Michigan Audit Reports

Date Issued: September 28, 2007
Audit Report No.: 2007-CH-1016
File Size: 365.43KB

Title: The Plymouth Housing Commission, Plymouth, Michigan, Failed to Adequately 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 Plymouth Housing Commission's (Commission) Section 8 Housing Choice Voucher program (program). The audit was part of the activities in our annual audit plan. We selected the Commission based upon a risk analysis that identified it as having a high-risk program. Our objective was to determine whether the Commission administered its program in accordance with HUD's requirements. This is the second of two audit reports on the programs administered by the Commission.

The Commission's program administration regarding housing unit conditions, the effectiveness of its abatement process, rent reasonableness determinations, zero-income households, and procurement of consulting services was inadequate. Of the 61 housing units statistically selected for inspection, 42 did not meet HUD's housing quality standards, and 38 had 181 health and safety violations that existed at the time of the Commission's previous inspections. The 38 units had between 1 and 15 preexisting health and safety violations per unit. Based on our statistical sample, we estimate that over the next year, HUD will pay more than $1.4 million in housing assistance on units with housing quality standards violations.

The Commission did not comply with its abatement process. Of the 40 statistically selected program units that failed an annual housing or quality housing standards inspection between October 2006 and April 2007, 13 units with emergency health and safety violations were not corrected in a timely manner. It also failed to abate the housing assistance for nine units and improperly abated the housing assistance payments for eight units.

The Commission did not properly determine the reasonableness of program rents before approving housing assistance contracts for all 66 household files reviewed. It also did not adequately determine income for 7 of 25 households that reported zero income. Further, the Commission did not follow its own procurement policy when it acquired the consulting services of The Schiff Group for the administration of its program.

We informed the Commission's executive director and the Director of HUD's Detroit Office of Public Housing of minor deficiencies through a memorandum, dated September 27, 2007.


Date Issued: August 3, 2007
Audit Report No.: 2007-CH-1012
File Size: 372.1KB

Title: The Plymouth Housing Commission, Plymouth, Michigan, Needs to Improve Its Section 8 Housing Choice Voucher Program Administration

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Plymouth Housing Commission's (Commission) 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 Commission based upon a risk analysis that identified it as having a high-risk program. Our objective was to determine whether the Commission administered its program in accordance with HUD's requirements. This is the first of two audit reports on the Commission's program.

The Commission's program administration regarding documentation to support households' eligibility for housing assistance, housing assistance and utility allowance payments calculations, the Family Self-Sufficiency program, household portability, and the cost allocation plan for indirect costs was inadequate. The Commission was unable to support more than $138,000 in housing assistance and utility allowance payments, overpaid nearly $10,000 and underpaid nearly $9,000 in housing assistance and utility allowances, lacked adequate documentation to support nearly $1,900 in reduced housing assistance and utility allowance payments, and failed to remove from its program households that did not receive housing assistance for more than 180 days.

Further, the Commission failed to administer its and the Dearborn Heights Housing Commission's Family Self-Sufficiency programs according to the United States Code, HUD's requirements, and its family self-sufficiency action plan. As a result, the Commission had nearly $930,000 in escrow funds that should have been paid to program participants or reimbursed to the applicable program, misused $53,000 in Housing Choice Voucher/Family Self-Sufficiency Program Coordinators (Coordinators) funds, inappropriately paid more than $14,000 in final escrow payments, could not support more than $13,000 in participants' escrow accounts, and overfunded and underfunded participants' escrow accounts by more than $2,000.

The Commission had weaknesses in the accuracy of housing assistance and program administrative fee payments it made to receiving housing authorities for port-out households. It also failed to establish an adequate cost allocation plan and appropriately allocate indirect costs shared by all of the housing programs it administered.

We informed the Commission's executive director and the director of HUD's Detroit Office of Public Housing of minor deficiencies through a memorandum, dated August 2, 2007.

We recommend that the director of HUD's Detroit Office of Public Housing require the Commission to reimburse its program from nonfederal funds for the improper use of program funds, reimburse its Coordinators funds from nonfederal funds for incorrectly administering its Family Self-Sufficiency program, 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.


Date Issued: July 17, 2007
Audit Report No.: 2007-CH-1009
File Size: 459.75KB

Title: The Boyne City Housing Commission, Boyne City, Michigan, Failed to Follow HUD's Requirements for Its Nonprofit Development Activities

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Boyne City Housing Commission's (Commission) nonprofit development activities. The review of public housing authorities' development activities is set forth in our fiscal year 2006 annual audit plan. We selected the Commission because it was identified as having high-risk indicators of nonprofit development activity. Our objective was to determine whether the Commission diverted or pledged resources subject to its annual contributions contract (contract), other agreement, or regulation for the benefit of non-HUD developments.

The Commission, under the direction of its former executive director, defaulted substantially on its contract when it improperly pledged resources for the benefit of the Boyne City Nonprofit Housing Corporation (Corporation) and the Boyne City Housing Commission Limited Dividend Housing Association Limited Partnership (Limited Partnership), organizations created by the Commission, without HUD approval. The Commission obtained two bank loans to purchase 13.47 acres of land. The loans' promissory notes included a provision that allows the bank to setoff the amounts owed on the loans against any and all accounts the Commission has with the bank. As of April 2007, the Commission owed more than $137,000 on the two loans.

The Commission failed to file a declaration of trust on the land to protect HUD's interest and to prevent a conveyance or encumbrance without HUD approval. It also did not obtain HUD's approval to sell 4.82 acres of the land at more than $51,000 below fair market value. Further, the Commission managed Deer Meadows, a 30-unit senior housing project receiving Section 8 housing assistance from the Commission that the Limited Partnership owns and the Commission performed unit inspections, thus creating a conflict of interest.

We informed the Commission's executive director and the director of HUD's Detroit Office of Public Housing of minor deficiencies through a memorandum, dated July 11, 2007.

We recommend that the director of HUD's Detroit Office of Public Housing require the Commission to amend its promissory notes to eliminate the setoff provision to prevent the seizure of the Commission's funds in case of default on the notes; file a declaration of trust on the remaining land to protect HUD's interest; reimburse the applicable program for the sale of part of the land at below fair market value, and the improper Section 8 administrative fees received related to Deer Meadows; contract with an independent third party to perform housing quality standards inspections of Deer Meadows as required by HUD; and implement adequate procedures and controls to address the findings cited in this audit report. We also recommend that the director refer the Commission's substantial default of its contract to HUD headquarters and request appropriate action be taken against the Commission.


Date Issued: January 25, 2007
Audit Report No.: 2007-CH-1002
File Size: 443.04KB

Title: Benton Harbor Housing Commission, Benton Harbor, Michigan, Did Not Effectively Manage Its Public Housing Program and Has Not Used Special Purpose Grant Funds It Received More Than Nine Years Ago

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Benton Harbor Housing Commission's (Commission) public housing program (program) and its home ownership program funded with Special Purpose Grant (Grant) funds from the City of Benton Harbor (City). The audit was conducted based upon a request from HUD's Detroit Office of Public Housing. Our objectives were to determine whether the Commission effectively maintained its program units in accordance with applicable requirements and appropriately used its program operating subsidies and the City's Grant funds. This is the second of two audit reports on the Commission.

The Commission did not maintain the 42 program units statistically selected for inspection in good repair, order, and condition. There were 1,079 deficiencies, including 167 which HUD requires to be corrected within 24 hours, in the 42 units (average of 25.71 deficiencies per unit). In addition, the Commission did not always conduct its annual program unit inspections within one year. Based on our statistical sample, we estimate that over the next year HUD will pay more than $153,000 in program operating subsidies for the Commission's units that are not maintained in good repair, order, and condition.

The Commission did not comply with HUD's requirements and its policies in administering its program's admission and occupancy process. It was unable to support nearly $167,000 in program operating subsidies received, did not receive total household payments of nearly $2,900, received excess total household payments of $218, underpaid more than $1,500 in utility allowance payments, and was unable to support more than $7,500 in total household payments received.

The Commission lacked an effective maintenance process to ensure program unit deficiencies were identified and repaired in a timely manner. It did not have an approved maintenance policy, implement a preventive maintenance program, complete work orders in accordance with HUD's requirements and/or its maintenance policy, and turn around 98 program units in a timely manner. In addition, the Commission inappropriately received nearly $10,000 in excess program operating subsidies for eight units that were vacant for more than 12 months. We estimate that over the next year the Commission will not receive nearly $50,000 in household payments due to program units being vacant more than 30 days.

