WASHINGTON — It looks like Shaun Donovan's confirmation as the new head of the Office of Management and Budget is going to be a bit rockier than expected.

Donovan, who has served as secretary of the Department of Housing and Urban Development since 2009, is considered a sure bet for Senate approval for his new position.

But during his confirmation hearing this week, he was pressed by Sen. Lindsay Graham, R-S.C., about concerns arising from a recent HUD Inspector General report.

The report said that HUD "incorrectly used more than $620,000" to pay a senior advisor that worked in the secretary's office for over three years.

"I am troubledhow this continued to go onat yourdepartment even when the House complained about it several years before," Graham said.

Donovan dismissed the issue as an "accounting matter" that the IG has asked HUD to look into.

"I was not directly involved or aware of how this employee was paid. We are working closely with the IG," Donovan said.

At issue is the employment of Patrick Costigan, who served as a senior advisor to Donovan and was on loan from The Community Builders, a Boston-based nonprofit specializing in affordable housing.

Costigan worked on a HUD project to help public housing authorities and private owners preserve affordable housing and is not accused of any wrongdoing.

HUD paid Community Builders over $200,000 a year for Costigan's services. The problem cited by the HUD IG is that the funds did not come out of the account of the secretary's office. Instead, the funds came from the Office of Public and Indian Housing and the Federal Housing Administration.

"Because HUD did not use the Office of the Secretary's executive direct account for these reimbursements, HUD may have violated the Antideficiency Act," the IG says in a May 30 report. (The Antideficiency Act places limits on government agencies when it comes to spending and obligating funds.)

But Graham saw it as a sign of a bigger issue, noting that OMB is supposed to enforce the integrity of the budget system.

"If it is a violation of the law, why should he be promoted if you are not willing to follow the law in your own department?" Sen. Graham said.

In response to the IG report, HUD Acting Deputy Secretary Helen Kanovsky said the agency will investigate the matter.

"If it is determined that an ADA violation occurred, the department would take any necessary and appropriate administrative and other actions with respect to any employee(s) responsible for the ADA violation," Kanovsky said in a May 16 letter to the HUD Office of Inspector General.

The former special advisor supports that approach.

"We have reviewed the inspector general's report and support HUD's efforts to ensure the integrity of its internal processes," Costigan said in statement sent to American Banker.

Despite concerns over the issue, Donovan is expected to win easy confirmation, observers said.

Edward Mills, a policy analyst at FBR Capital Markets, said it is rare to find a nominee who does not run into some issue or controversy during the confirmation process.

"With the filibuster rule changes, none of it matters," Mills said, referring to recent changes that prevent filibusters on non-judicial nominees.

Mills also noted that Donovan is a "very well respected member of the cabinet" who was confirmed by the Senate back in 2009.

"It is hard to block someone" who was previously confirmed by the Senate, he said.

The Senate confirmation hearing for Julian Castro to be the new HUD secretary is slated for June 17. The nominee has served as the mayor of San Antonio, the seventh largest U.S. city, since May 2009.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.