Missouri Audit Reports

Issue Date: July 9, 2007
Audit Report No.: 2007-KC-1006
File Size: 1.78KB

Title: The Mansfield Housing Authority of Mansfield, Missouri, Misspent Public Housing Funds and Did Not Fulfill Its Section 8 Program Contract Administrator Requirements

HUD-OIG audited the Mansfield Housing Authority (Authority) in response to a citizen complaint that the Authority misspent public housing funds and used Authority assets for personal use.

The Authority used public housing funds for ineligible expenses and did not always adequately support the use of public housing funds. Additionally, it did not fulfill its duties as a Section 8 contract administrator for a multifamily property. We recommended that HUD require the Authority to provide support for and/or repay its public housing program from nonfederal sources for ineligible and unsupported expenses paid from public housing funds.

We also recommended that HUD further evaluate the Authority's expenses, require repayment of any additional misused funds, and verify that the Authority has implemented adequate controls over expenses. Finally, we recommended that HUD take administrative action against the executive director for using federal funds for personal expenses, and require the Authority to repay unearned Section 8 contract administrator fees paid to it.

Issue Date: October 11, 2006
Audit Report No.: 2007-KC-1001
File Size: 1.29MB

Title: The City of St. Louis, Missouri, Did Not Meet HUD's Requirements for Creating and Retaining Jobs

HUD's Office of Inspector General audited the City of St. Louis to determine whether the City used its Community Development Block Grant funds to create or retain the required number of jobs and properly allocated administrative costs to the Block Grant.

The City provided loans to 52 of 66 economic development projects totaling nearly $4.5 million that could not demonstrate that they met the U.S. Department of Housing and Urban Development's requirements for creating and retaining jobs. We recommended that HUD require the City to provide sufficient documentation to show that the 52 projects created or retained at least the minimum number of jobs, or repay $1.7 million in forgivable loans provided to projects and create additional jobs to offset the $2.8 million in repayable loans that did not properly create or retain jobs.

The City also did not require the St. Louis Development Corporation to properly report the number of jobs it created with the HUD funds it loaned to projects. We recommended that HUD require the City to improve its control structure to ensure that the nearly $1.7 million in underway projects creates the appropriate number of jobs and to impose sanctions against its development corporation if poor performance continues.

We did not find any material deficiencies in the City's allocation of administrative costs to the Block Grant program.

Issue Date: June 29, 2006
Audit Report No.: 2006-KC-1012
File Size: 293.49KB

Title: The Owner of HDC Retirement Village in St. Louis, Missouri, Violated Its Regulatory Agreement

HUD-OIG reviewed HDC Retirement Village, a 48-unit project located in St. Louis, Missouri, to determine whether the managing owner complied with regulatory agreement provisions when expending project funds. HDC Retirement Village's managing owner did not use project funds in compliance with the regulatory agreement and also violated several other terms of the agreement. These violations, totaling $209,716, adversely affected the project's financial stability. We recommended that HUD take appropriate actions to correct deficiencies and ensure that these violations will not occur in the future.

Issue Date: June 29, 2006
Audit Report No.: 2006-KC-1011
File Size: 311.72KB

Title: The Owner of Wellston Townhouses in St. Louis County, Missouri, Violated Its Regulatory Agreement

HUD-OIG reviewed Wellston Townhouses, a 63-unit project located in St. Louis County, Missouri, to determine whether the owner and management agent used project funds in compliance with the regulatory agreement and HUD's requirements. Wellston Townhouses' managing owner did not use project funds in compliance with the regulatory agreement and violated several other terms of the agreement. These violations, totaling $304,660, adversely affected the project's financial stability. We recommended that HUD take appropriate actions to correct deficiencies and ensure that these violations will not occur in the future.

Issue Date: March 30, 2006
Audit Report No.: 2006-KC-1008
File Size: 91.42

Title: The St. Joseph Housing Authority, St. Joseph, Missouri, Overhoused 16 Tenants under the Section 8 Housing Voucher Program

HUD OIG reviewed the Section 8 Housing Choice Voucher program of the St. Joseph Housing Authority, St. Joseph, Missouri (Authority) to determine whether the Authority paid excess subsidies for oversize units.

The Authority overhoused 16 tenants when it subsidized an additional bedroom for medical purposes without proper justification. This resulted in overpayments of $20,108 from 2002 through January 2006. By correcting its weak controls, the Authority can avoid future overpayments totaling $54,036.

