  Division holds meetings and meets with customer offices one-on-one to  explain the information provided.

Participants in two of our three focus groups said that the WCF cost  allocation model increases accountability and is a more equitable and fair  distribution of service costs. Participants in all three focus groups said the  WCF improved transparency over the old service model because they  can see and consider the costs of their shared service usage. For  example, one participant told us that, before the WCF, customers did not  directly pay for their shared services and, as a result, did not think about  costs.

HUD Has Developed Policies for Managing the WCF’s Unexpended Balance

The WCF Division has processes to estimate and manage the WCF’s  unexpended balance, including establishing an operating reserve  requirement. Properly managing unexpended balances is essential for  ensuring self-sufficiency of the fund. Part of the unobligated balance  includes an operating reserve which, according to WCF Division officials,  is needed to finance ongoing revolving activities, facilitate payments,  cover discrepancies between actual and projected shared service costs,  and ensure continuity in case of funding disruptions.

Evaluating Unexpended Balances:   A Framework for Understanding  In 2013, we identified the following questions  for agencies and decision makers to consider when evaluating unexpended balances in  federal budget accounts. Findings based on  these questions can provide managers with  important information about financial  challenges and opportunities which may exist;  in turn, this information may help guide more  effective account and program management.

In fiscal year 2017, the size of the WCF’s unexpended balance increased  by 60 percent from $10 million to $16 million, and it was relatively stable  from fiscal years 2017 to 2018, as shown in table 4.

While the WCF Division does not actually provide the shared services  that it finances, nor manage dispute resolution between customers and  service providers, it does communicate with customers on fund-related  issues—such as shared service billing and usage reports. Key operating  principles for effective management of working capital funds state that to  be flexible to customer input and needs, agencies should communicate  with customers regularly and in a timely manner, and develop a process  to assess whether customer demands are met.

The WCF Division communicates and interacts directly with customers  through a variety of channels. For example, WCF Division officials told us  that they: organize quarterly WCF Committee meetings, hold meetings to  provide information and answer questions about interpreting usage  reports, and use an email inbox for communication between Division staff  and customers. The WCF Division will also contact customers directly  when issues, such as anomalies in shared service usage, are identified.  Customers in all three focus groups reported that they turn to the WCF  Division when issues or questions about WCF-related issues arise, and  are generally satisfied with the Division’s communication and  responsiveness.

HUD Has Not Reviewed Shared Services to Ensure Strong Performance and Customer Satisfaction

HUD’s business line offices—those offices that oversee HUD’s  agreements for externally provided shared services—have mechanisms  to communicate with customers and obtain feedback on shared service  quality. For example, an official from OCFO—the office that oversees  financial management, procurement, and travel services—told us that  OCFO has an email inbox dedicated to questions and concerns regarding  services. Officials from OCHCO—which oversees human resource (HR)- related services—told us that OCHCO holds recurring meetings with  customer offices and reviews feedback from government-wide employee  surveys. That feedback is then used to inform HUD’s annual negotiations  for HR-related shared services and improve service delivery.

According to the WCF Division Director, the WCF Committee quarterly  meetings provide an additional opportunity for customer offices to provide  feedback to business line offices on shared services. Business line office  officials also told us they monitor data on service provider performance  and go directly to the provider when discrepancies between the provider’s  actual performance and agreed-upon performance metrics are identified.

However, while participants in all three of our focus groups acknowledged  that OCFO and OCHCO are the designated points of contact for day-to- day issues, participants in two of our three focus groups mentioned that  they have not been given opportunities to provide feedback on overall  shared service quality. In addition, all three customer focus groups  expressed some level of dissatisfaction with the quality of HR services,  particularly with hiring. For example, participants in at least one of our  focus groups identified the following issues with HR services:   complications and excessive time consumption associated with  resolving inquiries;

HR service providers operating without specialized skills and  knowledge relevant to HUD offices and programs; and  inadequate adaption to spikes in service demand.

The WCF Division Director told us that the WCF Committee has not  conducted periodic reviews of WCF business lines since HUD  transitioned to shared services. According to the WCF Committee  Charter, the WCF Committee is responsible for conducting and  overseeing periodic reviews of WCF business lines, as appropriate, to  ensure effective management, strong performance, and customer  satisfaction. In addition, federal standards for internal control call for  periodic reviews of policies, procedures, and related control activities for  continued relevance and effectiveness in achieving the entity’s objectives  or addressing related risks. According to the WCF Division Director, at  this time the committee does not have plans to conduct such reviews.

OCHCO officials told us that they are aware of customer complaints with  the quality of HR services. According to officials, HUD has a new Chief  Human Capital Officer as of May of 2019 who is taking action to obtain  feedback on services by engaging directly with HUD customers through  listening sessions. OCHCO officials told us they will introduce action  plans in fiscal year 2020 to address recurring issues and customer  complaints. In addition to these plans and the feedback OCHCO already  obtains, OCHCO officials acknowledged that periodic reviews of the  service line, as called for in the committee charter, would be valuable.

Without conducting periodic reviews of shared services, HUD may not  have a comprehensive understanding of whether customer needs are  being met and could be missing out on opportunities to identify potential  areas for improvement with the performance and management of  services for which it is paying. Given the concerns customers in our focus  groups told us about HR service lines, HUD should consider making it the  first service line that is subject to a review.

WCFs provide agencies with an opportunity to operate more efficiently by  consolidating services and creating incentives for customers to exercise  cost control. HUD could maximize the potential of these opportunities by  ensuring that it has a solid framework in place for managing the WCF  before it expands to include additional shared services.

