Illinois Audit Reports

Issue Date: September 26, 2007
Audit Report No.: 2007-CH-1015
File Size: 806.91KB

Title: Cook County, Illinois, Lacked Adequate Controls over Its HOME Investment Partnerships Program

The U.S. Department of Housing and Urban Development�s (HUD) Office of Inspector General audited Cook County�s (County) HOME Investment Partnerships Program (Program). The audit was part of the activities in our fiscal year 2007 annual audit plan. We selected the County based upon on our analysis of risk factors relating to Program grantees in Region V�s jurisdiction. Our audit objectives were to determine whether the County effectively administered its Program and followed HUD's requirements.

The County did not effectively administer its Program and violated HUD�s Program requirements. It did not comply with HUD�s regulations and/or its manual of administrative procedures for residential rehabilitation (manual) and/or policies and procedures for lead-based paint in housing programs (policies and procedures) in providing housing rehabilitation assistance for owner-occupied single-family rehabilitation projects (projects) and/or American Dream Downpayment Initiative (Initiative) activities� (activities) assistance with downpayments and closing costs. It inappropriately provided more than $100,000 in Program funds to assist two projects that did not qualify as affordable housing, used $15,000 in Program funds for excessive project delivery costs for two projects, and was unable to support its use of nearly $828,000 in Program and Initiative funds for projects and activities, respectively.

We recommend that the Director of HUD�s Chicago Office of Community Planning and Development require the County to reimburse its Program from nonfederal funds for the improper use of funds, provide support or reimburse its Program from nonfederal funds for the unsupported payments, and implement adequate procedures and controls to address the findings cited in this audit report. These procedures and controls should help ensure that nearly $154,000 in Program funds is used over the next year for projects that qualify as affordable housing.


Issue Date: September 24, 2007
Audit Report No.: 2007-CH-1014
File Size: 843.68KB

Title: The Peoria Housing Authority, Peoria, Illinois, Did Not Effectively Administer Its Section 8 Housing Choice Voucher Program

The U.S. Department of Housing and Urban Development�s (HUD) Office of Inspector General audited the Peoria Housing Authority�s (Authority) Section 8 Housing Choice Voucher program (program). The audit was part of the activities in our fiscal year 2007 annual audit plan. We selected the Authority based upon our analysis of risk factors relating to the housing agencies in Region V�s jurisdiction. Our objective was to determine whether the Authority administered its program in accordance with requirements. This is the first of two audit reports on the Authority�s program.

The Authority�s program administration regarding housing unit conditions and timeliness of annual housing unit inspections was inadequate. Of the 59 housing units statistically selected for inspection, 58 did not meet HUD�s housing quality standards, and 28 had 88 exigent health and safety violations that existed at the time of the Authority�s previous inspections. The 28 units had between 1 and 18 preexisting exigent health and safety violations per unit. Based on our statistical sample, we estimate that over the next year, HUD will pay more than $1 million in housing assistance for units with housing quality standards violations.

The Authority failed to ensure that its housing unit inspections were conducted in a timely manner. Of the 3,062 unit inspections conducted by the Authority from January 1, 2005, through January 31, 2007, 823 (26.8 percent) inspections were not conducted within the required one year of the previous inspections. The number of days late ranged from 1 to 488, and 402 of the late inspections were more than 30 days late.

We recommend that the Director of HUD�s Chicago Office of Public Housing require the Authority to reimburse its program from nonfederal funds for the improper use of nearly $107,000 in program funds and implement adequate procedures and controls to address the finding cited in this audit report. These procedures and controls should help ensure that more than $1 million in program funds is spent on housing units that meet HUD�s requirements.


Issue Date: August 17, 2007
Audit Report No.: 2007-KC-1007
File Size:302.07KB

Title: St. Clair County Housing Authority, Belleville, Illinois, Did Not Properly Calculate Housing Assistance Payments

HUD-OIG audited the St. Clair County Housing Authority (Authority) to determine whether it properly calculated housing assistance payments for its Section 8 Housing Choice Voucher program. Of the 89 files reviewed, the Authority incorrectly calculated the housing assistance payments of 52 households, resulting in overpayments and underpayments totaling more than $29,000.

We recommended that HUD require the Authority use administrative fee reserves to reimburse its program for the overpayments and appropriate households for the underpayments. Additionally, we recommended that HUD require the Authority to implement adequate procedures and controls to prevent future errors and improper payments.


Issue Date: July 20, 2007
Audit Report No.: 2007-CH-1010
File Size: 712.12KB

Title: The Madison County Housing Authority, Collinsville, Illinois, Did Not Effectively Administer Its Section 8 Housing Choice Voucher Program

The U.S. Department of Housing and Urban Development�s (HUD) Office of Inspector General audited the Madison County Housing Authority�s (Authority) Section 8 Housing Choice Voucher program (program). The audit was part of the activities in our fiscal year 2006 annual audit plan. We selected the Authority based upon our analysis of risk factors relating to the housing agencies in Region V�s jurisdiction. Our objective was to determine whether the Authority administered its program in accordance with HUD's requirements.

The Authority�s program administration regarding housing unit conditions, documentation to support tenant eligibility, and housing assistance payment calculations was inadequate. Of the 48 housing units statistically selected for inspection, 40 did not meet HUD�s housing quality standards, and 35 had 264 violations that existed at the time of the Authority�s previous inspections. The 35 units had between 1 and 34 preexisting violations per unit. Based on our statistical sample, we estimate that over the next year, HUD will pay more than $623,000 in housing assistance for units with housing quality standards violations.

The Authority incorrectly calculated households� payments, resulting in more than $39,000 in overpayments and $13,000 in underpayments for the period January 2005 through August 2006. Based on our statistical sample, we estimate that over the next year, the Authority will overpay more than $137,000 in housing assistance. It did not ensure that its households� files contained required documentation to support its housing assistance and utility allowance payments. Of the 88 files statistically selected for review, 20 did not contain documentation required by HUD and the Authority�s program administrative plan to support more than $126,000 in housing assistance payments.

The Authority also failed to adequately use HUD�s Enterprise Income Verification system to determine that reported zero-income households had unreported income, resulting in more than $14,000 in improper housing assistance payments.

We recommend that the director of HUD�s Chicago Office of Public Housing require the Authority to reimburse its program from nonfederal funds for the improper use of nearly $84,300 in program funds, provide documentation or reimburse its program more than $140,000 from nonfederal funds for the unsupported housing assistance payments and administrative fees, and implement adequate procedures and controls to address the findings cited in this audit report to prevent more than $784,000 from being spent on units with material housing quality standards violations and excessive housing assistance.


Issue Date: January 12, 2007
Audit Report No.: 2007-KC-1004
File Size: 972.02KB

Title: The Housing Authority of East St. Louis, Illinois, Improperly Used Public Housing Funds

HUD-OIG audited the East St. Louis Housing Authority (Authority) to determine whether the Authority followed HUD�s regulations and its own policies when procuring goods and services, granting leave, and managing vehicle operations. We found that the Authority improperly procured goods and services, improperly granted leave to employees at a cost of $147,934 in exchange for nonprofit contributions, and poorly managed its general vehicle operations incurring $29,095 in improper vehicle allowances.

We recommended that HUD require the Authority to improve its procurement controls by developing clearly written policies and procedures and repay from nonfederal sources the funds improperly spent for employee leave. We also recommended that HUD require the Authority to improve its controls over vehicle operations, dispose of unnecessary vehicles, and repay from nonfederal sources the funds improperly spent on vehicle allowances.


Issue Date: September 30, 2006
Audit Report No.: 2006-CH-1021
File Size: 909.28KB

Title: Housing Authority of the County of Cook, Chicago, Illinois, Had Weak Controls over Its Section 8 Housing Choice Voucher Program

The U.S. Department of Housing and Urban Development�s (HUD) Office of Inspector General audited the Housing Authority of the County of Cook�s (Authority) Section 8 Housing Choice Voucher program (program). The audit was part of the activities in our fiscal year 2005 annual audit plan. We selected the Authority based upon a risk analysis that identified it as having a high-risk program.