The Commission failed to properly administer its home ownership program in accordance with its master participation agreement with eight lending institutions. As a result, the City's residents have not benefited from more than $1 million in financing for the purchase and rehabilitation of family residential owner-occupied homes as of November 2006. In addition, the Commission has not used $240,000 in Grant funds it received from the City more than nine years ago for the home ownership program and nearly $83,000 in interest earned on the Grant funds.

We informed the Authority's executive director and the director of HUD's Detroit Office of Public Housing of minor deficiencies through a memorandum, dated January 22, 2007.

We recommend that the director of HUD's Detroit Office of Public Housing require the Commission 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 $203,000 in program funds is spent according to HUD's requirements.

We also recommend that the director of HUD's Detroit Office of Public Housing, in coordination with the director of HUD's Detroit Office of Multifamily Housing, require the Commission to reimburse the City $240,000 from its home ownership program's accounts so the City can use the Grant funds to support housing rehabilitation, transfer to its general fund nearly $83,000 from its home ownership program's accounts so it can use the funds to provide housing services in accordance with the Michigan Compiled Laws, and provide support or transfer more than $60,000 from its home ownership program's accounts so it can use the monies to provide housing services in accordance with the Michigan Compiled Laws.


Date Issued: September 28, 2006
Audit Report No.: 2006-CH-1018
File Size: 289.98KB

Title: Saginaw Housing Commission, Saginaw, Michigan Improperly Used Public Housing Funds to Purchase Property

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Saginaw Housing Commission's (Commission) Public Housing Operating Fund program (program). We initiated the audit based on a request from the Detroit Office of Public Housing for HUD. The audit was also part of the activities in our fiscal year 2006 annual audit plan. Our objective was to determine whether the Commission properly used its program funds subject to its annual contributions contract, other agreements, or federal regulations for the benefit of its program residents. The Commission improperly acquired the Saginaw County Fairgrounds property (property), which included a harness raceway, using its program funds. Without required HUD approval, the Commission used nearly $536,000 in program funds to pay for the property's acquisition costs. Because of the Commission's improper use of these funds, its program also lost more than $25,000 in interest income that would have been realized if the funds had been invested. The Commission failed to file a required declaration of trust to evidence its covenant not to convey or encumber the property and to protect HUD's rights and interests.

Further, the Commission entered into eight rooftop lease agreements without required HUD approval and did not restrict more than $12,000 in revenue to pay for program expenses. Instead, the revenue paid for inappropriate expenses such as meals and refreshments for its board meetings, appraisal services related to the purchase of the property, and contributions to the mayor of the City of Saginaw's (City) college scholarship fund and other events honoring the City's mayors.

We recommend that the director of HUD's Detroit Office of Public Housing require the Commission to (1) reimburse its program for the inappropriate use of funds and lost interest income cited in this report, (2) file a declaration of trust on the property if it has not been sold, (3) submit its current rooftop lease agreements to HUD for approval, and (4) implement adequate procedures and controls to address the findings contained in this report. We also recommend that the director of HUD's Departmental Enforcement Center pursue administrative sanctions against the Commission's former executive director and its board members involved in the improper purchase of the property.


Issue Date: September 26, 2006
Audit Report No.: 2006-CH-1017
File Size: 318KB

Title: Community Central Bank, Supervised Lender, Mount Clemens, Michigan, Generally Complied with HUD's Requirements Regarding Underwriting of Loans but Not Its Quality Control Reviews

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited Community Central Bank (Community Central), a supervised lender approved to originate, underwrite, and submit insurance endorsement requests under HUD's single-family direct endorsement program. The audit was part of the activities in our fiscal year 2006 annual audit plan. We selected Community Central for audit because of its high default to claim rate. Our objectives were to determine whether (1) Community Central complied with HUD's regulations, procedures, and instructions in the underwriting Federal Housing Administration-insured loans and (2) Community Central's quality control plan, as implemented, met HUD's requirements.

Community Central generally complied with HUD's requirements for underwriting Federal Housing Administration loans. However, it approved 3 of 29 Federal Housing Administration loans reviewed that did not fully meet HUD's requirements. The three loans defaulted early and/or went to claim between October 1, 2003, and September 30, 2005. Further, Community Central incorrectly certified to the due diligence used in underwriting the three loans. During the audit period, Community Central's quality control plan did not comply with HUD's requirements, and quality control reviews were not performed in a timely manner. Its deficient quality control may have contributed to the underwriting deficiencies. For the loans in question, the risk to the Federal Housing Administration fund was increased.

We recommend that HUD's assistant secretary for housing-federal housing commissioner require Community Central to indemnify HUD for any future losses on two loans with a total mortgage value of more than $140,000, reimburse HUD any future net loss once the associated property is sold, and ensure that quality control reviews under its quality control plan are timely and properly documented.

We also recommend that HUD's associate general counsel for program enforcement determine legal sufficiency and if legally sufficient, pursue remedies under the Program Fraud Civil Remedies Act against Community Central and/or its principals for the three incorrect certifications cited in this audit report.


Issue Date: September 25, 2006
Audit Report No.: 2006-CH-1015
File Size: 285KB

Title: Birmingham Bancorp Mortgage Corporation, Nonsupervised Lender, West Bloomfield, Michigan, Substantially Complied with HUD's Requirements Regarding Underwriting of Loans but Not Its Quality Control Reviews

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited Birmingham Bancorp Mortgage Corporation (Birmingham), a nonsupervised lender approved to originate, underwrite, and submit insurance endorsement requests under HUD's single-family direct endorsement program. The audit was part of the activities in our fiscal year 2006 annual audit plan. We selected Birmingham for audit because of its high default to claim rate. Our objectives were to determine whether (1) Birmingham's quality control plan, as implemented, met HUD's requirements and (2) Birmingham complied with HUD's regulations, procedures, and instructions in the underwriting of Federal Housing Administration-insured loans.

Birmingham's quality control review process did not comply with HUD's requirements. While Birmingham's quality control plan fully met HUD's requirements, it was not properly implemented. Birmingham substantially complied with HUD's underwriting requirements on loans that went to claim between October 1, 2003, and September 30, 2005. It approved only one of 17 Federal Housing Administration loans reviewed that did not meet HUD's requirements. Because of Birmingham's poor quality control reviews, HUD's Federal Housing Administration insurance fund is at an increased risk for loss and abuse.

We recommend that HUD's assistant secretary for housing-federal housing commissioner require Birmingham to reimburse HUD for any future loss from the claim paid on one loan once the associated property is sold and implement its quality control plan for reviewing loans with early payment defaults.


Issue Date: July 21, 2006
Audit Report No.: 2006-CH-1013
File Size: 578.31KB

Title: The Ann Arbor, Michigan Housing Commission's Administration of Its Section 8 Housing Choice Voucher Program Needs to Be Improved

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Ann Arbor Housing Commission's (Commission) 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 Commission based upon a risk analysis that identified it as having a high-risk program. The objective was to determine whether the Commission managed its program in accordance with HUD's requirements.

The Commission's program administration regarding housing unit conditions, housing assistance payment calculations and reexaminations, and allocation of its indirect costs was inadequate. The Commission did not adequately inspect program units because it did not effectively monitor the inspection process and quality control reviews were not effective in identifying violations. Of the 62 housing units statistically selected for inspection, 45 did not meet HUD's housing quality standards and 40 had 125 violations that existed at the time of the Commission's previous inspections. The 40 units had between one and eight preexisting violations per unit. Based on our statistical sample, we estimate that over the next year HUD will pay nearly $2 million in housing assistance payments on units with material housing quality standards violations.

The Commission improperly calculated the housing assistance payments for 16 of 25 tenant files selected for review and did not perform reexaminations timely. This resulted in more than $8,000 in housing assistance payment errors. Also, the Commission did not establish an adequate cost allocation plan for charging indirect costs to its program.

The Commission had adequate policies and procedures for monitoring payment standards and utility allowances, and it initiated corrective actions by making changes to its quality control inspection process and quality control procedures over tenant file reviews.

We recommend that the director of HUD's Detroit Office of Public Housing require the Commission to reimburse its program from nonfederal funds for the improper use of more than $58,000 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 $2 million in program funds are spent on housing units that meet HUD's requirements.


Issue Date: May 18, 2006
Audit Report No.: 2006-CH-1010
File Size: 329.72KB

Title: Benton Harbor Housing Commission; Benton Harbor, Michigan; The Commission Lacked Supporting Documentation and Did Not Follow Procurement Requirements Regarding Its Public Housing Capital Fund Program

The U.S. Department of Housing and Urban Development's Office of Inspector General audited the Benton Harbor Housing Commission's (Commission) Public Housing Capital Fund program (program). The audit was conducted based upon a request from HUD's Detroit Office of Public Housing. Our objectives were to determine whether the Commission operated its program in a manner that provides reasonable assurance that (1) expenditures were adequately supported and eligible and (2) procurement transactions met the Commission's and HUD's requirements.

