Kansas Audit Reports

Issue Date: December 12, 2005
Audit Report No.: 2006-KC-1002
File Size: 431.28KB

Title: First Magnus Financial Corporation Did Not Follow HUD Regulations When Underwriting 23 Federal Housing Administration Loans

HUD-OIG reviewed 45 Federal Housing Administration loans underwritten by the Overland Park, Kansas, branch office of First Magnus Financial Corporation (First Magnus). We concluded that First Magnus did not follow HUD regulations when underwriting 23 of the 45 loans reviewed. The 23 loans contain material deficiencies that affect the insurability of the loans. Material deficiencies include unsupported income and assets, questionable gift funds, underreported liabilities, and questionable employment and credit histories. As a result, these loans place the insurance fund at risk for $2,239,504.

We recommended that HUD take appropriate administrative action against First Magnus for not following HUD requirements, including requiring First Magnus to indemnify 21 loans with original mortgage amounts of over $2,018,167 and to indemnify HUD for future losses on two properties not yet sold that HUD paid claims totaling $221,337.

Issue Date: May 13, 2005
Audit Report No.: 2005-KC-1006
File Size: 1.36MB

Title: Corinthian Mortgage Corporation, Mission, KS, Did Not Always Comply with Federal Housing Administration Requirements

We audited Corinthian Mortgage Corporation (Corinthian Mortgage), a nonsupervised direct endorsement lender located in Mission, KS, because its default rate was significantly higher than the U.S. Department of Housing and Urban Development (HUD) Kansas City field office's average over the past 2 years.

Our audit objectives were to determine whether Corinthian Mortgage properly developed and implemented a quality control plan and to determine whether it properly originated Federal Housing Administration loans.

Corinthian Mortgage's quality control process did not comply with HUD requirements. Corinthian Mortgage did not ensure that it conducted sufficient and timely quality control reviews. It also did not take prompt corrective action when quality control reports identified material deficiencies.

Further, Corinthian Mortgage did not follow HUD requirements when processing and underwriting Federal Housing Administration loans. It improperly originated 3 of the 44 loans reviewed. Additionally, Corinthian Mortgage submitted one loan with a serious misstatement. As a result, HUD insured four loans that placed the insurance fund at risk for $472,833.

We recommend that the General Deputy Assistant Secretary for Housing take appropriate administrative action against Corinthian Mortgage including, at a minimum, indemnification for the three actively insured loans and reimbursement for losses already incurred on the remaining loan. Corinthian Mortgage should also reimburse the appropriate parties for unallowable costs charged to borrowers.

Issue Date: April 18, 2005
Audit Report No.: 2005-KC-1004
File Size: 264.38KB

Title: The Kansas City, Kansas, Housing Authority's Controls Over Its Section 8 Program Are Adequate, Except When Conducting Quality Control Reviews of Its Routine Housing Inspections

HUD-OIG reviewed the controls over the Section 8 program of the Kansas City, Kansas, Housing Authority (Authority) to determine whether the Authority is operating its Section 8 program in accordance with U.S. Department of Housing and Urban Development (HUD) requirements. We reviewed the Authority because we had not conducted a review of its Section 8 program for more than 10 years and the Authority is one of the larger housing authorities in the Kansas City and regional area.

The Authority has adequate controls over its Section 8 program, except when conducting quality control reviews of its routine Housing Quality Standards inspections. The Authority has adequate controls to ensure that its staff properly assesses tenant eligibility, assigns appropriate unit size, and calculates Section 8 subsidy payments. The Authority also has adequate controls over the inspectors' daily practices of conducting timely and well-documented inspections and enforcing corrective action when the inspector identifies violations. However, the Authority currently conducts its quality control inspections simultaneously with the routine inspections. This gives the inspector prior knowledge of the units that will be inspected for quality control purposes.

The Authority agreed with our conclusion and recommendation, and plans to seek approval from its Board of Commissioners to amend its quality control plan to comply with HUD requirements.

We recommend that the Director, Office of Public Housing, verify that the Authority amends its quality control plan to require that the Authority select and conduct quality control inspections separately from routine inspections.

Issue Date: January 25, 2005
Audit Report No.: 2005-KC-1003
File Size: 553.26KB

Title: Leader Mortgage Company Did Not Follow HUD Requirements When Processing Loans

We reviewed Leader Mortgage Company (Leader Mortgage), a non-supervised direct endorsement lender located in Lenexa, KS, because its default rate was significantly higher than the U.S. Department of Housing and Urban Development (HUD) Kansas City field office's average over the past three years.

Our audit objectives were to determine whether Leader Mortgage properly originated Federal Housing Administration loans and to determine whether it properly developed and implemented a quality control plan.

Leader Mortgage did not follow HUD requirements when processing and submitting loans for Federal Housing Administration insurance endorsement. It improperly originated 7 of the 23 loans reviewed. These seven loans contained deficiencies that affected the insurability of the loans, including unsupported assets, underreported liabilities, unsupported income, and derogatory credit. As a result, HUD insured seven loans that placed the insurance fund at risk for $911,738.

Further, Leader Mortgage's quality control process did not comply with HUD requirements. Leader Mortgage's written quality control plan lacked many required elements. In addition, Leader Mortgage did not ensure that it obtained quality control reviews that met HUD requirements or that were completed within the established timeframes. Leader Mortgage also did not take prompt corrective action when quality control reports identified material deficiencies. As a result, HUD lacks assurance that Leader Mortgage is able to ensure the accuracy, validity, and completeness of its loan origination operations.