Our objective was to determine whether the Authority managed its program in accordance with the U.S. Department of Housing and Urban Development�s (HUD) requirements. This is the second of two audit reports of the Authority�s program. The Authority�s program controls had weaknesses in the areas of housing assistance payment calculations, the Family Self-Sufficiency Program, and household portability. Of the 70 households� files statistically selected for review, the Authority incorrectly calculated housing assistance payments for 26 and lacked supporting documentation regarding admission and selection for five households. This resulted in the Authority paying nearly $28,000 in overpayments of program housing assistance and utility allowances and more than $47,000 in unsupported housing assistance.

The Authority failed to adequately use HUD�s Enterprise Income Verification system to determine that reported zero-income households had unreported income resulting in more than $62,000 in improper housing assistance and utility allowance payments. It also did not monitor and correct escrow balances of its Family Self-Sufficiency Program participants and accurately account for payments related to household portability. The Authority took proper abatement actions regarding housing assistance and maintained its waiting lists in accordance with HUD�s requirements.

As a result of the deficiencies previously mentioned, program funds were not always used efficiently and effectively, and fewer funds were available to assist low- and moderate-income families on the Authority�s waiting list.

We recommend that the director of HUD�s Chicago Office of Public Housing require the Authority to reimburse its program from nonfederal funds for the improper use of program funds, provide support or reimburse its program from nonfederal funds for the unsupported housing assistance payments and related administrative fees, and implement adequate procedures and controls to address the findings cited in this audit report. These procedures and controls should help ensure that more than $3 million in program funds are spent on housing assistance payments that meet HUD�s requirements.


Issue Date: September 29, 2006
Audit Report No.: 2006-CH-1020
File Size: 909.28KB

Title: Rockford Housing Authority, Rockford, Illinois, Needs to Improve Its Controls over Program Housing Assistance and Utility Allowance Payments

The U.S. Department of Housing and Urban Development�s (HUD) Office of Inspector General audited the Rockford Housing Authority�s (Authority) Section 8 Housing Choice Voucher program (program). The audit was part of the activities in our fiscal year 2005 annual audit plan. We selected the Authority based upon a risk analysis that identified it as having a high-risk program. Our objective was to determine whether the Authority managed its program in accordance with HUD's requirements.

The Authority�s program administration regarding housing assistance and utility allowance payments was inadequate. The Authority did not ensure that its households� files contained required documentation to support its housing assistance and utility allowance payments. Of the 85 files statistically selected for review, 73 did not contain documentation required by HUD and the Authority�s program administrative plan to support more than $547,000 in housing assistance and utility allowance payments.

The Authority incorrectly calculated households� payments, resulting in nearly $50,000 in overpayments and more than $2,500 in underpayments for the period October 2003 through November 2005. Based on our statistical sample, we estimate that over the next year the Authority will overpay more than $338,000 in housing assistance and utility allowance payments. We informed the Authority�s interim executive director and the director of HUD�s Chicago Office of Public Housing of minor deficiencies through a memorandum, dated September 29, 2006. Based on our review, the Authority ensured that program units met HUD�s housing quality standards.

We recommend that the director of HUD�s Chicago Office of Public Housing require the Authority to provide documentation or reimburse its program from nonfederal funds for the unsupported housing assistance and utility allowance payments and associated administrative fees, reimburse its program from nonfederal funds for the improper use of program funds, reimburse the appropriate households for the underpayment of housing assistance and utility allowance payments, and implement adequate procedures and controls to address the deficiencies cited in this audit report.


Issue Date: July 11, 2006
Audit Report No.: 2006-CH-1012
File Size: 3.05MB

Title: The Housing Authority of the County of Cook, Chicago, Illinois, Needs to Improve Its Section 8 Housing Program Administration

The U.S. Department of Housing and Urban Development�s (HUD) Office of Inspector General audited the Housing Authority of the County of Cook�s (Authority) Section 8 Housing Choice Voucher program (program). The audit was part of the activities in our fiscal year 2005 annual audit plan. We selected the Authority based upon a risk analysis that identified it as having a high-risk program. Our objective was to determine whether the Authority managed its program in accordance with HUD's requirements. This is the first of two audit reports of the Authority�s program.

The Authority needs to improve its program administration regarding housing unit conditions, claiming of household dependents, and the reasonableness of program rents. Quality control reviews were not effective in identifying housing violations. Of the 83 housing units statistically selected for inspection, 64 did not meet HUD�s housing quality standards and 61 had 279 violations that existed at the time of the Authority�s previous inspection. The 61 units had between 1 and 17 preexisting violations per unit.

The Authority improperly permitted 18 of 31,587 individuals reviewed to be claimed as dependents in more than one program unit. This resulted in more than $20,000 in overpayments of program housing assistance. The Authority also failed to determine the reasonableness of program rents before approving housing assistance payment contracts for 11 of the 20 tenant files reviewed and lacked documentation to support when its rent reasonableness database was last updated.

As a result, program funds were not used efficiently and effectively, and fewer funds were available to assist low and moderate-income families on the Authority�s waiting list.

We recommend that the director of HUD�s Chicago Office of Public Housing require the Authority to reimburse its program from nonfederal funds for the improper use of more than $123,000 in program funds, ensure that program housing units inspected during this audit are repaired to meet HUD�s housing quality standards, and implement procedures and controls to address the findings cited in this audit report. These procedures and controls should help ensure that nearly $10.1 million in program funds are spent on housing units that meet HUD�s requirements.


Issue Date: August 5, 2005
Audit Report No. 2005-CH-1014
File Size: 954.56KB

Title: Kankakee County Housing Authority's Low-Rent Housing Unit Conditions; Kankakee, Illinois; The Authority�s Family Units Were Not in Good Repair, Order, and Condition; and The Authority Improperly Used Funds to Pay Fines for Not Meeting the City of Kankakee�s Ordinance on Rental Licensing

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General (OIG) audited the Kankakee County Housing Authority�s (Authority) low-rent housing unit conditions. The audit was conducted in response to a citizen�s complaint to our office and was part of our comprehensive audit of the Authority. Our objective was to determine whether the Authority maintained its low-rent housing units in accordance with HUD's requirements. We determined whether the Authority maintained its units in good repair, order, and condition, and whether the Authority ensured its low-rent housing units met the City of Kankakee�s (City) ordinance on rental licensing.

The Authority�s

• Housing units were in poor repair. An OIG appraiser inspected 39 statistically selected family housing units and identified 693 deficiencies causing units not to be in good repair, order, and condition, as well as health and safety issues for 36 of the 39 units. The appraiser estimated that more than $152,000 in repairs was needed to bring the 39 units into good repair.

•The Authority improperly used HUD funds to pay more than $10,000 in fines for its low-rent housing family units that did not have valid rental licenses issued by the City.

We recommend that HUD�s director of Public Housing Hub, Chicago Regional Office, require the Authority to (1) reduce its low-rent housing operating subsidy for the inappropriately used funds, (2) seek reimbursement from the City for fines that may have been improperly paid, and (3) implement procedures and controls to correct the weaknesses cited in this report.


Issue Date: April 8, 2005
Audit Report No.: 2005-CH-1010
File Size: 1.02MB

Title: Kankakee County Housing Authority's Low-Rent Housing Program; Kankakee, IL; The Authority Lacked Procedures and Controls Over Subsidy Requests, Maintenance, Admission and Occupancy, Personnel, and Its Homeownership Program

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Kankakee County Housing Authority�s (Authority) Low-Rent Housing program. The audit was conducted in response to a citizen�s complaint to our office and was part of our comprehensive audit of the Authority. The objective of our audit was to determine whether the Authority administered its Low-Rent Housing program in an efficient and effective manner. We determined whether the Authority had adequate procedures and controls over its subsidy requests, preventive maintenance, admission and occupancy, personnel practices, and Turnkey III Homeownership Opportunity program.