The Commission lacked documentation to support more than $200,000 in program expenditures and improperly used $500 in program funds to pay expenses related to its Housing Choice Voucher program. Further, the Commission's procurement activities were not conducted according to its and HUD's requirements. These deficiencies existed because the Commission failed to implement adequate procedures and controls, and the Commission's board of commissioners (board) did not exercise appropriate oversight of the program.

We informed the Commission's acting executive director and the director of HUD's Detroit Office of Public Housing of minor deficiencies through a memorandum dated May 5, 2006.

We recommend that the director of HUD's Detroit Office of Public Housing require the Commission to (1) provide documentation to support the unsupported expenditures or reimburse its program from nonfederal funds for the applicable portion (2) provide documentation that it reimbursed its program from its Section 8 housing administrative fees for the improper payment of expenses related to its Housing Choice Voucher program, and (3) implement adequate procedures, controls, and board oversight to correct the weaknesses cited in this report.


Issue Date: December 30, 2005
Audit Report No.: 2006-CH-1006
File Size: 369KB

Title: NorthStar Community Development Corporation Inappropriately Used More Than $120,000 in Economic Development Initiative - Special Purpose Grant Funds and HUD 's Interest in More Than $180,000 in Grant Funds Was Not Secured; Detroit, Michigan

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited NorthStar Community Development Corporation's (NorthStar) Economic Development Initiative - Special Purpose Grant (Grant). We initiated the audit in conjunction with our internal review of the U.S. Department of Housing and Urban Development's (HUD) oversight of Economic Development Initiative � Special Purpose Grants. The review is part of our fiscal year 2005 annual audit plan. We chose NorthStar's Grant based upon a statistical sample of fiscal years 2002 and 2003 Economic Development Initiative � Special Purpose Grants, in which 90 percent or more in funds were disbursed. Our objectives were to determine whether NorthStar used its Grant funds in accordance with HUD's requirements and recorded HUD's interest on the assisted properties.

NorthStar improperly used more than $123,000 in Grant funds from March 2002 through July 2005. NorthStar also lacked documentation to support that nearly $2,000 in Grant funds was used according to NorthStar's amended budget approved by HUD. In addition, NorthStar used more than $184,000 in Grant funds to acquire, or aid in the acquisition of, and/or rehabilitate real property; however, NorthStar did not place covenants on the properties' titles assuring nondiscrimination based on race, color, national origin, or handicap. Further, HUD did not request that NorthStar record HUD's interest on the properties' titles.

We recommend that HUD's director of congressional grants require NorthStar to (1) reimburse HUD from nonfederal funds for the inappropriate expenses; (2) provide documentation to support the unsupported expenses or reimburse HUD from nonfederal funds for the applicable portion; (3) implement procedures and controls to address the deficiencies cited in this report; and (4) record covenants on the titles assuring nondiscrimination based on race, color, national origin, or handicap and record liens on the titles for the University Grove properties, NorthStar's Center, the Pilgrim Park properties, the Harmony Park properties, and the Revitalife properties showing HUD's interest in the assisted properties. If the covenants and liens are not recorded, NorthStar should reimburse HUD more than $184,000 from nonfederal funds for the Grant funds used on these properties.

We also recommend that HUD's director of congressional grants, in conjunction with the director of HUD's Detroit Office of Community Planning and Development, determine whether NorthStar's expense documentation for other HUD-funded grants was used to support expenses of the Grant since they were awarded for some of the same activities.


Issue Date: November 10, 2005
Audit Report No.: 2006-CH-1001
File Size: 322.83KB

Title: HUD 's Interest in More Than $220,000 in Economic Development Initiative � Special Purpose Grant Funds Awarded to the City of St. Ignace, Michigan Was Not Secured

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the City of St. Ignace, Michigan's (City) Economic Development Initiative - Special Purpose Grant (Grant). We initiated the audit in conjunction with our internal review of HUD's oversight of Economic Development Initiative � Special Purpose Grants. The review is part of our fiscal year 2005 annual audit plan. We chose the City's Grant based upon a statistical sample of fiscal years 2002 and 2003 Economic Development Initiative � Special Purpose Grants, in which 90 percent or more in funds were disbursed. Our objectives were to determine whether the City used its Grant funds in accordance with HUD's requirements and recorded HUD's interest on the assisted property.

The City used the Grant funds in accordance with HUD's requirements. It used $223,537 in Grant funds to pay for the construction of the St. Ignace Public Library (Library). However, it did not place a covenant on the property title for the Library assuring nondiscrimination based on race, color, national origin, or handicap.

We recommend that HUD's director of congressional grants assure the covenant executed on October 18, 2005, on the Library's property title ensuring nondiscrimination based on race, color, national origin, or handicap includes HUD's remedies in the event that discrimination does occur. The appropriately executed covenant with HUD's remedies should help ensure that the City protects HUD's interest in the $223,537 in Grant funds for the Library.


Issue Date: September 23, 2005
Audit Report No.: 2005-CH-1017
File Size: 659.04KB

Title: The Commission Improperly Managed Its Section 8 Program; Flint, Michigan

The U.S. Department of Housing and Urban Development's Office of Inspector General audited the Flint Housing Commission's (Commission) Section 8 housing program. The audit was part of the activities in our fiscal year 2005 annual audit plan. We selected the Commission based upon a risk analysis that identified it as having a high risk Section 8 housing program. Our overall objectives were to determine whether the Commission managed its Section 8 housing program effectively and followed HUD's requirements. We determined whether the Commission had adequate procedures and controls over its inspection of units, abatement of housing assistance payments, and rent reasonableness determinations.

The Commission did not effectively manage its Section 8 housing program. Our inspections noted that 52 of 56 units did not meet HUD's housing quality standards and/or local housing code. We determined a total of $80,457 in housing assistance payments and administrative fees were improperly paid for units not meeting HUD's standards and/or local code. The Commission also did not abate $50,506 in housing assistance payments based on units that failed inspections performed by the Commission's inspector. In addition, the Commission did not properly complete rent reasonableness certifications and maintain adequate records of market rate units for rent reasonableness comparisons.

We recommend that the director of HUD's Public Housing Hub, Detroit Field Office, require the Commission to reimburse its Section 8 housing program for the inappropriately used funds, and implement procedures and controls to correct the deficiencies cited in this report.


Issue Date: September 15, 2005
Audit Memorandum No.: 2005-CH-1803
File Size: 33.82KB

Title: Actions under Program Fraud Civil Remedies Act Against Charles Gahan, Former Loan Officer of AIM Financial, Inc.; Caledonia, Michigan

The U.S. Department of Housing and Urban Development's Office of Inspector General reviewed AIM Financial, Inc. (AIM), a former non-supervised loan correspondent approved to originate Federal Housing Administration-insured loans. We initiated our review based on a citizen complaint to our office. Our objective was to determine whether AIM originated Federal Housing Administration-insured loans according to HUD's requirements.

Our review determined that AIM, although at one time a Federal Housing Administration approved lender, had, before its approval, originated Federal Housing Administration-insured loans using the name and Federal Housing Administration number of another lender. AIM executed HUD Form 92900A for 10 insured loans, the earliest executed on January 22, 1999, falsely certifying it was Bedford. At that time, Bedford was a Federal Housing Administration approved lender, while AIM was not. In 6 of the 10 cases, Charles Gahan, acting on behalf of AIM, executed the lender certification and lender's certificate using Bedford's name, address, and lender identification number. AIM later obtained approval to originate Federal Housing Administration-insured loans from September 29, 1999, through July 15, 2002.

On December 14, 2004, we referred Mr. Gahan to HUD's Office of General Counsel for administrative sanctions under the Program Fraud Civil Remedies Act of 1986. HUD filed a complaint against Mr. Gahan on March 10, 2005, seeking civil penalties. HUD executed a settlement agreement with Mr. Gahan effective August 24, 2005, without any admission of wrongdoing, for $15,000. Mr. Gahan issued a check payable to HUD dated August 15, 2005, for the $15,000 settlement amount. We recommend that HUD's associate general counsel for program enforcement post the $15,000 settlement payment to HUD's Audit Resolution and Corrective Actions Tracking System.


Issue Date: August 5, 2005
Audit Report No.: 2005-CH-1013
File Size: 573.47KB

Title: Management Agents and/or Owner of Ivan Woods Senior Apartments in Lansing, Michigan, Improperly Used Project Funds

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General reviewed the books and records of Ivan Woods Senior Apartments (project), a 90-unit multifamily housing project in Lansing, Michigan. We initiated the review based on a request from HUD's Detroit Field Office of Multifamily Housing Hub. The review was also part of our efforts to combat multifamily equity skimming on HUD's Federal Housing Administration insurance fund. Our objective was to determine whether the owner/management agents used project funds in compliance with the regulatory agreement and HUD's requirements.