We recommend that the Assistant Secretary for Housing - Federal Housing Commissioner, and Chairman, Mortgagee Review Board, take appropriate administrative action against Leader Mortgage based on the information contained in these findings. This action should, at a minimum, include requiring indemnification for the seven actively insured loans. Leader Mortgage should also reimburse the appropriate parties for unallowable costs charged to borrowers. Additionally, HUD should require Leader Mortgage to implement controls to ensure that it follows HUD's quality control requirements and verify that Leader Mortgage has implemented proper controls.

Issue Date: June 4, 2003
Audit Memorandum No.: 2003-KC-1804
File Size: 121KB

Title: Meadowbrook Manor of Topeka Section 232 Nursing Home Review
Topeka, Kansas

We have completed a review of Meadowbrook Manor of Topeka, a Section 232 Nursing Home. We conducted this review as a follow-on of a nationwide review of HUD's monitoring of 232 Nursing Homes. The overall objective of our review was to determine whether the lessee arrangements at the property were appropriate, and whether project officials used project funds for unallowable purposes. We determined from our review that there were no reportable conditions due to a lease arrangement that dismissed the Management Agent from following HUD's requirements. During our review, this property was foreclosed upon, and was subsequently sold by HUD without insurance.

Issue Date: September 19, 2002
Audit Report No.: 2002-KC-1002
File Size: 197KB

Title: Congressionally Requested Audit of the Outreach and Training Assistance Grant awarded to the Housing & Credit Counseling, Inc., Topeka, Kansas, Grant Numbers FFOT98010KS and FFOT00015KS

We completed an audit of Housing & Credit Counseling, Inc.'s Outreach and Technical Assistance Grant (OTAG) pursuant to Section 1303 of the 2002 Defense Appropriation Act (Public Law 107-117). Consistent with the Congressional directive, we reviewed the eligibility of costs with particular emphasis on identifying ineligible lobbying activities. The audit concluded the Grantee has an effective and well-run organization with the exception the Grantee could not demonstrate that the allocation plans used to distribute salaries and indirect costs to the grant are reasonable. The Grantee also did not have documentation to support the method of cost allocation used in their plans and did not obtain HUD's approval for the plans. Housing & Credit Counseling, Inc. agreed with the three recommendations we made in the report to improve the cost allocation process.

Issue Date: February 25, 2002
Audit Report No.: 2002-KC-1801
File Size: 848KB

Title: Review of Enhanced Enterprise Community Funding Kansas City, Kansas

We have completed a review of the Enhanced Enterprise Community funds awarded to the City of Kansas City, Kansas in 1994. We performed this review to address a citizen complaint received by our office. We reviewed the City's selection of Enhanced Enterprise Community subrecipients with the purpose of answering the complainant's questions and therefore, did not review any other aspects of the City's Enhanced Enterprise Community program.

We did not identify any specific violations of HUD regulations; however, we did determine that the City cannot fully support its administration of the Enhanced Enterprise Community funds. Because the City has not maintained an adequate recordkeeping system, the City does not have adequate support for actions taken and decisions made regarding the funds. As a result, HUD, the Mayor/Chief Executive Officer, the City Council, and the public lack assurance that the City administered these funds according to applicable regulations and guidelines, and in an efficient, effective, and fair manner.

Issue Date: June 4, 2001
Audit Report No.: 2001-KC-1003
File Size: 789KB

Title: Villa West II Apartments, Topeka, Kansas

We have completed an audit of the Villa West II Apartments. We selected the project based on an audit request from your office that indicated there were unauthorized distributions from project funds. Our overall audit objective was to determine whether project officials used project funds for purposes other than reasonable administrative fees, operating expenses, necessary repairs and allowable distributions from surplus cash.

We concluded the management agent, Metro Developers, Inc., overcharged the project $8,853 for payroll services and did not always follow its HUD approved management plan to allocate direct expenses. Additionally, the management agent did not always follow its management agreement to obtain owner approval for expenditures over $1,000.

We determined Metro Developers, Inc., (Metro) made payments for other than reasonable operating expenses and necessary repairs of the project. This occurred because Metro did not have adequate controls and did not ensure it followed existing policies and procedures. As a result, HUD lacks assurance project operations were conducted in the most efficient and effective manner.

Issue Date: February 21, 2001
Audit Memorandum No.: 01-KC-1801
File Size: 32KB

Title: Review of Metro Management Corporation

We have completed a review of Metro Management Corporation (Metro), located in Overland Park, Kansas. Our objective was to assess Metro's compliance with the terms and conditions of the Regulatory Agreement and applicable HUD regulations and instructions regarding Metro's management of Royal Towers/Pickwick Plaza from 1997 through 1999.

We found that Metro generally followed applicable requirements while managing Royal Towers/Pickwick Plaza. However, we did find several instances of non-compliance. Therefore, this memorandum contains two recommendations requiring corrective action.

Issue Date: May 23, 1997
Audit Case No.: 97-KC-117-0001
File Size: 84KB

Title: Review of Low Income Housing Tax Credits Program

We concluded NCSHA's standards accomplish the same thing as HUD's subsidy layering guidelines. However, states were not mandated to adopt the standards. We are recommending the Offices of Housing, Public and Indian Housing, and Community Planning and Development work with NCSHA and take the steps necessary to establish mandatory parameters for developer and contractor fees and profits that will have the same effect as subsidy layering reviews.