The Authority

• Improperly included an average of five to seven Turnkey III units in its calculation of its Low-Rent Performance Funding Operating Subsidy since 1997, which resulted in the Authority receiving excess operating subsidy totaling $119,376.

• Did not follow its Annual Contributions Contract with HUD to implement an effective maintenance program. This contributed to the Authority having 16 Low-Rent units vacant for longer than 18 months, which resulted in lost rental proceeds of more than $69,000.

• Failed to improve its Low-Rent Housing program�s admission and occupancy controls regarding maintaining proper documentation in tenant files, conducting timely re-examinations, accurately calculating total tenant payments, and assigning proper unit sizes for tenants.

• Did not follow its personnel policies related to maintaining documentation in personnel files, conducting performance appraisals in a timely manner, and properly administering personnel benefits.

• Failed to provide adequate oversight of its Turnkey III Homeownership Opportunity program. It lacked adequate controls to properly manage the program, such as maintaining accurate records and ensuring that only eligible tenants receive the program�s benefits.

We recommend that HUD�s Director of Public Housing Hub, Chicago Regional Office, require the Authority to (1) reduce its Low-Rent Performance Funding Operating Subsidy for the inappropriately used monies and (2) implement procedures and controls to correct the weaknesses cited in this report.


Issue Date: March 30, 2005
Audit Report No.: 2005-CH-1008
File Size: 218KB

Title: The City of Decatur �s Neighborhood Renewal Program; Decatur, IL; The City Generally Followed HUD�s Requirements

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General reviewed the City of Decatur�s (City) Neighborhood Renewal Program. We initiated the review based on a citizen�s complaint to our office. The complainant alleged the contractor who did the housing rehabilitation work at 327 East Stuart Avenue charged for work not within the final contract work specifications. Additionally, the complainant alleged the City paid for work that was improperly performed or that was not provided, and did not follow proper procurement practices.

Our review objectives were to determine whether the complainant�s allegations were substantiated and whether HUD's requirements were followed. Since there were deficiencies with the housing rehabilitation work at 327 East Stuart Avenue and the work was completed in 1999, we expanded our review objectives to determine whether the City followed HUD�s requirements for housing rehabilitation work completed between August 1, 2002, and July 31, 2004. Further, the City�s audited financial statements for fiscal years 2001, 2002, and 2003 included findings on the City�s Community Development Block Grant (Block Grant) and HOME Investment Partnership (HOME) Programs. Based on these findings, we included in our review objectives to determine whether the City: reported program income to HUD and spent the income prior to drawing down additional HOME funds; conducted on-site monitoring visits of community housing development organization sub-recipients; reviewed original appraisals prepared prior to the purchase of real property with Block Grant funds; and conducted desk reviews and on-site monitoring visits on Block Grant sub-recipients.

We determined the City generally complied with HUD�s requirements. However, we informed the City�s Manager of Neighborhood Renewal of the Department of Economic and Urban Development and HUD�s Director of the Chicago Regional Office of Community Planning and Development of minor deficiencies through a memorandum dated March 29, 2005.


Issue Date: November 29, 2004
Audit Report No.: 2005-CH-1002
File Size: 355.2KB

Title: Washington Mutual Bank's Underwriting of Federal Housing Administration-Insured Loans; Downers Grove, IL

HUD's Office of Inspector General audited of Washington Mutual Bank (Washington Mutual), a direct endorsement mortgagee,. The audit was conducted because we identified during our audit of A-Pan-American Mortgage Group (A-Pan-American) (see Office of Inspector General (OIG) Audit Report #2004-CH-1007, issued on August 9, 2004) that Washington Mutual had a high number of loans with over-insured Federal Housing Administration (FHA) loan amounts and invalid borrowers� Social Security numbers. The audit objectives were to determine whether Washington Mutual: (1) exercised due diligence in resolving or following-up on warnings regarding borrowers� Social Security numbers; and (2) funded FHA-insured loans without exceeding the Department of Housing and Urban Development�s (HUD) maximum insurable limits.

Washington Mutual Bank did not identify and follow-up on, or resolve warnings on borrowers� Social Security numbers during the underwriting process for 4 of the 22 loans reviewed. We reviewed 22 of the 94 (23 percent) FHA-insured loans that Washington Mutual underwrote for A-Pan-American from October 2000 through September 2003. We also found that Washington Mutual funded 79 of the 94 (84 percent) loans reviewed above HUD�s maximum insurable limits. As a result of Washington Mutual�s deficient underwriting process, HUD�s FHA insurance fund incurred a loss of $62,363 on four loans. Additionally, the FHA insurance fund remains at risk by more than $393,000 for 32 loans.

We recommend that HUD�s Assistant Secretary for Housing-Federal Housing Commissioner and Chairman of the Mortgagee Review Board require Washington Mutual to:

  • Reimburse HUD $43,617 for the actual loss incurred on one terminated loan underwritten in which the borrower had more than one Social Security number as shown on the borrower�s credit report;
  • Indemnify HUD $337,501 against future losses from a foreclosed property associated with one loan and two defaulted loans in which the borrowers had invalid Social Security numbers or a Social Security number belonging to a deceased person;
  • Buy down $56,300 for the excessive FHA insurance amounts for the 31 active loans and one loan with a claim paid, but HUD had not resold the property;
  • Reimburse HUD $18,746 for the losses incurred on four loans with over-insured FHA loan amounts that were already sold by HUD; and
  • Implement procedures and controls to follow HUD�s requirements and/or prudent lending practices regarding warnings about borrowers� Social Security numbers and maximum insurable limits.

We also recommend that HUD�s Director of Departmental Enforcement Center seek Civil Monetary Penalties against Washington Mutual for the deficiencies cited in this report.


Issue Date: September 10, 2004
Audit Report No.: 2004-CH-1008
File Size: 1.25MB

Title: Cornerstone Mortgage Group, Limited Non-Supervised Loan Correspondent Inverness, IL

HUD's Office of Inspector General completed an audit of Cornerstone Mortgage Group, Limited, a non-supervised loan correspondent, approved to originate FHA mortgage loans under the Single Family Direct Endorsement Program. The audit was part of the activities set forth in our Fiscal Year 2003 Annual Audit Plan. We selected Cornerstone for audit because of its high loan default and claim rate. Our audit objectives were to determine whether: (1) Cornerstone�s Quality Control Plan, as implemented, met HUD�s requirements, and (2) Cornerstone followed prudent lending practices and complied with HUD�s regulations, procedures, and instructions in the origination of FHA loans.

We concluded, that due to the lack of management oversight and a deficient Quality Control Plan, Cornerstone did not adequately perform Quality Control Reviews of FHA loans as required. Also, Cornerstone did not: adhere to prudent lending practices; and comply with HUD�s regulations, procedures, and instructions when it originated FHA-insured loans.

We recommend that HUD�s Assistant Secretary for Housing-Federal Housing Commissioner and Chairman of the Mortgagee Review Board:

  • requires Cornerstone Mortgage Group and/or its sponsor to reimburse HUD the applicable amount of $132,092 for the claim paid on FHA Case 332-3774090 once the property is sold;
  • requires Cornerstone Mortgage Group and/or its sponsor to reimburse HUD $545,091 for the actual losses on FHA Cases 137-1393354, 332-3711691, 332-3723581, 332-3723733, 332-3738478, 332-3749537, 332-3754385, 332-3756760, 332-3759898, 332-3760584, 332-3781815, 332-3786727, 332-3792961, 332-3793422, and 332-3805123 since the properties were already sold;
  • requires Cornerstone Mortgage Group and/or its sponsor to indemnify HUD against future losses on seven loans totaling $916,034 (FHA Cases 137-0918329, 137-1368384, 137-1395974, 137-1396701, 137-1459042, 137-1481924, and 137-1497057);
  • requires Cornerstone to fully establish and implement an adequate Quality Control Plan and related reviews;
  • reviews Cornerstone�s implementation and ensure its Quality Control process is fully implemented in accordance with HUD�s requirements; and
  • determines whether HUD should withdraw Cornerstone�s approval to participate in HUD�s Single Family Mortgage Insurance Program.