Maplegrove Property Management, LLC (Maplegrove), the project's former identity of interest management agent; Keystone Property Management, Inc. (Keystone), the project's current management agent; and/or Ivan Woods Limited Dividend Housing Association Limited Partnership (Partnership), the project's owner, inappropriately used almost $10,000 in project funds from June 2002 through April 2005 when the project was in a non-surplus cash position. Further, Maplegrove charged the project more than $260 in excessive management fees that were not paid as of April 30, 2005. Maplegrove and/or the Partnership also lacked documentation to support that more than $3,000 in project funds were properly used.

We recommend that HUD's director of Detroit Multifamily Housing Hub ensure that the Partnership, Keystone, and/or Maplegrove (1) reimburse the project's reserve for replacement account and/or HUD's Federal Housing Administration insurance fund for the inappropriate expenses, (2) provide documentation to support the unsupported payments or reimburse the appropriate amount to the project's reserve account and/or the Federal Housing Administration insurance fund that cannot be adequately supported, and (3) implement procedures and controls. We also recommend that HUD's director, in conjunction with HUD's Office of Inspector General, pursue double damages remedies if the Partnership, Maplegrove, and/or Keystone do not make the reimbursement.

We also recommend that HUD's director of Departmental Enforcement Center impose civil money penalties against the Partnership, Maplegrove, Keystone, and/or their principals/officers for the inappropriate use of project funds.


Issue Date: August 4, 2005
Audit Report No.: 2005-CH-1012
File Size: 605.66KB

Title: Management Agents and/or Owner of Savannah Trace Apartments in Kalamazoo, Michigan, Improperly Used Project Funds

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General reviewed the books and records of Savannah Trace Apartments (project), an 80-unit multifamily housing project in Kalamazoo, Michigan. We initiated the review based on a request from HUD's Detroit Field Office of Multifamily Housing Hub. The review was also part of our efforts to combat multifamily equity skimming on HUD's Federal Housing Administration insurance fund. Our objective was to determine whether the owner/management agents used project funds in compliance with the regulatory agreement and HUD's requirements.

Maplegrove Property Management, LLC (Maplegrove), the project's former identity of interest management agent; Keystone Property Management, Inc. (Keystone), the project's current management agent; and/or Richland Housing Partners, LLC (Richland), the project's owner, inappropriately used more than $5,500 in project funds from January 2002 through April 2005 when the project was in a non-surplus-cash position and/or had defaulted on its HUD-insured mortgage. The inappropriate disbursements included excessive management fees, late fees/finance charges, lawn service, and office supplies/equipment. Further, Maplegrove charged the project more than $2,000 in excessive management fees that were not paid as of April 30, 2005. Maplegrove and/or Richland also lacked documentation to support that more than $1,000 in project funds were properly used.

We recommend that HUD's director of Detroit Multifamily Housing Hub ensure that Richland, Keystone, and/or Maplegrove (1) reimburse the project's reserve for replacement account and/or HUD's Federal Housing Administration insurance fund for the inappropriate expenses, (2) provide documentation to support the unsupported payments or reimburse the appropriate amount to the project's reserve account and/or HUD's Federal Housing Administration insurance fund that cannot be adequately supported, and (3) implement procedures and controls. We also recommend that HUD's director, in conjunction with HUD's Office of Inspector General, pursue double damages remedies if Richland, Maplegrove, and/or Keystone do not make the reimbursement.

We also recommend that HUD's director of Departmental Enforcement Center impose civil money penalties against Richland, Maplegrove, Keystone, and/or their principals/officers for the inappropriate use of project funds.


Issue Date: March 31, 2005
Audit Memorandum No.: 2005-CH-1802
File Size: 189.76KB

Title: Actions Under Program Fraud Civil Remedies Act; AIM Financial, Inc.; Kentwood, MI

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General completed a review of AIM Financial, Inc. (AIM), a former non-supervised loan correspondent approved to originate Federal Housing Administration-insured loans. We initiated our review based on a citizen complaint to our office. The review objective was to determine whether AIM originated Federal Housing Administration-insured loans according to HUD's requirements.

Our review determined that AIM, although at one time a Federal Housing Administration approved lender, had, prior to its approval, originated Federal Housing Administration-insured loans using the name and Federal Housing Administration number of another lender. AIM executed HUD form 92900A for 10 insured loans, the earliest executed on January 22, 1999, falsely certifying it was Bedford. At that time, Bedford was a Federal Housing Administration approved lender, while AIM was not. In each of the 10 cases, AIM executed the Lender Certification and Lender's Certificate using Bedford's name, address, and its Lender Identification Code. AIM later obtained approval to originate Federal Housing Administration-insured loans, which lasted from September 29, 1999, through July 15, 2002.

On July 29, 2003, we referred AIM to HUD's Office of General Counsel for administrative sanctions under the Program Fraud Civil Remedies Act of 1986. HUD filed a complaint against AIM on February 18, 2005, seeking civil penalties. HUD executed a settlement agreement with AIM effective March 28, 2005, without any admission of wrongdoing, for $35,000. AIM issued a check payable to HUD dated March 24, 2005 for the $35,000 settlement amount. We recommend that HUD's Associate General Counsel for Program Enforcement posts the $35,000 settlement payment to HUD's Audit Resolution and Corrective Actions Tracking System.


Issue Date: March 7, 2005
Audit Report No.: 2005-CH-1006
File Size: 576.59KB

Title: Flagstar Bank FSB, Supervised Direct Endorsement Lender; Troy, MI; Procedures and Controls Over Late Requests for Endorsement and Upfront Mortgage Insurance Premium Payments Were Improved

The U.S. Department of Housing and Urban Development's Office of Inspector General (OIG) reviewed Flagstar Bank FSB (Flagstar), a supervised lender approved to originate Federal Housing Administration mortgage loans under HUD's Single Family Direct Endorsement program. The review was part of the activities in our fiscal year 2004 Annual Audit Plan. We selected Flagstar for audit because of its high late endorsement rate in fiscal years 2002 and 2003. Our review objectives were to determine whether Flagstar complied with HUD's regulations, procedures, and instructions in the submission of insurance endorsement requests and payment of upfront mortgage insurance premiums to HUD.

Flagstar implemented improvements to its procedures and controls in January 2004 to fully comply with HUD's requirements regarding late requests for endorsement and upfront mortgage insurance premiums. However, before the controls were strengthened, of 50 loans tested, Flagstar improperly submitted 2 for late endorsement. These two loans increased the risk to the Federal Housing Administration insurance fund by $251,103 because the borrowers had not made six consecutive timely monthly payments at the time their loans were submitted to HUD and/or were behind on their mortgage payments. Flagstar also paid penalties for not submitting upfront mortgage insurance premiums in a timely manner for 10 of 42 loans in our review sample. Flagstar's employees incorrectly certified that one of the two loans' escrow accounts for taxes, hazard insurance, and mortgage premiums were current when they were not. Flagstar's staff was not adequately trained or was not aware of the late endorsement processing requirements, and procedures and controls were insufficient to ensure timely payment of upfront mortgage insurance premiums.

We recommend that HUD's Assistant Secretary for Housing-Federal Housing Commissioner and Chairman of the Mortgagee Review Board require Flagstar to indemnify HUD for any future losses on the two loans with a total mortgage value of $251,103.

We recommend that HUD's Associate General Counsel for Program Enforcement determine legal sufficiency, and, if legally sufficient, pursue remedies under the Program Fraud Civil Remedies Act against Flagstar and/or its principals for incorrectly certifying that the escrow accounts for taxes, hazard insurance, and mortgage premiums were current for one loan submitted for Federal Housing Administration insurance endorsement when, in fact, the escrow accounts were not current.


Issue Date: January 12, 2005
Audit Report No.: 2005-CH-1005
File Size: 845KB

Title: Wood Hills Assisted Living Facility; Kalamazoo, MI; Multifamily Equity Skimming

HUD's Office of Inspector General reviewed the books and records of the Wood Hills Assisted Living Facility (Project), a 60-bed assisted living facility in Kalamazoo, MI. The review was part of our effort to combat multifamily equity skimming. The review was also part of our nationwide review of nursing homes due to the increasingly high default rate and number of Federal Housing Administration (FHA) insurance claims being paid under the Section 232 program. We chose the Project due to its default status and more than $500,000 write-off of bad debt reported in its fiscal years 2001 and 2002 audited financial statements. Our review objective was to determine whether the owner/management agent used Project funds in compliance with the Regulatory Agreement and the U.S. Department of Housing and Urban Development's (HUD) requirements.