During the course of our review, HUD took important steps to ensure that  the WCF Handbook—the primary reference guide for WCF operations— includes up-to-date and complete information on WCF policies and  procedures. Providing access to current and complete information on the  management of the WCF promotes an understanding of who should be  held accountable, and helps ensure that funds are effectively managed.

HUD also took steps to fully document its processes to effectively  manage the operating reserves. This will be particularly important as HUD  continues to consider expanding the services provided through the WCF.  By documenting its existing operating reserve policies, HUD is better  positioned to address potential risk and to identify opportunities to  achieve budgetary savings or redirect resources to other priorities.

However, there are additional opportunities for improvement. Defining  roles and responsibilities promotes a clear understanding of who will be  held accountable for specific tasks or duties. Most of HUD’s WCF roles  and responsibilities are defined in guidance. However, while the WCF  Division performs important business process analyses that identity  opportunities to improve the efficiency of services, consistent with the  goals of the WCF, HUD has not defined roles and responsibilities for the  business process analyses, including who is responsible for identifying,  monitoring, and implementing actions to achieve the efficiencies. This  makes it difficult to hold offices accountable. By clearly defining the  responsibilities of the WCF Division, business line offices, and other  stakeholders, such as the WCF Committee, HUD could better ensure the  business process improvements are being implemented fully and  consistently across the department.

Moreover, assessing the results of the WCF Division’s business process  analyses would help HUD better understand how the Division’s efforts  contribute to its goal of supporting the efficient delivery of goods and  services. This would better position HUD to achieve the more than $1  million in potential annual savings identified by the WCF Division’s  analyses.

Finally, opportunities for customers to provide input about services in a  timely manner enables agencies to regularly assess whether customer  needs are being met. WCF customers have several ways that they can  communicate day-to-day concerns about shared services to the business  line offices. However, they raised larger concerns during our focus  groups, particularly about the quality of the externally provided human  resource related services that deserve attention. Periodic assessments of  WCF business lines would provide a more comprehensive understanding  of customers’ overall satisfaction and would help HUD identify potential  areas for improvement with the services for which they pay.

We are making a total of three recommendations to HUD.

The Secretary of HUD should define and document roles and  responsibilities for identifying opportunities to promote more efficient  shared service usage through business process analyses, including  defining roles for monitoring and implementing actions recommended  because of these analyses. (Recommendation 1)

The Secretary of HUD, in conjunction with OCFO, should ensure that the  results of the WCF Division’s business process analyses are assessed to  better understand how these analyses contribute to the WCF’s  established goal to support the efficient delivery of enterprise goods and  services. (Recommendation 2)

The Secretary of HUD should ensure that the WCF Committee conducts  periodic reviews of WCF business lines, as authorized in the WCF  Committee Charter, to ensure effective management, strong  performance, and customer satisfaction. (Recommendation 3)

We provided a draft of this report for comment to the Departments of  Agriculture (USDA), Housing and Urban Development (HUD), and the  Treasury.

In our draft report, we made five recommendations to HUD. HUD  provided written comments, which are reproduced in appendix II. HUD  officials agreed with four of the recommendations and described some  steps they have taken or plan to take to address them. HUD sought  additional clarification on one of the recommendations.

One draft recommendation was that HUD ensure that existing WCF  policies and procedures are current and complete, consolidated in the  WCF Handbook, and made easily accessible to customers and  stakeholders. HUD officials agreed with this recommendation, and during  their review of the draft report, they provided documentation to show that  they had updated the WCF Handbook in line with our draft  recommendation.

Another draft recommendation was that HUD fully document all existing  processes related to the management of the WCF’s unexpended  balances and operating reserve. HUD officials also agreed with this  recommendation, and provided documentation to show that they had  established written processes in line with our draft recommendation. As  such, we revised our final report to include both actions taken by HUD in  February 2020 and to remove these two recommendations.

In its written comments, HUD sought clarification on recommendation 1.  On February 26, 2020, we spoke with HUD officials and clarified that the  recommendation is more specifically targeted to the roles and  responsibilities for identifying, monitoring, and implementing actions  related to the business process analysis and efficiency efforts than the  general guidance that HUD identified in its written comments. We added  additional clarification to the report where appropriate.

In addition to the written comments we received, USDA, HUD, and  Treasury provided technical comments, which we incorporated as  appropriate.

We are sending copies of this report to the appropriate congressional  committees; the Secretaries of USDA, HUD, and Treasury; and other  interested parties. In addition, the report will be available at no charge on  the GAO website at http://www.gao.gov.

If you or your staffs have questions about this report, please contact  Tranchau (Kris) T. Nguyen at (202) 512-6806 or nguyentt@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. GAO staff who made  key contributions to this report are listed in appendix III.

Appendix I: Working Capital Fund Customer Offices Represented in Our Focus Groups

Appendix II: Comments from the Department of Housing and Urban Development

Appendix III: GAO Contact and Staff Acknowledgments

In addition to the above contact, Thomas J. McCabe (Assistant Director),  Mackenzie D. Verniero (Analyst-in-Charge), Michael Alleyne, Jacqueline  Chapin, Andrew J. Howard, Jason Marshall, Steven Putansu, and Alicia  White made major contributions to this report. Ronald La Due Lake also  contributed to this report.

Federal agencies can save money on services like payroll and travel by consolidating and sharing them with other agencies. The Department of Housing and Urban Development (HUD) uses a working capital fund to simplify how it pays for shared services.

The division that administers the fund analyzes HUD’s business processes and recommends ways to use shared services more efficiently. But HUD hasn't assessed how these analyses contribute to the fund’s efficiency goal. Doing so could better position HUD to save more than $1 million annually.

We made 3 recommendations to HUD to help improve working capital fund management.