We also recommend that HUD�s Director of Departmental Enforcement Center takes appropriate administrative action(s) against Cornerstone.


Issue Date: August 9, 2004
Audit Report No.: 2004-CH-1007
File Size: 334.1KB

Title: A-Pan-American Mortgage Group, Non-Supervised Loan Correspondent, Chicago, IL

HUD's Office of Inspector General completed an audit of A-Pan-American Mortgage Group, a non-supervised loan correspondent, approved to originate FHA mortgage loans under the Single Family Direct Endorsement Program. The audit was part of the activities set forth in our Fiscal Year 2003 Annual Audit Plan. We selected A-Pan-American for audit because of its high loan default and claim rate. Our audit objectives were to determine whether: (1) A-Pan-American�s Quality Control Plan, as implemented, met HUD�s requirements, and (2) A-Pan-American complied with HUD�s regulations, procedures, and instructions in the origination of FHA loans.

We concluded that A-Pan-American did not comply with HUD�s regulations, procedures, and instructions in the origination of FHA-insured loans. It allowed unapproved branches and/or non-employees to originate loans using A-Pan-American�s FHA lender identification number. Also, A-Pan-American did not have an adequate Quality Control Plan or any evidence that it implemented the Plan.

We recommend that HUD�s Assistant Secretary for Housing-Federal Housing Commissioner and Chairman of the Mortgagee Review Board:

  • requires A-Pan-American to indemnify HUD $6,541,291 against future losses on the 49 active loans originated in violation of HUD�s requirements;
  • reimburses HUD $145,056 for the actual losses incurred on the four terminated loans with a claim originated in violation of HUD�s requirements;
  • reimburses HUD the appropriate amount of $128,296 for the future loss on one terminated loan with a claim originated in violation of HUD�s requirements once the property is resold; and
  • withdraws A-Pan-American�s approval to participate in HUD�s Direct Endorsement Program.

We also recommend that HUD�s Director of Departmental Enforcement Center:

  • takes appropriate administrative action against A-Pan-American; and
  • seeks Civil Monetary Penalties against A-Pan-American for the deficiencies cited in this report.

Issue Date: June 17, 2004
Audit Report No.: 2004-CH-1005
File Size: 666.5KB

Title: Connexions Enterprise, Inc.'s Supportive Housing Grant Program; Chicago, IL

HUD's Office of Inspector General completed an audit of Connexions� Supportive Housing Grant Program. We conducted the audit based on a request from HUD�s Chicago Regional Office of Community Planning and Development. The objectives of our audit were to determine whether Connexions: (1) had adequate management controls over the Program; (2) obtained matching funds and used Program funds according to HUD�s requirements; and (3) Program participants received the in-kind services as set forth in the HUD-approved Grant Application.

Although Connexions met its cash matching requirements under the Supportive Housing Program (number IL01B110028), we concluded that Connexions lacked adequate management controls to ensure that Program costs were eligible and adequately supported; Program participants received the required services; and its Financial Management Policies and Procedures were followed. Specifically, we determined that Connexions:

  • Used $30,788 of Program funds for ineligible costs;
  • Lacked sufficient documentation that its use of another $174,583 benefited the Program;
  • Did not receive the in-kind services for its Program participants as set forth in the HUD-approved Grant Application; and
  • Did not ensure that its Chief Executive Officer followed its Financial Management Policies and Procedures.

We recommend that HUD�s Director of Community Planning and Development, Chicago Regional Office, declares Connexions in default as permitted by the Supportive Housing Program Grant Agreements and recaptures any ineligible Program funds used. HUD�s default notice should help ensure that over $173,000 in Supportive Housing Program funds are used appropriately. We also recommend that HUD�s Director of Departmental Enforcement Center takes administrative action against Connexions� Board of Directors and its Chief Executive Officer for failing to administer the Supportive Housing Program in accordance with Federal requirements.


Issue Date: November 26, 2003
Audit Report No.: 2004-CH-1001
File Size: 4.24MB

Title: Kankakee County Housing Authority
Section 8 Housing Program
Kankakee, Illinois

HUD's Office of Inspector General completed an audit of the Kankakee County Housing Authority�s Section 8 Housing Program. The objectives of our audit were to determine whether the Authority: (1) administered its Section 8 Program in an efficient and effective manner; and (2) provided decent, safe, and sanitary housing for its Section 8 tenants. This audit is part of our ongoing comprehensive audit of the Authority. The audit was conducted based upon a citizen�s complaint to our Office. The complainant alleged that the Authority�s former Executive Director, who left the Authority in 2001, was not qualified for his position.

The Authority�s management controls over its Section 8 Housing Program were very weak. The Authority lacked adequate procedures and controls over Housing Quality Standards and administrative processes. The Authority�s Section 8 units contained health and safety violations. A total of 873 Housing Quality Standards violations were found in 47 of the 50 units inspected. In addition, the Authority failed to properly enforce the City of Kankakee�s Ordinance governing the licensing of housing units occupied by persons other than the owners. Additionally, the Authority: (1) made $36,259 in Housing Assistance Payments for 11 units without executing Housing Assistance Payments contracts with the landlords; (2) lacked Housing Assistance Payments contracts, lease agreements, and/or tenancy addendums to show $324,364 in Housing Assistance Payments for 40 units were appropriate; (3) incorrectly calculated Housing Assistance Payments for 19 units; (4) failed to conduct five reexaminations for four tenants; (5) did not complete seven reexaminations prior to the anniversary date for nine tenants; (6) lacked other required supporting documentation for 56 reexaminations for 29 units; (7) failed to review and/or did not have documentation to support its utility allowances and Section 8 Housing Choice Program Payment Standards; (8) did not properly establish or manage its Family Self-Sufficiency Program according to the minimum required Program size; (9) failed to open a Federally insured interest bearing investment account and deposit escrow balances totaling $37,383 into the account; and (10) did not properly complete rent reasonableness certifications for Section 8 housing units placed under contract.

The Authority�s Board of Commissioners did not adequately exercise their responsibility to effectively manage the Authority. The Authority�s former Executive Directors did not implement adequate controls to ensure that Section 8 units were free of health and safety violations. Further, the Authority lacked adequate controls over its operations. The Authority�s Board and its former Executive Directors did not follow Federal requirements, the City of Kankakee�s Ordinance, or the Authority�s own policies.

We recommend that HUD�s Acting Director of Recovery and Prevention Corps, Cleveland Field Office, assures that the Authority implements procedures and controls to correct the weaknesses cited in this report. Additionally, we recommend that HUD's Acting Director: (1) takes administrative action against the Authority�s former Executive Directors and its Board of Commissioners for failing to administer the Authority according to Federal, the City of Kankakee, and its own requirements; (2) provides training and technical assistance to the Authority�s staff and its Board of Commissioners regarding their duties and responsibilities; and (3) issues a notice of default to the Authority as permitted by Section 15 of the Consolidated Annual Contributions Contract. HUD�s default notice should help ensure that the Authority�s $2,232,180 in Section 8 Program funds are used appropriately.


Issue Date: July 18, 2003
Audit Report No.: 2003-CH-1018
File Size: 1.36MB

Title: Chicago Housing Authority Outsourced Property Management Contracts Review Chicago, Illinois

HUD's Office of Inspector General completed an audit of the Chicago Housing Authority�s Outsourced Property Management Contracts. The audit was part of our Fiscal Year 2001 Annual Audit Plan. Our audit objectives were to: (1) evaluate the Housing Authority�s controls over contracts for the private management of family and elderly housing developments; and (2) determine whether the private management contractors were meeting their obligations to the Housing Authority under the terms of their contracts.

