Senators Press Housing Finance Watchdog on Staff Cuts, Reorganization

The little-known inspector general’s office at the Federal Housing Finance Agency is under fire from two Senate committee chairmen following a reorganization aimed at better targeting of auditing and evaluation resources.

Laura Wertheimer, who in 2014 was sworn in at the nearly six-year-old watchdog office that helps monitor $5 trillion in institutional housing investments, made changes to the IG’s organization chart that became controversial.

Since last October, Government Executive has learned, Senate Judiciary Committee Sen. Chuck Grassley, R-Iowa, joined later by Sen. Ron Johnson, R-Wis., chairman of the Homeland Security and Governmental Affairs Committee, began asking detailed questions of the IG that audits and investigates the Federal Housing Finance Agency’s supervision of government-sponsored enterprises such as Fannie Mae and Freddie Mac, as well as home loan banks.

The senators’ concerns, triggered by reading the IG’s semi-annual reports to Congress, include allegedly lower productivity, an enlarging of staff, unfair firings of disgruntled individuals and possible overuse of outside attorneys.

Wertheimer, a former law partner at Wilmer Cutler Pickering Hale and Dorr, came into office and began meeting with staff to refocus the IG’s office. “Understanding that the U.S. housing finance system is volatile and changes rapidly,” she would later write the senators, “I appreciated that [the IG office] would benefit from professionals dedicated to detect and analyze new and emerging risks and the controls in place to mitigate those risks so that we could deploy our resources strategically and realign our audit and evaluation plan to adapt to changing current risks.”

The resulting shift of resources from the IG’s auditing unit to its evaluation unit, which deploys different accounting protocols, to give the audit office “smaller, leaner teams,” led employees who contacted Grassley’s staff last fall to portray an office that is “gutting the auditing staff.” Buyouts were used to trim the audit unit from 36 full-time employees to nine. Employees also alleged several prohibited personnel practices, including retaliatory investigations, threats of negative performance reviews for employees who did not take buyouts and irregular hiring of unqualified employees, according to the senator’s office.

“The office of FHFA OIG has seen tremendous growth in its now nearly five years of existence, from the first year with a budget of $29 million and a staff of a little more than 50, to today with an annual budget of $48 million and a staff of about 150,” Grassley wrote to the IG on Oct. 8, 2015. But that growth, the senator asserted, has resulted in fewer reports.  “The precipitous decline in level of work product is troubling,” wrote Grassley, who has long monitored the government-sponsored enterprises, on March 24, 2016.

Johnson got involved with his own April letter asking for similar details as other issues emerged. The IG’s use of a Voluntary Separation Incentive Payments to departing employees was not authorized by the Office of Personnel Management, OPM confirmed in a May latter to Grassley. Employee complaints had been received at the Office of Special Counsel and the Council of the Inspectors General on Integrity and Efficiency. Finally, the senators asked skeptically about the IG’s hiring of private attorneys to help address the congressional inquiries and a personnel matter.

On May 31, Leonard DePasquale, chief counsel at the Federal Housing Finance Agency Office of Inspector General, wrote to committee attorneys stating the IG’s office had retained outside counsel to deal with an administrative personnel action and congressional inquiries. But he said could give no further details in writing because of attorney-client privilege and because such discussions were “pre-decisional and deliberative.”

DePasquale told Government Executive that as a general matter it is sensible for “a federal prudential regulator to use fee counsel on a discrete matter, not routine ones, to get the skill set from an expert in the area at a fraction of the cost of a $200,000-a-year career attorney.”

He said Inspector General Wertheimer came in in 2014 and “did a top-to-bottom review of the office, including brown-bag lunches with staff. She found we didn’t have a risk-based strategy for looking at inherent or systemic risks in government-sponsored enterprises or home loan banks,” he said.

The restructuring was to make the agency more risk-based in its pursuit of waste, fraud and abuse. It also saved money. “After assessing the costs of producing reports during the four-year period prior to her arrival, it was learned that the average cost to produce an evaluation was $213,222 while the average cost per report to produce an audit under prior leadership was $580,095,” the chief counsel said. “Thus it was determined that the division of audits could be made more effective and efficient by restructuring it.”

The FHFA IG reported to Congress that it had delivered 31 “hard-hitting reports” and its Office of Investigations achieved criminal monetary results of $668 million and civil monetary results of $8.2 billion during Wertheimer’s tenure. The IG office is producing work “the rank and file staff are proud of,” DePasquale added.  Some former staff don’t welcome change, he said, and “they’re entitled to their opinions.”

A Grassley spokeswoman told Government Executive, “An ineffectual IG’s office benefits no one. The inquiry involves serious allegations that this IG office wasted money, lowered productivity and alienated staff. It’s reasonable to conclude that if these shortcomings are borne out, the result would be ineffective oversight of the agency responsible for the GSEs. The senators are trying to tackle the concrete problems before ineffective agency oversight becomes widespread.”