The owner of the Project, Wood Hills Limited Partnership, had inappropriately disposed of $518,633 in Project assets as of December 31, 2002, without obtaining HUD approval and in violation of its Regulatory Agreement. The Project was in a nonsurplus cash position and in default of its FHA-insured loan at the time of the disposition. Wood Hills Limited Partnership also inappropriately loaned $12,885 of Project funds to Wood Hills LP, Inc., the identity of interest operator of the Project. The Project was in a nonsurplus cash position and/or in default at the time the Limited Partnership made the loans. HUD incurred a loss of $1,024,653 on the sale of the Limited Partnership's mortgage note.

We recommend that HUD's Acting Director of Multifamily Housing Hub, Detroit Field Office, ensure that Wood Hills Limited Partnership reimburses HUD's FHA insurance fund $518,633 for the inappropriate disposals cited in this report. We also recommend that HUD's Acting Director, in conjunction with HUD's Office of Inspector General, pursue double damages remedies if the Limited Partnership does not reimburse the insurance fund for the inappropriate disposals. We also recommend that the Director of HUD's Departmental Enforcement Center and/or HUD's Associate General Counsel for Program Enforcement pursue action under the Program Fraud Civil Remedies Act against Wood Hills Limited Partnership's General Partner and impose civil money penalties and pursue administrative sanctions against the Limited Partnership and its owners.


Issue Date: December 22, 2004
Audit Memorandum No.: 2005-CH-1801
File Size: 147KB

Title: RVA Properties, Inc., Farmington Hills, MI; Multifamily Equity Skimming of More Than $270,000 From Four Projects

HUD's Office of Inspector General reviewed the records of RVA Properties, Inc., to determine whether it used project funds in compliance with the Regulatory Agreements and the U.S. Department of Housing and Urban Development's (HUD) requirements. RVA Properties, Inc., management agent, inappropriately used $271,940 from four projects while the projects were in a non-surplus cash position.

Cooper's Lake Manor, Inc., Jefferson-Chalmers Non-Profit Senior Housing Corporation, Pontiac Townhouse Apartments Cooperative, Slidell Senior Citizens Residence, Inc., and/or RVA Properties, Inc., inappropriately used $271,940 of Taylor Lake Manor's, Phillip C. Sims Senior Apartments', Pontiac Townhouse Apartments Cooperative's, and Slidell Senior Apartments' (Projects) funds between January 1, 2000, and December 31, 2001. The inappropriate expenses included $23,239 for ineligible expenses and $248,701 for unsupported expenses. We provided RVA Properties, Inc., the Projects' owners, and HUD's staff schedules of the inappropriate expenses. The Projects were in a non-surplus cash position when the funds were improperly used. As a result, funds were not used efficiently and effectively, and fewer funds were available for the Projects' normal operations.

We recommend that HUD's Director of Multifamily Housing Hub, Detroit Field Office, ensure Cooper's Lake Manor, Inc., Jefferson-Chalmers Non-Profit Senior Housing Corporation, Pontiac Townhouse Apartments Cooperative, Slidell Senior Citizens Residence, Inc., and/or RVA Properties, Inc., reimburse the appropriate Projects' Reserve Capital Account $23,239 for the ineligible payments from non-Project funds, and provide documentation for the $248,701 of unsupported payments. If adequate documentation cannot be provided, Cooper's Lake Manor, Inc., Jefferson-Chalmers Non-Profit Senior Housing Corporation, Pontiac Townhouse Apartments Cooperative, Slidell Senior Citizens Residence, Inc., and/or RVA Properties, Inc., should reimburse the appropriate Reserve Capital Account for the amount that cannot be supported from non-Project funds.

We also recommend that HUD's Director of Multifamily Housing Hub, Detroit Field Office, in conjunction with HUD's Office of Inspector General pursue double damages remedy for unauthorized use of multifamily housing project assets and income if Cooper's Lake Manor, Inc., Jefferson-Chalmers Non-Profit Senior Housing Corporation, Pontiac Townhouse Apartments Cooperative, Slidell Senior Citizens Residence, Inc., and/or RVA Properties, Inc., does not appropriately reimburse the Reserve Capital Account for the ineligible and unsupported payments cited in this report.

We also recommend that the Director of HUD's Departmental Enforcement Center pursue administrative sanctions against Cooper's Lake Manor, Inc., Jefferson-Chalmers Non-Profit Senior Housing Corporation, Pontiac Townhouse Apartments Cooperative, Slidell Senior Citizens Residence, Inc., and/or RVA Properties, Inc.


Issue Date: November 29, 2004
Audit Report No.: 2005-CH-1003
File Size: 1.69MB

Title: Royal Oak Township Housing Commission; Ferndale, Michigan; Public Housing Program's Poor Condition of Housing Units and Weak Occupancy Practices

HUD's Office of Inspector General completed an audit of the Royal Oak Township Housing Commission's Public Housing Program. We selected the Housing Commission for audit based on two citizen complaints. The complainants alleged that the Housing Commission's Public Housing units were in poor physical condition, tenants were housed contrary to HUD's requirements, and Public Housing funds were misspent. The objectives of the audit were to determine whether the complainants' allegations were substantiated.

The Housing Commission's housing units were in poor physical condition. A HUD Construction Analyst inspected 32 statistically selected housing units and identified 1,166 deficiencies that did not meet HUD's Uniform Physical Condition Standards and Federal handicap accessibility requirements. The Housing Commission also did not meet the Uniform Federal Accessibility Standards for access and the required number of handicap accessible housing units. HUD's Construction Analyst estimated that over $5 million of repairs and more than $192,500 was needed for unit renovations to meet HUD's Uniform Physical Condition Standards and Federal Accessibility Standards. The Housing Commission allowed new tenants with criminal convictions to be housed and did not evict existing tenants with known criminal convictions in violation of HUD's One Strike Policy. The Housing Commission also inappropriately paid $3,340 for travel expenses for its Board attorney and it approved $7,999 for a new project sign changing the name of an existing project without HUD's prior approval.

We attributed these conditions to the Housing Commission's Board of Commissioners not allowing its former Executive Director to timely hire, evaluate, and fire maintenance and administrative staff and contractors without prior Board approval. The Housing Commission's Board also disagreed with HUD's requirements regarding their role and authority.

We recommend that HUD's Director of Public Housing Hub, requires the Housing Commission to: (1) reimburse its Public Housing Program from non-Federal funds for the inappropriately used monies; and (2) implement procedures and controls to correct the weaknesses cited in this report. We also recommend that HUD's Director of Departmental Enforcement Center take the strongest administrative action against the Housing Commission's Board of Commissioners for their improper oversight of the Commission.


Issue Date: May 5, 2004
Audit Report No.: 2004-CH-1004
File Size: 803.9KB

Title: Pontiac Neighborhood Housing Services, Incorporated's HOME Investment Partnership Program, Pontiac, Michigan

HUD's Office of Inspector General completed an audit of Pontiac Neighborhood Housing Services, Incorporated's HOME Program. The audit was conducted based on a request from HUD's Detroit Field Office Director of Community Planning and Development for an accounting of how the HOME Program funds were used. The objective of our audit was to determine whether HUD's rules and regulations were properly followed for the Martin Luther King Residential Project funded by the City of Pontiac's HOME Program.

We concluded that Housing Services, Incorporated did not follow HUD's requirements and its Development Agreement with the City of Pontiac regarding the use of HOME funds for the Residential Project. Specifically, Housing Services, Incorporated:

• Used $871,057 in HOME funds and another $457,651 in Program income to pay for the construction of nine homes that did not meet the City's Building Code; and

• Did not return $367,609 of Program income directly generated from the use of HOME funds through the City's Residential Project.

We recommend that HUD's Detroit Field Office Director of Community Planning and Development ensure the City of Pontiac implements procedures and controls to correct the weaknesses cited in this report.


Issue Date: September 30, 2003
Audit Report No.: 2003-CH-1021
File Size: 1.01MB

Title: Hamtramck Housing Commission's Public Housing Program, Hamtramck, MI

HUD's Office of Inspector General completed an audit of Hamtramck Housing Commission's Public Housing Program. The audit was performed as a result of a citizen complaint to our Office. The nature of the complaint alleged that potential tenants paid to be placed on the Housing Commission's waiting lists. When placed in units at Colonel Hamtramck Homes, the Commission continued to report the units as vacant to HUD. The objective of our audit was to determine if the Housing Commission followed admission and occupancy practices in accordance with its Annual Contributions Contract and HUD's requirements. Our audit also determined whether management controls over tenant eligibility, tenant accounts receivable, cash receipts from laundry operations, petty cash, vacancy levels, and operating subsidy calculations were appropriate.