We found that the Housing Authority failed to properly monitor and administer its management agreements with nine private management firms and two resident management corporations. The Housing Authority did not properly monitor its contractors� compliance with requirements of the Minority, Women, and Disadvantaged Business Enterprises and Section 3 Programs. The management contractors also failed to adhere to their management agreements and other requirements for maintenance, work orders, unit inspections, and tenant recertifications.

We recommend that HUD�s Director of Public Housing, Chicago Regional Office, ensures that the Chicago Housing Authority: (1) imposes any or all of the available remedies against the contractors for their noncompliance with the Minority, Women, and Disadvantaged Business Enterprises and Section 3 Programs or obtains all necessary documentation to support the unsupported program expenses of $11,223,024; (2) implements policies and procedures to monitor the performance of its contractors and maintain the required documents to support the contractors� compliance; (3) provides training and refresher courses for the management contractors to assure that contractors are fully aware of the Federal requirements and standards in place and implements them; (4) implements policies and procedures to correctly perform and document unit inspections at housing developments, and to generate and address repair work orders timely; and (5) assures that its contractors implement policies and controls to recertify the housing developments� tenants on their move-in anniversary dates and maintain signed certification documentation in tenant files at the housing sites.


Issue Date: June 13, 2003
Audit Report No.: 2003-CH-1017
File Size: 1024KB

Title: Housing Continuum Inc., Homebuyers Assistance Program, Geneva, Illinois

HUD's Office of Inspector General completed an audit of Housing Continuum, Inc.�s Homebuyers Assistance Program. The audit resulted from a citizen complaint to Speaker of the United States House of Representatives Dennis Hastert. The objectives of our audit were to determine whether the complainant�s allegations were substantiated and whether HUD�s rules and regulations were followed. The complainant alleged Housing Continuum did not ensure that rehabilitated homes met HUD�s requirements. HUD�s HOME Investment Partnerships Program funded Housing Continuum�s Homebuyers Assistance Program.

We found that Housing Continuum did not ensure that rehabilitated homes met HUD�s Housing Quality Standards and/or the State of Illinois� requirements. Specifically, Housing Continuum failed to sufficiently document the required cost analysis and did not assess the reasonableness of the contract price. We determined that housing rehabilitation work was not authorized, not provided, or was improperly performed. Moreover, contractors did not obtain construction permits in a timely manner as required by HUD�s regulation and/or the State of Illinois� requirements.

We recommend that HUD�s Acting Director of Community Planning and Development, Chicago Regional Office, assures Housing Continuum reimburses its Homebuyers Assistance Program for the inappropriate use of HUD funds and implements controls to correct the weaknesses cited in this report.


Issue Date: October 29, 2002
Audit Memorandum No.: 2003-CH-1003
File Size: 169KB

Title: Congressionally Requested Audit of Section 514 Outreach and Training Assistance Grants Awarded to Tenants United for Housing, Inc.; Chicago, Illinois; Grant Numbers FFOT00013IL and FFOT98007IL

We completed an audit of Tenants United for Housing, Inc.'s Section 514 Outreach and Training Assistance Grants awarded under the Multifamily Assisted Housing Reform and Affordability Act of 1997. The objectives of the audit were to determined whether Tenants' had: management controls in place to ensure that Section 514 Grant funds were used for eligible activities; and expended the Grant funds for any lobbying activities. The audit identified that Tenants United for Housing: (1) did not establish a cost allocation plan to allocate costs to the Grants; (2) failed to maintain time records for staff that specifically show the time they spent working on the Grants' activities; and (3) needed to return $6,900 in Grant funds to pay for two meetings that were canceled. Our report contains four recommendations to address the issues identified in this audit.


Issue Date: October 24, 2002
Audit Memorandum No.: 2003-CH-1001
File Size: 171KB

Title: Housing Authority of Champaign County Citizen Complaint Champaign, Illinois We have completed an audit of the Housing Authority of Champaign County.

The audit resulted from a citizen complaint to our Office. The objectives of our audit were to determine whether the complainant's allegations were substantiated and whether HUD's rules and regulations were followed. The complainant's specific allegations were the Housing Authority: (1) inappropriately used monies from its Comprehensive Improvement Assistance Grant, Public Housing Drug Elimination Grant, and Resident Opportunities for Self Sufficiency Grant Programs; and (2) did not maintain its units in a decent, safe, and sanitary condition. We found that the Housing Authority charged its HUD-funded Grants (Public Housing, Drug Elimination, and Comprehensive Improvement Assistance) $27,360 in unallowable expenses. Of this total, $23,599 was ineligible and $3,761 was unsupported. The ineligible amount consists of stipends paid to the Housing Authority's residents who were not eligible to receive them because they were not officers of the Authority's Resident Council as required. The $3,761 in unsupported expenses consists of $2,135 charged to the Drug Elimination Grant and $1,626 charged to the Comprehensive Improvement Assistance Grant.


Issue Date: March 29, 2002
Audit Memorandum No.: 2002-CH-1002
File Size: 452KB

Title: Housing Authority of the City of Alton, Low-Income Housing and Public Drug Elimination Programs Alton, Illinois

HUD's Office of Inspector General completed an audit of the Housing Authority of the City of Alton's Low-Income Housing and Public Housing Drug Elimination Programs. The audit resulted from citizen complaints to our Office. The objectives of our audit were to determine whether the complainants' allegations were substantiated and whether HUD's rules and regulations were followed. The complainants' specific allegations were: (1) the Authority's former Executive Director was granting preferential treatment to certain tenants; (2) improper use of HUD funds by the Authority; and (3) poor controls over the Authority's equipment.

We found no evidence that the Housing Authority's former Executive Director was granting preferential treatment to certain tenants. However, we found that the Housing Authority did not follow HUD's requirements, the Annual Contributions Contract, and its policies to ensure the Authority's Low-Income Housing and Public Housing Drug Elimination Programs were operated efficiently and effectively. Specifically, the Authority: failed to make required tax payments totaling $50,870; claimed at least $38,823 in excess operating subsidies over a four year period; did not make sufficient efforts to collect tenant accounts receivable totaling $39,701; inappropriately charged expenses of $144,767 to its Drug Elimination Grants; and improperly paid its former Executive Director $6,635 for accrued but unused sick leave. We also found that the Housing Authority's system of management controls were weak. The Housing Authority's controls did not assure that it adhered to its policies concerning performance appraisals, inventory of equipment, allocation of unit size, tenant grievances, rental collections and evictions, and travel reimbursements to members of the Board of Commissioners and the Authority's staff for authorized travel. As a result, HUD lacks assurance that the Housing Authority's resources were used to the maximum extent to benefit low and moderate income tenants.


Issue Date: September 28, 2001
Audit Memorandum No.: 2001-DE-1802
File Size: 248KB

Title: Review of Management Controls over Disbursements, Lafayette Square Apartments, Macomb, Illinois

We reviewed the management controls over the disbursements functions and related accounting activities. We also reviewed the reasonableness of the expenses from May 1999 through June 2000. We expanded the review to June 2001 for specific expenses. We found that the project management oversight by the project fee management agent and Board of Directors to be deficient. The fee management agent has not carried out their responsibilities of managing the project. The management agent has not executed the required management agreement with the project owner detailing what services were to be provided and the basis for compensation. While the management agent contracted for the establishment of the project�s books of account, the accounting records have not been used in providing financial information to the on-site project managers for the daily operation of the project. In addition, the official accounting records have not been independently audited for the 1999 and 2000 fiscal years as required by HUD. Furthermore, the management agent has not administered the tenant selection, rent calculations and tenant payment and HUD rental assistance collection activities but has allowed them to be performed by the on-site project managers or staff.

