World’s Largest Mortgage Insurer Sought Accounting and Financial  Operations Support and Received Clean Audit Opinion

Federal Housing Administration

Challenge

The Federal Housing Administration (FHA) has always been committed to supporting homebuyers by insuring the mortgages made by FHA-approved lenders. When lenders take on less risk, they can offer more mortgages to homebuyers.  After an audit opinion highlighting material weaknesses and significant deficiencies, FHA needed to ensure that its systems and business processes were working as intended and that its reporting to stakeholders was timely and accurate. To this end, FHA solicited support from Williams Adley to enhance the management of its accounting and financial operations and overcome challenges in four key areas:

Control Over Borrowing Transactions – Manual preparation of journal files for Federal Financing Bank (FFB) monthly transactions created susceptibility to errors, and there was no subsidiary system for maintaining case-level information. This resulted in several million dollars in overstated interest and errors in cohort classification.

Expense Balance Abnormalities – Use of an Allowance Method to provide estimated loan and interest losses led to abnormalities in the periodic analysis report prepared by the auditors.

Transaction Control Deficiencies in Multiple Departments – Insufficient control over department-level transactions resulted in inaccuracies in recording, reconciling, and reporting.

Management Discussion & Analysis (MD&A) – Challenges with MD&A preparation, including coordination of personnel, tight scheduling, program documentation, formatting and editing, and data validation, caused inefficiencies.

Solution

To address deficiencies and improve FHA’s accounting operations, Williams Adley deployed a comprehensive range of support services to achieve the following solutions:

  • Developed a secure, menu-driven, interactive database for FFB transactions capable of generating journal files, reconciliation reports, and detailed case-level reports. The database tool significantly improved efficiency of FHA’s journal preparation with no manual intervention required to prevent errors.

  • Provided process recommendations based on SFAS No. 5 and SFAS No. 114 to calculate quarterly adjustment of Bad Debt Expense to reflect probable credit losses and eliminate abnormal balance issues. Documentation supporting the methodology was approved by the auditors.

  • Developed accounting automation processes and tools for reporting, managing, and reconciling Fee Revenue data, Credit Subsidy System data, and Revenue Management System data, and for resolution of insurance claims refund overpayments.

  • Enhanced MD&A preparation and submission process by leveraging technical expertise and knowledge of FHA operations. Through the strategic use of tables and figures, FHA’s MD&A was enhanced to communicate robust information more efficiently. Also, communications were streamlined, allowing FHA to work more expediently.

Impact

FHA’s adoption of proposed solutions resolved identified weaknesses and enabled the Administration to achieve substantially higher performance.  Ultimately, audit findings were addressed, and FHA received a clean audit opinion.

  • The FFB database has consistently improved efficiency for more than three years, with no reported issues.

  • All expense account abnormalities have been eliminated.

  • FHA’s transaction controls have measurably improved.

  • The MD&A process has garnered positive feedback from stakeholders and external auditors.

Williams Adley’s targeted and thoughtful approach to resolving FHA’s challenges has dramatically enhanced the Administration’s accounting and financial operations, thereby  positioning the agency for greater success.