We did not find any evidence to substantiate the complainant's allegations. However, the Commission's controls over cash receipts from its laundry operations and petty cash were very weak. The Commission also had an unacceptable turnaround time for filling vacant units. Although other weaknesses existed in the areas of tenant accounts receivable and occupancy procedures in 2002, noticeable improvements were observed in 2003 that made these areas non-reportable issues. We also noted that the Commission's request for operating subsidies were appropriate.

We recommend that HUD's Acting Director of Public Housing, Detroit Field Office, ensure that the Housing Commission implements procedures and controls to correct the weaknesses cited in this report.


Issue Date: April 24, 2003
Memorandum Report No.: 2002-CH-1015
File Size: 734.9KB

Title: Oakwood Neighborhood Association Community Development Block Grant Program, Kalamazoo, MI

HUD's Office of Inspector General completed an audit of Oakwood Neighborhood Association's Community Development Block Grant Program. The Association is a subrecipient of the City of Kalamazoo's Block Grant Program. The audit was conducted in response to an anonymous complaint to our Hotline. The complainant alleged the Association's former Board Treasurer misused Program funds. The objectives of our audit were to determine whether the complainant's allegation was substantiated, and whether HUD's rules and regulations were properly followed.

The Association did not adequately account for the source and use of Community Development Block Grant Program funds in full compliance with Federal requirements and the City's Agreements. Specifically, the Association: (1) did not maintain complete and accurate accounting books and records; and (2) submitted inaccurate monthly expense claims to the City for reimbursement.

We recommend that HUD's Director of Community Planning and Development, Detroit Field Office, requires Oakwood Neighborhood Association to implement procedures and controls to: segregate the accounting duties over the Program to the extent practical; maintains bank and accounting records on-site (cash receipt and disbursement journals, general ledger, and source documents); and provide periodic financial reports to its Board. We also recommend that HUD's Director requires the City of Kalamazoo to discontinue providing Community Development Block Grant Program funds to the Association until it develops and maintains: written accounting procedures; source documents; chart of accounts; cash receipts and disbursements journal; general ledger; and segregates the duties over the Program.


Issue Date: March 26, 2002
Audit Report No.: 2001-CH-1001
File Size: 693KB

Title: Ypsilanti Housing Commission, Ypsilanti, Michigan

Safeguarding Monetary Assets and Inventory HUD's Office of Inspector General completed an audit of the Ypsilanti Housing Commission located in Ypsilanti, Michigan. The audit was conducted based on the Michigan State Office of Public Housing Hub's concerns about the Housing Commission's controls over monetary assets and inventory. The primary objective of our audit was to determine whether the Housing Commission had sufficient controls for safeguarding cash and other monetary assets and inventory.

We found that the Housing Commission's controls over cash and other monetary assets and inventory were weak. Specifically, the Housing Commission: (1) improperly claimed $98,466 in operating subsidy since the Commission did not adjust its subsidy claims for long-term vacant units and inflated the number of occupied units claimed; (2) failed to maintain an acceptable level of occupancy that resulted in the Commission losing an estimated $157,286 in rental income; and (3) did not implement procedures and controls to safeguard its cash and other monetary assets against possible waste, loss, and misuse. Procedures and controls were lacking over: cash receipts and deposits; disbursements; equipment; procurement; and financial and administrative processes.


Issue Date: May 16, 2001
Audit Report No.: 2001-CH-1007
File Size: 1,428KB

Title: Detroit Housing Commission, HOPE VI Program, Detroit, Michigan

We completed an audit of the Detroit Housing Commission's HOPE VI Program located in Detroit, Michigan. The objectives of our audit were to determine whether the Housing Commission administered its HOPE VI Program in an efficient, effective, and economical manner and in compliance with HUD's requirements. We performed the audit based upon our Fiscal Year 2000 annual audit plan.

The Housing Commission did not administer its HOPE VI Program in an efficient, effective, and economical manner and failed to comply with HUD's requirements. The Commission used an estimated $740,790 of HUD funds (HOPE VI, Development, and Comprehensive Grant Program) to pay for construction work that was improperly performed or that was not provided. The work improperly performed or work not provided occurred in 95 of the 116 units (82 percent) and all 45 buildings inspected by our inspectors. Sixty-six units and 38 buildings did not meet HUD's Housing Quality Standards.

The Housing Commission also: paid $11,245,351 and approved for payment an additional $815,105 for change orders without sufficient supporting documentation; failed to obtain HUD's prior approval for 20 change orders, as required by the HOPE VI Grant Agreements; used $568,548 to pay construction expenses for the Frankfort Sewer project that the City should have provided at no cost to the Commission; and paid $3,643,031 and approved for payment an additional $1,278,651 for unreasonable, unnecessary, and/or unsupported expenses. As a result, HUD lacks assurance that the Commission's HOPE VI Program resources were used to the maximum extent to benefit low and moderate income individuals.


Issue Date: January 4, 2001
Audit Report No.: 2001-CH-1003
File Size: 364 KB

Title: Saginaw Housing Commission Low Income Housing Section 8 and Drug Elimination Grant Programs

We completed an audit of the Saginaw Housing Commission. The audit resulted from a HUD request and a complaint to the Hotline. The complainant alleged that the President of the Board of Commissioners of the Housing Commission created a conflict of interest by voting on matters that benefited an outside organization of which he was the executive director. The objectives of our audit were to determine whether the Housing Commission operated its programs effectively and in compliance with HUD requirements and other applicable regulations. Generally, the Housing Commission's programs were effectively administered, but we noted problems involving drug elimination grant expenses, a property disposition transaction, and Section 8 unit inspections that did not comply with HUD requirements.

The Housing Commission disbursed $19,552 in ineligible and unsupported Drug Elimination Grant funds, and did not assure that one of its subrecipients properly administered its own drug elimination program. As a result, grant activity reports submitted to HUD were inaccurate.

The Housing Commission also did not obtain HUD approval before selling a parcel of land, and City of Saginaw officials appeared to have undisclosed conflicts of interest regarding the property sale. HUD regulations were violated as a result, and the Housing Commission may not have acted in its best interests or those of its tenants. In addition, we inspected 18 public housing units and found 278 Housing Quality Standards violations that subjected tenants to hazardous and unhealthy living conditions.

The Housing Commission paid $3,632 in unsupported payroll costs to the Saginaw Police Department for two pay periods. These costs resulted from patrol services that were furnished to public housing sites. We determined that the Housing Commission's Accounting Department reimbursed the costs to the police department before discovering that supporting time records were incomplete.

The Housing Commission overpaid $3,157 in scholarship money to subrecipient Delta College for eight public housing residents. Awards for these residents exceeded the limit of $500 per individual cited in the Notice of Funding Availability. The over-payments ranged from $78 to $813. The Housing Commission informed us that it was not aware of the $500 limit.

The Saginaw Tenants Organization had weak controls over its grant funds. We reviewed 100 percent of the financial transactions for Drug Elimination Program Year 1997. The Tenants Organization did not keep track of the costs that were or were not reimbursed to it by the Housing Commission.

The Tenants Organization disbursed checks from its grant-funded bank account totaling $5,947 after February 1, 1999, the date on which the Saginaw Housing Commission stopped funding the Tenants Organization. The disbursements continued until November 1999, nine months after funding was stopped. The $5,947 should have been returned to HUD at the time the Tenants Organization was notified by the Housing Commission that funding was being stopped, but the Housing Commission failed to seek repayment of the funds. The disbursements made after February 1, 1999, resulted from the Tenant Organization's poor accountability for its drug elimination grant activities.

The Housing Commission obtained two appraisals for 2.2 acres of land, but sold the land at the lower appraised value of $9,000 without HUD approval and without justifying its action to the Housing Commission's Board of Directors. The former Housing Commission Executive Director informed us that a Board Member employed by a Saginaw organization having an interest in the land sale recommended to the Board that the $9,000 figure be accepted as the selling price. An Application for Disposition of Real Property, required to be submitted along with both appraisals to HUD prior to the land sale, was submitted six months after the Housing Commission Board authorized the sale. Only the $9,000 appraisal accompanied the application. As a result, HUD requirements were violated, and the Housing Commission may not have received fair compensation for the property.

We inspected 18 public housing units and found 278 health and safety violations, 271 of which existed at the time the Housing Commission performed its own inspections. The violations primarily involved structure and materials problems, electrical problems and sanitation issues. The Housing Commission's inspector cited only 22 of the 278 violations that were noted by the OIG's inspector. As a result of these problems, HUD's Housing Quality Standards were violated, and tenants were subjected to living conditions that were hazardous to their health and safety.