The fee management agent, located in Montana, has not exercised any meaningful oversight of the Illinois located Lafayette Square Apartments project and its managers and staff. The on-site project managers and staff have been effectively carrying out the daily operations of the project. Without a management agreement and without the expected management services being provided, the total fee of $112,943 paid to the management agent for the period from May 1999 through June 2001 is questionable.

The Board of Directors has not fulfilled its responsibilities for oversight of the project. The Board has not taken necessary action to ensure that the management agent is performing its required duties. The Board has allowed its management agent to receive fees for administering the project even though many of the required management agent services have not been performed.


Issue Date: June 19, 2001
Audit Report No.: 00-CH-1008
File Size: 131KB

Title: Travelers and Immigrants Aid/Chicago Connections, Supportive Housing Program Grant, Chicago, Illinois

We completed an audit of the Supportive Housing Program Grant awarded to Travelers and Immigrants Aid/Chicago Connections in 1997. The audit was conducted in response to an anonymous complaint alleging that food coupons, Chicago Transit Authority fare tokens and corporate credit cards used in connection with a Travelers� supportive housing grant program were misused. The objectives of the audit were to determine whether: (1) there was any basis to substantiate the allegations; (2) the expenses incurred and paid by Travelers were eligible and properly supported; and (3) adequate internal controls were implemented for the Supportive Housing Grant Program.

We determined that $529 in cash was stolen in May or June 1998 from a metal lockbox used by the NextStep Program, one of Travelers� supportive services. Travelers could not attribute this theft to any particular employee, and we were unable to establish how many employees may have had access to the cash. Written control procedures were in effect but Travelers could not locate an internal incident report to document the theft. There was no basis to support the allegations concerning misuse of the food coupons and other items.

We also found that Travelers charged HUD $20,491 in unallowable expenses. As a result, Travelers failed to disburse a portion of the grant funds as prescribed in HUD�s grant agreement and other regulations. Additionally, HUD could not be assured that Travelers was accurately reporting its expenses.


Issue Date: September 26, 2000
Audit Report No.: 00-CH-211-1005
File Size: 427KB

Title: Golden Feather Realty Services, Inc., Management and Marketing Contractor, Chicago, Illinois

We completed an audit of Atlanta Homeownership Center�s Management and Marketing contractor, Golden Feather Realty Services, Inc., for Atlanta Area A-1. The audit was conducted as part of a nationwide internal audit of the Federal Housing Administration�s Single Family Property Disposition Program. The objectives were to determine whether Golden Feather managed HUD�s single-family disposition program in accordance with HUD policies, procedures, and regulations and with the terms and conditions of Golden Feather�s Management & Marketing Contract.

The audit disclosed that Golden Feather did not provide sufficient oversight of appraiser work assignments necessary to discourage the solicitation of a kickback. In addition, Golden Feather did not execute or record land use restriction addendums necessary to restrict nonprofit organizations from purchasing properties at a 30 percent discount and reselling the properties for more than 110 percent of the cost. Furthermore, Golden Feather did not always maintain properties, use approved appraisers to appraise HUD properties, and process appraisals and disposition programs timely.


Issue Date: August 8, 2000
Audit Report No.: 00-CH-212-1004
File Size: 205KB

Title: Neighborhood Commons Cooperative, Multifamily Rental Housing, Audit of Project Operations, Chicago, Illinois

We completed an audit of the project operations at Neighborhood Commons Cooperative. The audit was conducted in response to a request from the Chicago Multifamily Hub to assess HUD�s concerns about: (1) management and operational problems at the complex, and (2) a change in management agents. The objective of the audit was to determine whether project funds were used in compliance with the Regulatory and other agreements, and applicable HUD policies and procedures.

We found that the former management agent failed to adequately collect monthly rent payments because it did not take corrective actions in a timely manner to uniformly apply the HUD-approved rent schedule, and did not maintain accurate books and records. We also found that the former Board abused its authority and undermined the management agent by taking control of the Cooperative�s daily operations. In addition, the Board ignored HUD directives and took various actions that benefited some Board members, their relatives and friends.


Issue Date: December 15, 1999
Audit Memorandum No.: 00-CH-211-1804
File Size: 20KB

Title: YMCA of Metropolitan Chicago Foundation, Chicago, Illinois

The results of our review were presented to the Assistant United States Attorney on May 14, 1999, who used the review results to negotiate a settlement agreement between HUD and the YMCA. The settlement, which contains no admissions by the YMCA, calls for restitution payments to be paid to HUD totaling $197,317 over a four-year period.

As a result, we consider this audit assignment to be closed.


Issue Date: October 20, 1999
Audit Memorandum No.: 00-CH-211-1802
File Size: 41KB

Title: Onterie Center Multifamily Equity Skimming, Chicago, Illinois

We completed a review of the books and records of Onterie Center. We performed the audit to determine whether the use of project operating funds was reasonable and complied with the Regulatory Agreement and applicable HUD regulations. The review was part of Operation Safe Home and was conducted in coordination with the Assistant United States Attorney.

We concluded the Onterie Associates Partnership improperly disbursed $2,150,732 of the Onterie Center Project funds and assets. The inappropriate disbursements included: (1) $282,845 for ineligible salary expenses; (2) $297,191 for ineligible payments to the wife of the General Partner; (3) $409,888 to Monroe Partners and $49,013 to PSM International, both identity-of-interest companies, for unnecessary computer, facsimile, and photocopier related expenses; (4) $97,843 for refinancing and mortgage workout related legal and accounting expenses; (5) $40,758 for ineligible brokerage commissions paid to the General Partner; (6) $528,383 for ineligible management fees paid to the General Partner; and (7) $333 for supplies used to clean up a lot at 600 North Lake Shore Drive that was unrelated to the Project. Additionally, $53,299 of income was lost. This represented free parking and health club memberships, and excess rental rebates given for the General Partner and his family. If the misused funds had been available to the project, it could have earned another $391,179 in interest by investing the funds in one-year Treasury Bills. The inappropriate disbursements and uses of cash and assets occurred when the Project was in a non-surplus cash position. Onterie Associates Partnership overstated Project expenses and understated Project income. As a result, fewer funds were available for normal operations or debt service and HUD�s security interest in the Project was weakened.


Issue Date: October 6, 1999
Audit Memorandum No.: 00-CH-185-1801

File Size: 40KB

Title: Peoria Housing Authority HOPE VI Grant, Peoria, Illinois

Our audit objectives were to determine whether the Housing Authority: (1) submitted accurate information to HUD in its HOPE VI grant application regarding a City of Peoria funding commitment; (2) properly rated and selected the developer for the HOPE VI project; and (3) properly selected the tax credit syndicator for the HOPE VI project.

To ascertain whether the Authority submitted accurate information to HUD regarding a City of Peoria funding commitment, we reviewed the HOPE VI grant application and Revitalization Plan submitted to HUD. We also interviewed City Council members, and reviewed City Council meeting minutes. To determine whether the HOPE VI developer was properly selected, we reviewed the Authority�s and HUD�s procurement requirements. Additionally, we reviewed the Request for Qualification and responses received, and interviewed members of the Authority�s selection panel.

To determine whether the HOPE VI tax credit syndicator was properly selected, we interviewed Authority employees and its HOPE VI Program Manager. We also reviewed proposals received from tax credit syndicators and the Authority�s analyses of the proposals.

We found that the grant application submitted to HUD in July 1997 did not include a specific dollar amount of City of Peoria funding committed to the HOPE VI project. However, the Revitalization Plan submitted to HUD in January 1999 stated that the City would provide $4 million of funding for the HOPE VI project. In actuality, the Housing Authority did not request funding from the City Council until July 1999. Therefore, the funding commitment contained in the Revitalization Plan was not valid. However, in August 1999, the City Council approved $3.6 million of funding for the HOPE VI project in a separate action that had no effect on HUD�s approval of the Authority�s application.