We recommended that the director, Office of Public Housing, ensure that the Authority immediately corrects overhoused tenants' vouchers and repays the overpayments. We also recommended that the director verify that the Authority implements procedures to ensure that each tenant receives the proper voucher size to avoid additional overpayments.

Issue Date: March 15, 2006
Audit Report No.: 2006-KC-1007
File Size: 774.49KB

Title: American Lending Group Did Not Properly Originate 9 Loans and Did Not Have Adequate Quality Control Procedures

HUD-OIG audited the Federal Housing Administration loan origination process of American Lending Group in St. Peters, MO, to determine whether American Lending properly originated Federal Housing Administration loans, properly submitted late requests for endorsement, and implemented adequate quality control procedures. We found that American Lending did not properly originate eight Federal Housing Administration loans, improperly submitted one loan for late insurance endorsement, and did not implement adequate quality control procedures. We recommended that HUD require American Lending to indemnify HUD for current and future losses due to improperly originated and late endorsed loans and implement changes to its quality control procedures.

Issue Date: March 3, 2006
Audit Report No.: 2006-KC-1006
File Size: 436.66KB

Title: The Housing Authority of Kansas City, Missouri, Unnecessarily Paid Housing Choice Voucher Program Funds for Overhoused Tenants

HUD OIG reviewed the Housing Authority of Kansas City, Missouri's (Authority) Housing Choice Voucher program to determine whether the Authority paid excess subsidies for overhoused tenants.

The Authority overhoused 50 tenants. Since 2002, the Authority has unnecessarily paid $30,946 in voucher program funds for these tenants. The Authority could avoid future losses of $73,692 by enhancing its controls, thereby allowing it to provide vouchers to additional tenants.

We recommended that HUD require the Authority to immediately correct overhoused tenant's vouchers, repay the unnecessary costs incurred, and develop and implement procedures that improve controls over assigning voucher sizes.

Issue Date: January 31, 2006
Audit Report No.: 2006-KC-1005
File Size: 3.24MB

Title: Matrix Financial Services Corporation's St. Louis, Missouri, Branch Did Not Properly Underwrite and/or Close 40 Federal Housing Administration Loans

HUD-OIG reviewed 65 Federal Housing Administration loans sponsored by the St. Louis, Missouri, branch of Matrix Financial Services Corporation. Our audit objective was to determine whether Matrix properly underwrote, closed, and submitted the loans for endorsement.

Matrix did not properly underwrite 32 loans with original mortgage amounts totaling $3,279,345. Matrix did not properly close 13 loans; the borrowers of each of these loans incurred excessive, unsupported, and/or unallowable closing fees totaling $7,703. Matrix properly submitted for endorsement all the loans in our sample.

We recommended that HUD require the lender to indemnify improperly underwritten loans and buy down the principal balance of the 13 loans not properly closed.

Issue Date: November 30, 2005
Audit Report No.: 2006-KC-1001
File Size: 337.60KB

Title: Columbia Housing Authority, Columbia, MO, Is Unnecessarily Paying Housing Choice Voucher Program Funds for Overhoused Tenants

HUD-OIG reviewed the Columbia Housing Authority's (Authority) Housing Choice Voucher program (voucher program) to identify savings that the Authority will realize by not overhousing tenants. We identified 99 tenants with larger than necessary vouchers. Since 2002, the Authority has unnecessarily paid $216,352 in voucher program funds for these tenants.

These funds were overpaid because the Authority's procedures were ineffective in preventing overhousing. By enhancing its procedures to ensure that voucher program tenants receive the proper voucher size and subsidy payment, the Authority could avoid future losses of $300,276. This would allow the Authority to provide vouchers to additional tenants.

We recommended that HUD require the Authority to correct overhoused tenants' vouchers, repay $216,352 from its reserve account to the voucher program fund, and develop and implement procedures to ensure that tenants receive correct sized vouchers.