We recommended that the Director, Office of Public Housing, Michigan State Office, assures that the Saginaw Housing Commission: repays to HUD $3,632 in unsupported Police Department payroll costs; repays to HUD $3,157 for scholarship awards that exceeded the $500 individual limit; implements a system to measure its Drug Elimination Grant activities; seeks repayment of $5,947 from the Saginaw Tenants Organization for funds that should have been returned to HUD; obtains fair market value for the parcel of land by re-soliciting bids and selling it at no less than the highest appraised value; and corrects the health and safety violations in the 18 units we inspected.

We presented our draft findings to the Housing Commission during the course of the audit. We held an exit conference with the Executive Director on November 3, 2000. The Housing Commission provided written comments to our draft findings, which are included in their entirety as an Appendix to this report.

In his response to our draft findings, the Housing Commission's new Executive Director (appointed on March 27, 2000) acknowledged that the Housing Commission had lacked a strategic vision to guide management and staff toward the achievement of sound programs and controls. He indicated his belief that in his seven months of service, the Housing Commission had begun to strategically plan and improve its operations. He generally agreed with our recommendations related to improving grant administration and correcting the health and safety violations (Findings 1 and 4), and generally disagreed with the recommendations related to the Tenants Organization and the sale of the land parcel (Findings 2 and 3).


Issue Date: November 29, 2000
Audit Report No.: 01-CH-202-1002
File Size: 192 KB

Title: Muskegon Housing Commission, Audit of Low Rent Public Housing, Section 8 and Single Room Occupancy Programs, Muskegon, Michigan

We completed an audit of Muskegon Housing Commission's financial operations, which included its Low Rent Public Housing, Section 8 and Single Room Occupancy Programs. The audit was conducted in response to a request from the Director, Troubled Agency Recovery Center North, and the Director, Office of Public Housing, Michigan State Office. Our audit objectives were to determine: whether the Muskegon Housing Commission improperly transferred funds between its programs, and complied with the Annual Contributions Contract and other applicable HUD regulations.

We found that the Housing Commission transferred $836,893 between housing programs without HUD authorization. In addition, we estimated that $298,970 of Section 8 subsidy funds were improperly used by the Housing Commission to pay operating expenses of the Low Rent Public Housing Program. The Housing Commission pledged 14 Low Rent Public Housing Program homes and proceeds from the sales of those homes as collateral for a loan in violation of HUD regulations. The Housing Commission did not cease these activities after being instructed by HUD to do so.

We also found that the Housing Commission used $51,233 of Public Housing funds to pay employee health insurance premiums for the same coverage the employees were also receiving from the City of Muskegon. The Housing Commission could not provide supporting documentation for $12,989 in expenses charged to its credit card accounts.


Issue Date: August 31, 2000
Audit Related Memorandum No.: 00-CH-211-1810
File Size: 33KB

Title: Eenhoorn L.L.C., Multifamily Equity Skimming, Grand Rapids, Michigan

We completed a review of the books and records of Eenhoorn L.L.C., a management agent. We performed the review to determine whether Eenhoorn used project funds according to the Regulatory Agreement and other agreements, and applicable HUD policies and procedures. The review was part of our Operation Safe Home initiative.

We found that Eenhoorn L.L.C. misused $59,140 of River Oaks Apartments' funds for ineligible and unsupported payments. The Project's Regulatory Agreement and HUD's requirements restrict Project disbursements to payments necessary for operating and repairing the Project and restrict distributions to owners to the amount of surplus cash. As a result, fewer funds were available for the Project's normal operations and maintenance and HUD's interest in the Project was not sufficiently protected.


Issue Date: October 20, 1999
Audit Report No.: 00-CH-229-1001
File Size: 249KB

Title: Great Lakes Housing, Inc., Section 203(k) Mortgage Insurance Program and Partners for Affordable Homeownership Program, Wyoming, Michigan

We completed an audit of the books and records of Great Lakes Housing, Inc., a private non-profit organization. We selected Great Lakes Housing, Inc. for audit because of the large number of properties which it rehabilitated under the Section 203(k) Loan Insurance Program. Between January 1, 1997 and July 31, 1998, Great Lakes Housing obtained 47 Section 203(k) loans. It purchased the properties from HUD at a negotiated discount which exceeded the 30 percent discount available under the Partners for Affordable Home Ownership Program. The audit objective was to determine whether Great Lakes Housing, Inc. followed HUD requirements for the Section 203(k) loans and for the properties it purchased from HUD at the discounted rates.

Our audit concluded that Great Lakes Housing, Inc. did not comply with HUD requirements. It inappropriately obtained $79,125 of funds under the Section 203(k) Program for rehabilitation work by requesting funds in excess of actual costs and either did not perform the repair work or did not properly complete the repair work. As a result, HUD may have insured loans for excessive amounts and assumed unnecessary risks.


Issue Date: February 22, 1999
Audit Report No.: 99-CH-229-1004
File Size: 389KB

Title: Detroit Revitalization, Inc. Section 203(k) Mortgage Insurance Program and Partners for Affordable Homeownership Program Detroit, MI

We completed an audit of the books and records of Detroit Revitalization Inc., a private non-profit organization. We selected Detroit Revitalization, Inc. for audit because of the large number of properties which it rehabilitated under the Section 203(k) Loan Program. Between January 17, 1996 and February 27, 1997, Detroit Revitalization obtained 109 Section 203(k) loans. Eighty-two of these loans were originated by an identity-of-interest mortgage company. It also purchased nine properties at a 30 percent discount and 44 properties at a 10 percent discount under the Partners for Affordable Homeownership Program. The audit objective was to determine whether Detroit Revitalization followed HUD requirements for the Section 203(k) loans and for the properties it purchased from HUD at a 30 percent discount. We concluded that Detroit Revitalization did not comply with HUD's program objectives and requirements.


Issue Date: October 20, 1998
Audit Case No.: 99-CH-259-1003
File Size: 179KB

Title: Detroit Empowerment Zone Program, Detroit, MI

Based on our review of 10 of the 73 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 accurate reporting of the Program's accomplishments. The City: inaccurately reported the accomplishments of its Empowerment Zone activities to HUD; overstated the amount of leveraged funds for the Program; and incorrectly reported a program as an Empowerment Zone activity when it was not. The City also used Zone funds that did not benefit Zone residents. The amount of funds not properly used was small ($2,789); however, the problem was easily identifiable and could cause more significant problems in the future if not corrected.


Issue Date: September 29, 1998
Audit Related Memorandum No.: 98-CH-211-1812
File Size: 19KB

Title: Regency Townhomes Multifamily Equity Skimming Lansing, Michigan

We determined that $132,437 of project funds were improperly disbursed to or retained by the project owners. The owners also used another $19,384 of project funds for ineligible and unsupported costs. Further, the project was not in a good physical condition. An OIG Appraiser/Construction specialist estimated that the project needed repairs of $321,200 to bring it up to a satisfactory condition. As a result, HUD's interest in the project was not adequately protected.


Issue Date: April 30, 1998
Audit Related Memorandum No.: 98-CH-202-1809
File Size: 21KB

Title: River Rouge Housing Comm., River Rouge, MI

We found the Commission: (1) properly conducted annual unit inspections and corrected the deficiencies noted in the inspections; (2) kept the waiting lists and assigned units in accordance with HUD requirements, and (3) used Comprehensive Grant and Drug Elimination Grant Funds according to HUD regulations and only for eligible purposes.


Issue Date: January 14, 1998
Audit Related Memorandum No.: 98-CH-184-1805
File Size: 46KB

Title: Section 203(k) Rehabilitation, Grand Rapids, MI

We found that the complaint was valid. The lenders used the same consultant/inspector for most of their Section 203(k) loans. However, this did not violate any HUD rules. The consultant/inspector who was the subject of the complaint, however, did not always prepare adequate work write-ups and cost estimates, and did not always perform proper inspections. The consultant/inspector certified that work was completed when the work either was not done or was unsatisfactory. Additionally, the HUD Grand Rapids Office was aware that the consultant/inspector was not doing proper inspections, but HUD did not take any action against him.


Date Issued: December 11, 1997
Audit Related Memorandum No.: 98-CH-201-1804
File Size: 237KB

Title: Detroit Housing Comm., Detroit, MI

To a great extent, the Commission took actions to address the problems found in the previous report. The actions the Commission took required the development of new procedures and methods of doing business as well as multilevel coordination between internal and external sources. As with any endeavor of this size, some actions were delayed or overlooked and need emphasis.