We did not find any evidence that the process for rating and selecting the HOPE VI developer was unfair or otherwise biased in favor of a particular developer. Additionally, the selection of the HOPE VI tax credit syndicator did not violate conflict of interest requirements. However, as discussed in the attached finding, the Housing Authority did not select the highest bidder as the tax credit syndicator. Also attached are the Executive Director�s comments received in response to the finding.


Issue Date: July 16, 1999
Audit Report No.: 99-CH-213-1006
File Size: 126KB

Title: West Park Place Residents Association for Preservation Resident Homeownership Program Grant Preservation Technical Assistance Planning Grant, Chicago, IL

We completed an audit of the Resident Homeownership Program Grant and Preservation Technical Assistance Planning Grant awarded to the West Park Place ResidentsAssociation for Preservation. We conducted the audit in response to a complaint received from some residents of the property. The objectives of our review were to determine whether: (1) grant costs incurred were eligible and properly supported and (2) theproposed rehabilitation work was satisfactorily performed.

We found that the Resident Homeownership Program Grant costs incurred by the Association were eligible and properly supported. However, the Association did not effectively administer nor did HUD effectively monitor the grant. Additionally, the Association did not expend all of its Preservation Technical Assistance Planning Grant funds received from HUD.


Issue Date: December 2, 1998
Audit Memorandum No.: 99-CH-201-1801
File Size: 566KB

Title: Followup on OIG Review, Assessment of Progress, Chicago Housing Authority, Chicago, Illinois

We completed a followup to the OIG September 30, 1996 review of the Chicago Housing Authority entitled Assessment of Progress. The objective of our review was to determine whether the Authority had taken appropriate actions to correct the problems identified in the previous report. Further, since our previous review, the Authority's Inspector General determined that the Authority expended HOPE VI funds for two self sufficiency programs that did not achieve program objectives. Therefore, as part of this review, we also assessed the adequacy of the Authority's internal controls over the HOPE VI self sufficiency programs and construction activities to ensure program goals and objectives are met.

The Authority took actions to address the problems found in our previous review; however, as with any effort of this size, some actions were delayed or overlooked and require increased emphasis. Of particular importance are those actions related to Security, Preventive Maintenance, Annual Inspections, and Risk Management that can affect the living conditions of tenants. The Authority did not have an adequate system of controls to ensure that projects funded by HOPE VI achieved their program goals.


Issue Date: October 15, 1998
Audit Report No.: 99-CH-259-1002
File Size: 369KB

Title: City of Chicago Empowerment Zone Program, Chicago, IL

Based on our review of 26 of the 84 activities reported to HUD in its June 30, 1997 Performance Review, we concluded that the City did not maintain adequate control over its Empowerment Zone Program to assure efficient and effective use of the funds or accurate reporting of the Program's accomplishments. The City: inappropriately used $670,417 of Empowerment Zone funds and was billed $121,590 that did not benefit Zone residents; did not have documentation to show that another $892,484 of Zone funds paid and $120,012 billed to the City benefited Zone residents or were reasonable and necessary expenses; inaccurately reported the accomplishments of its Empowerment Zone activities; and reported to HUD 15 projects as Empowerment Zone activities when they were not. As a result, Empowerment Zone funds were not used efficiently and effectively, and the impression exists that the benefits of the City's Empowerment Zone Program were greater than actually achieved.


Issue Date July 9, 1998
Audit Report No.: 98-CH-221-1004
File Size: 340KB

Title: Legend Mortgage Company Single Family Mortgage Insurance Program Lisle, IL

We reviewed all four HUD/FHA 203(k) loans originated by Legend Mortgage Corporation that were in default as of April 1997. At the time we started our audit, Legend's 203(k) default rate was 2.21 percent; and it has risen to 5.33 percent as of April 30, 1998. We concluded that Legend did not originate the four 203(k) loans in accordance with HUD's requirements. All four of the loans were originated by the same loan officer, Legend's President. Strawbuyer's were identified in all four loans. Legend Mortgage: (1) added fictitious information into loan files and applications without the knowledge or approval of borrowers; (2) collected the fictitious information from a contractor without the knowledge or approval of borrowers; (3) failed to obtain evidence that 401(k) accounts were redeemed; (4) failed to consider the taxation and early withdrawal penalties when valuing a 401(k) account; (5) failed to verify the source of partnership assets used to qualify borrowers; and (6) failed to verify the receipt of funds by the partnership for the borrowers. The deficiencies occurred because of Legend's poor loan origination practices. The fictitious information added by Legend Mortgage enabled the borrowers to appear to qualify for mortgages by improving their liquid asset and income positions. All four loans involved either a fictitious "partnership agreement" or a fictitious residence lease. All four documents appeared to have the forged signatures of the borrowers. Consequently, applications submitted to HUD contained false information about the borrowers' intention to be actual borrowers, and the true value of their assets and income. HUD relied on Legend's origination process and as a result assumed abnormally high risks when it insured the four loans which together were valued at $310,200.


Date Issued: April 22, 1998
Audit Report No.: 98-CH-209-1001
File Size: 52KB

Title: Peoria HA, Peoria, IL

We found that the Peoria Housing Authority implemented its Drug Elimination Program in accordance with HUD's requirements except for the purchase of computer equipment that was not being used for the intended objectives of the Program.


Date Issued: January 21, 1998
Audit Memorandum No.: 98-CH-211-1806
File Size: 14KB

Title: Sheridan Plaza Apts., Chicago, IL

We concluded that Sheridan Plaza Associates Partnership and its management agent: Improperly charged the Project $67,934 for the salary of a General Partner of Sheridan Plaza Associates. The General Partner's salary should have been paid from either management fees collected or from the identity-of-interest construction company that the General Partner was President of. The ineligible disbursements occurred when the Project was in a non-surplus cash position. Consequently, fewer funds were available for normal operations of debt service and HUD's security interest in the Project was weakened.

Improperly used $5,000 of Project operating funds to pay ineligible legal fees. The legal fees did not relate to Project operations and instead were applicable to the Project owner's attempts to refinance the HUD-insured mortgage. As a result, Project expenses were overstated and less funds were available for normal operations and debt service.


Issue Date: November 20, 1997
Audit Memorandum No.: 96-CH-221-1802
File Size: 17KB

Title: Dearborn Place Apts., Chicago, IL

We Concluded that Dearborn Delaware Associates and its management agents:

Improperly used $840,333 of Project operating funds to make payments on bank loans. The payments were made while the project was in default, and in a non-surplus cash position. The loans were paid because the former identity-of-interest management agent believed these were eligible project expenses.

As a result, the project was deprived of needed revenues for reasonable and necessary operating expenditures. As a result of rent concessions and writeoffs of rent due, the former identity-of-interest management agent paid the Project $189,204 less than the market rate rent between November 1988 and December 1995. The former management agent did not enforce on itself the Landlord's Remedies as outlined in the lease. Consequently, the Project was deprived of needed revenues for reasonable and necessary operating expenditures.

Improperly used $220,000 of funds relating to HUD's partial payment of claim. Specifically, funds escrowed for building improvements were used for legal expenses, architectural expenses, loan repayments, and other miscellaneous partnership expenses. The management agent considered all these expenses to be eligible Project expenses. As a result of the inappropriate payments, HUD lacks assurance that Project operating funds and mortgage proceeds were used for their intended purposes.

Used Project operating funds totaling $109,316 to pay ineligible and unsupported expenditures. Specifically, $66,685 was used to pay ineligible or unsupported legal fees; $26,365 was used to pay for ineligible consulting; and $16,266 was used to pay other miscellaneous ineligible expenditures. As a result, the Project was deprived of needed revenues and HUD lacked assurance that Project funds were used only for reasonable and necessary operating expenses.

Did not remit monthly remaining net cash to HUD as payment on its HUD-held second mortgage. A total of $27,230 was not remitted as required. As a result of the payments not being made, HUD did not receive funds to apply against the HUD-held mortgage.