Date Issued: November 19, 1997
Audit Related Memorandum No.: 98-CH-211-1801
File Size: 3KB

Title: Highland Mgmt. CO., Southfield, MI

We concluded the Management Agent did not correctly calculate the overhead rate paid to an identity-of-interest construction company and did not maintain the buildings in acceptable condition. The construction company provided maintenance services to the four HUD-insured projects. The Management Agent's accountant calculated the overhead rates but did not have any documentation to support the calculations. The accountant included overhead costs for supervision and bookkeeping, vacation and holidays, and vehicle usage that appeared unreasonable. The overhead rate of 108 percent exceeded the standard industry rate of 30 percent. We used "Means Remodeling and Cost Data" published by R.S. Means company to determine the standard rate. As a result, the Management Agent used project funds totaling $163,327 to pay overhead costs that were unsupported.


Issue Date: September 17, 1997
Audit Report No.: 97-CH-221-1010
File Size: 160KB

Title: Major Mortgage Corp., Livonia, MI

Our review concluded that for 20 of the 25 Section 203(k) loans we reviewed, Major Mortgage Corporation did not exercise due care when it underwrote the loans. In computing the maximum allowable mortgage amounts, Major Mortgage used the wrong loan to value ratio for 20 loans and, in addition, did not properly determine the property values for 8 of the 20 loans. As a result, HUD insured the loans for excessive amounts and assumed an unnecessary risk of $174,698.


Issue Date: January 24, 1997
Audit Case No.: 97-CH-241-1005
File Size: 58KB

Title: Flint Hope III, Flint, MI

We concluded, with the exception of the unsupported expenditures identified by the City, Flint Neighborhood Improvement and Preservation Project, Inc. adequately supported its expenditures; however, the use of funds was not always according to HUD's requirements. Flint Neighborhood: (1) did not complete rehabilitation work timely; and (2) made ineligible sick pay disbursements of $2,669. During our audit, the City of Flint reimbursed HUD $27,049 for the unsupported expenditures identified in its review.


Issue Date: October 29, 1996
Audit Case No.: 97-CH-202-1002
File Size: 95KB

Title: Muskegon Heights Housing Comm., Muskegon Heights, MI

We found the Commission generally administered its Low-Income Housing Program according to HUD's requirements. The Commission maintained its occupied units in decent, safe and sanitary condition; and properly maintained its accounts receivable balances and occupancy levels. The Commission, however, could improve its operations by: (1) following the terms of its Vacancy Reduction Program agreement, (2) assuring that the tenant eviction process is economical and the provider of the services is selected using full and open competition; (3) submitting independent audits, operating budgets, and other financial information reports to HUD timely; and (4) establishing proper controls over its non-expendable assets.


Issue Date: October 10, 1996
Audit Related Memorandum No.: 97-CH-184-1801
File Size: 25KB

Title: Hamtramck Housing Comm., Hamtramck, MI

We concluded that the portion of Comprehensive Grant funds planned to be used to construct a police station would not be an eligible use of the funds. We also determined that HUD lacks assurance the rest of the facility will adequately benefit the Commission's low income residents.


Issue Date: August 1, 1996
Audit Related Memorandum No.: 96-CH-214-1811
File Size: 16KB

Title: Choice Properties, Troy, MI

We determined the identity-of-interest Management Agent, made distributions of $92,000 to the project's owners when the project was not in satisfactory condition. Our inspections showed the poor physical condition resulted from lack of proper routine maintenance. The Agent did not use reserve for replacement funds that were available to make needed repairs and used unqualified workers to accomplish repairs that were made. The Agent ignored HUD's directives and requests to make proper repairs. As a result, HUD's interest in the project was not adequately protected.


Issue Date: May 31, 1996
Audit Case No.: 96-CH-229-1009
File Size: 65KB

Title: Partners for Affordable Home Ownership Prog., Detroit, MI

We concluded that six of the nine nonprofit organizations complied with HUD's requirements. Three nonprofit organizations, however, made unallowed profits and were not in compliance with HUD's requirements. The three organizations sold homes purchased from HUD at a 30 percent discount for amounts higher than allowed by HUD's program requirements. One of the three nonprofit agencies also violated HUD's conflict of interest requirements; another nonprofit agency did not have an adequate accounting system to capture property related costs and revenues; and, the third agency did not have a source of funds to finance its participation in the program. Officials for all three nonprofit agencies said they were not aware of HUD's program requirements, although they signed an addendum containing the sales restrictions with the purchase of each home. As a result, low and moderate income home buyers paid more for their homes than HUD's program intended.


Issue Date: March 29, 1996
Audit Related Memorandum No.: 96-CH-212-1808
File Size: 5KB

Title: Western Hills Apts., Westland, MI

Our audit, completed in October 1994, found Western Hills Apartments and its owners improperly withdrew $296,574 of project funds between 1987 and 1991. TR Associates used the distributions to pay a promissory note to the original owner. Contrary to the Regulatory Agreement and the promissory note agreement, the distributions used to pay the promissory note were in excess of surplus cash. The owners also made disbursements between 1991 and 1994 totaling $45,984 that were not necessary to the operations of the project, ineligible, or inadequately supported. During the same period the project had deferred repairs and maintenance totaling $273,980.


Issue Date: March 29, 1996
Audit Related Memorandum No.: 96-CH-212-1807
File Size: 36KB

Title: McKinley Assoc., Ann Arbor, MI

We concluded that McKinley Associates did not fully comply with the Regulatory Agreement and other HUD requirements. Contrary to the Regulatory Agreement, the owners withdrew $411,662 of project funds in excess of surplus cash from Glencoe Hills in 1994. During the audit, the owners reimbursed the project account for these withdrawals. Therefore, no further follow-up is needed regarding this issue.


Issue Date: March 8, 1996
Audit Related Memorandum No.: 96-CH-212-1806
File Size: 56KB

Title: Forest Creek Apartments, Grand Rapids, MI

We concluded the Project Owners use of $360,000 in project funds did not fully comply with the Regulatory Agreement and HUD's requirements. The Owner's disbursed funds for ineligible and unsupported costs when the Project was in a negative surplus cash position and the Project needed repairs. The Grand Rapids HUD Office estimated the Project needed repairs totaling $339,950.


Issue Date: November 8, 1995
Audit Related Memorandum No.: 96-CH-212-1803
File Size: 4KB

Title: Village Green Apts., Portage, MI

We found that project funds were not distributed to the owners for loan repayments. The payments were for management fees that the owners had allowed to accrue in the project. The management fees were earned and allowed by HUD. The owners/management agent properly maintained the project and there were no outstanding notices of deferred maintenance. Therefore, we concluded a detailed audit was not necessary.


Issue Date: October 27, 1995
Audit Related Memorandum No.: 96-CH-212-1802
File Size: 5KB

Title: Harbors Health Facility, Douglas, MI

We concluded that the use of project operating funds was not reasonable and did not comply with the Regulatory Agreement. Specifically:

-- Harbors Health Facility improperly disbursed $48,157 of project funds to an affiliated company, Harbors Health Care, Inc. The use of funds was not necessary for the project's operations.

-- Harbors Health Facility used project funds to pay Harbors Health Care, Inc., an affiliated company, $7,655 in unnecessary or excessive rent payments.

As a consequence of improper and excessive disbursements, the project had fewer funds to pay its normal operating expenses and has incurred late payment penalties. The disbursements occurred when the project was in a non-surplus cash position.


Issue Date: October 26, 1995
Audit Report No.: 96-CH-221-1003
File Size: 145KB

Title: Erin Mortgage CO., Eastpointe, MI

We concluded that Erin did not originate nine loans originated under section 221(d)(2) in accordance with HUD's requirements or prudent lending practices. We did not find any problems with the other six loans. The nine loans were originated by three loan officers. Erin did not properly verify: (1) the validity and reasonableness of expenses for nine borrowers; and (2) the rental payment history for four borrowers. Proper verifications are necessary to show the borrowers' ability to make mortgage payments, accumulate savings and manage their financial affairs. Erin also did not always ensure that its quality control reviews were conducted according to its quality control plan and HUD requirements.


Issue Date: October 5, 1995
Audit Case No.: 96-CH-202-1001
File Size: 32KB

Title: Benton Township Housing Comm., Benton Harbor, MI

The Commission generally administered its Low-Income Housing Program according to HUD's requirements. The Commission maintained its occupied units in decent, safe and sanitary condition; properly managed its nonexpendable equipment; and properly maintained its accounts receivable balances and occupancy levels. The Commission could, however, further improve its operations by: (1) reducing the time to prepare and lease vacant units; (2) assuring its travel policy is comparable to the local public practice; and (3) charging only supported payroll costs to the Comprehensive Improvement Assistance Program.

 

 
Content Archived: September 9, 2010