Issue Date: May 27, 1997
Audit Memorandum No.: 97-CH-211-1804
File Size: 18KB

Title: Colonial Park Apts., Park City, IL

We Concluded that Colonial Park Associates, LTD, and it's Management Agent: Improperly used project operating funds of $201,640 to make payments on loans from an identity-of-interest entity and to make owner distributions. Loan repayments totalled $153,837 and owner distributions totalled $47,803. Because of the poor financial condition of the Project, bank lines of credit were obtained in the name of the identity-of-interest entity rather than in the name of the Project. The managing general partner said he was unaware of any restrictions on the repayment of owner advances. The improper repayments and distributions contributed to the mortgage default and reduced the amount of project funds available to pay HUD subsequent to the mortgage default. Paid $11,028 in costs which were not necessary to the operation or maintenance of the Project. The costs included legal fees of $10,250; accounting fees of $548; and miscellaneous partnership fees of $230. All of these disbursements occurred while the Project was in a non-surplus cash position. Consequently, the Project had less funds available for operations, maintenance, and debt service.


Issue Date: May 22, 1997
Audit Report No.: 97-CH-229-1007
File Size: 82KB

Title: Developing Economical and Better Living, Inc., Chicago, IL

We concluded the nonprofit organization did not comply with HUD requirements. The nonprofit organization: (1) sold ten homes for amounts greater than allowed on the same day it purchased the homes from HUD; (2) violated HUD's conflict of interest requirements; and (3) did not ensure that the home purchasers met the Program qualifications, resulting in sales to investors; (4) had an excessive number of unsold, vacant, and boarded up properties. Additionally, the nonprofit organization did not have a functional accounting system to track and record property costs.


Issue Date: October 10, 1996
Audit Memorandum No. 97-CH-211-1802
File Size: 18KB

Title: Terrace Lakes Apts., Aurora, IL

We concluded that Fox Valley Development Partnership did not comply with the Regulatory Agreement or with other HUD requirements. Fox Valley Development Partnership inappropriately disbursed $483,575 of Project funds for ineligible expenses and therefore, did not adequately protect and use resources economically and efficiently. The ineligible disbursements included: (1) $197,712 in excessive profits to an identity of interest maintenance contractor; (2) $129,475 for refinancing and mortgage workout related expenses; (3) $94,292 for excessive management fees; (4) $44,096 for insurance premiums; and (5) $18,000 to an identity of interest project. The disbursements occurred when the Project was in a non-surplus cash position, the mortgage was in default, or both. As a result, Fox Valley Development overstated Project expenses, fewer funds were available for normal operations or debt service, and HUD's security interest in the Project was weakened.


Issue Date: October 3, 1996
Audit Report No.: 97-CH-202-1001
File Size: 152KB

Title: Franklin County HA, West Frankfort, IL

The Franklin County Housing Authority needs to improve its procedures. The Authority needs to do more to improve the administration of its programs and ensure compliance with the Annual Contributions Contract and other HUD requirements. This report addresses issues related to: (1) poor cash receipt controls; (2) improper administration of the Public Housing Drug Elimination grant; (3) inadequate safeguards over its inventories of parts and supplies; and (4) inadequate controls over tenant accounts receivables.


Issue Date: September 30, 1996
Audit Report No.: 96-CH-201-1815
File Size: 555KB

Title: Chicago HA, Chicago, IL

Our assessment shows that the Chicago Housing Authority is improving its operations on many different fronts. Many of the improvements made so far deal with the Housing Authority's operational infrastructure where the impact is not readily noticeable. Nonetheless, the improvements are necessary as a prelude to more visible changes. Although improvements are being made, the Chicago Housing Authority has much work to do before it will be operationally sound. Many of the Authority's actions have not been completed or involve continuing activities. The Authority needs to periodically assess its actions to assure its initiatives correct the problems they were designed to address. The Housing Authority needs to make sure the actions it has initiated or planned are adjusted when necessary, and carried through to completion. In addition, the Authority needs to be more diligent and aggressive in pursuing corrective actions in the areas of security, modernization, work orders, and preventive maintenance.


Issue Date: September 5, 1996
Audit Memorandum No.: 96-CH-212-1813
File Size: 48KB

Title: Ada Throop Apts., Chicago, IL

We concluded that Ada Throop Apartments, LTD, and it's Managing Agents: Failed to maintain the Project in decent, safe, and sanitary condition. The Project owner, and its managing agents failed to: (1) implement preventive maintenance procedures; (2) conduct timely unit inspections; (3) ensure work orders were written and completed for inspection deficiencies; (4) establish controls over outstanding work orders; (5) ensure maintenance staff adequately completed work order repairs; (6) correct inspection deficiencies identified by HUD; and (7) ensure contract work was completed before paid. Disbursed $16,720 of ineligible costs and $96,538 of unsupported costs from Project funds for miscellaneous expenses. The disbursements occurred when the Project was in a non-surplus cash position. Ineligible costs included: (1) $13,700 paid to MWS Associates, an identity-of-interest firm, for services that were not rendered to the Project or not rendered by the payee; (2) $1,800 for refinancing costs; (3) $630 for excessive accounting fees; (4) $339 for payments made in error and (5) $251 for an owner advance and miscellaneous fees.

As a result, the Project was in deplorable condition, expenses were overstated, and fewer funds were available for normal operation and maintenance of the Project. Tenants lived in conditions that were not decent, safe, and sanitary and costs were charged to the Project for contract work that was not completed.


Issue Date: August 8, 1996
Audit Memorandum No.: 96-CH-201-1810
File Size: 95KB

Title: Chicago HA, Chicago, IL

The Authority has made progress towards addressing some of the severe problems which have adversely affected its maintenance operations for many years. The Authority has improved its maintenance operations in the following areas and has set goal dates for implementing improvements in other areas of its maintenance operations. The Authority has: Improved its internal communications systems. Implemented revised tenant screening and eviction procedures.

Modified its system for accounting and tracking the inventory of materials and supplies. Centralized its system for delivering materials and supplies from the Central Warehouse to its developments. Increased the use of maintenance mechanics for routine maintenance. Established and ensured that staffs follow procedures for voiding and deleting work orders. Complied with HUD requirements in classifying and reporting work order activity.


Issue Date: May 23, 1996
Audit Report No.: 96-CH-202-1008
File Size: 82KB

Title: Rock Island HA, Rock Island, IL

While the Rock Island Housing Authority is striving to improve its procedures, the Authority can do more to improve the administration of its programs and ensure compliance with the Annual Contributions Contract and other HUD requirements.


Issue Date: December 11, 1995
Audit Memorandum No.: 96-CH-212-1804
File Size: 21KB

Title: Barbara Jean Wright Courts, Chicago, IL

The Project currently needs approximately $5.3 million of funds for project rehabilitation. However, because the Project has no reserve for replacement or excess operating funds available, it will become increasingly difficult for the Project's owners to properly rehabilitate this Project.


Issue Date: October 30, 1995
Audit Case No.: 96-CH-202-1004
File Size: 21KB

Title: Henderson Cty. HA, Oquawka, IL

During our review, the Housing Authority attempted to address our concerns and improve its operations. However, the Authority can do more to improve the administration of its programs and ensure compliance with the Annual Contributions Contract and other HUD requirements. This report addresses issues relating to inadequate control of its disbursements.


Issue Date: October 5, 1995
Audit Memorandum No.: 96-CH-221-1801
File Size: 3KB

Title: Carl I. Brown Mortgage, Downers Grove, IL

We have completed a survey of Carl I. Brown Mortgage's branch office, located in Downers Grove, Illinois. The objective of the survey was to evaluate Carl I. Brown Mortgage's internal controls relating to the origination of HUD/FHA insured loans from its Downers Grove office. The survey did not include a review of Carl I. Brown's headquarters office in Kansas City, Missouri, or any of the firm's other branch offices. Based upon our survey results, we found no basis for a detailed audit.

 

 
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