Issue Date: July 28, 2005
Audit Report No.: 2005-KC-1008
File Size: 250.78KB

Title: St. Louis Housing Authority Overhoused Section 8 Tenants and Had Inaccurate Tenant Data

We audited the Housing Choice Voucher program of the St. Louis Housing Authority to determine whether the Authority was operating its Section 8 program in accordance with HUD requirements. We found that the Authority does not have adequate procedures in place to ensure that its tenants receive the proper voucher size, nor do they have adequate procedures in place to ensure the accuracy of data entry of key tenant identification information. These procedural deficiencies caused the Authority to expend $24,750 in excess housing assistance payments, and hinder the Authority's ability to obtain tenant income information from the Enterprise Income Verification system when calculating tenant rent and subsidy payments. We recommended that HUD require the Authority to reimburse the $24,750 in excess housing assistance payments, and ensure that the Authority develops and implements procedures to ensure that each tenant receives the proper voucher size. In addition, we recommend that the Authority review the accuracy of the input of the tenant's identification information.

Issue Date: November 15, 2004
Audit Report No.: 2005-KC-1002
File Size: 57.5KB

Title: The Housing Authority of St. Louis County, MO Has Not Used Restricted Assets To Inappropriately Benefit Other Entities' Development Activities

We completed an audit of the St. Louis County Housing Authority. Our audit objective was to determine whether the Authority inappropriately encumbered Annual Contributions Contract resources to the benefit of other entities' financing or development activities. We found that the Authority has entered into many and varied agreements such as guaranties, lines of credit and loans to the benefit of other entities and activities. However, these agreements have not encumbered Annual Contributions Contract assets. Accordingly, this report contains no findings or recommendations.

Issue Date: October 4, 2004
Audit Report No.: 2005-KC-1001
File Size: 424.1KB

Title: Karim Enterprises, DBA Prime Mortgage, Did Not Follow Federal Housing Administration Requirements

We received a complaint alleging that Prime Mortgage, a non-supervised loan correspondent located in Saint Charles, MO, provided funds to a Federal Housing Administration borrower to assist with closing costs.

Our audit objective was to determine whether Prime Mortgage complied with the U.S. Department of Housing and Urban Development's (HUD) source of funds, gift documentation, and quality control plan requirements. The owner of Prime Mortgage inappropriately provided funds to two borrowers just prior to closing their loans. For a third loan, Prime Mortgage did not obtain adequate documentation of the transfer of gift funds. As a result, HUD has insured three loans that would not have met the minimum requirements to qualify for a Federal Housing Administration loan, placing the HUD insurance fund at risk for loans totaling $376,102.

Prime Mortgage satisfied one of HUD's quality control requirements by developing a written quality control plan, but failed to perform the required quality control reviews. As a result, HUD lacks assurance that Prime Mortgage is identifying and correcting potential deficiencies in its loan origination process before submitting loans for Federal Housing Administration insurance.

We recommend that the Assistant Secretary for Housing - Federal Housing Commissioner, and Chairman, Mortgagee Review Board take appropriate administrative action against Prime Mortgage for its improper actions, and against the sponsors of the three loans with origination deficiencies.

We recommend that the Acting Director, Departmental Enforcement Center, take appropriate action against Karim Enterprises, dba Prime Mortgage; such as debarring the business and principals for providing funds to Federal Housing Administration borrowers while making it appear that the funds came from allowable sources, and for providing loans to borrowers to use as funds to close.

If HUD allows Prime Mortgage to maintain its Federal Housing Administration approval status, we recommend that the Assistant Secretary for Housing - Federal Housing Commissioner, and Chairman, Mortgagee Review Board require Prime to implement controls that ensure that it follows HUD's quality control review requirements, and verify that Prime has implemented appropriate controls.

Issue Date September 30, 2004
Audit Report No.: 2004-KC-1801
File Size: 400.87KB

Title: Survey of NovaStar Home Mortgage's Use of Net Branches

We surveyed NovaStar Home Mortgage's (NovaStar) use of net branches to determine whether it is complying with applicable requirements in its use of net branches. We determined that it was not fully complying with applicable U.S. Department of Housing and Urban Development (HUD) requirements in its use of net branching at the time of our review. We found the agreements used in its branch offices contained language prohibited by HUD. We also determined that NovaStar improperly used independent contract loan officers in the origination of Federal Housing Administration mortgages. As a result, HUD lacks assurance that NovaStar has the capability to successfully originate Federal Housing Authority-insured loans, and therefore, assumes an increased risk.

NovaStar has initiated actions to correct these deficiencies by eliminating all limited liability company agreements, as well as removing the prohibited language from the employment and lease/sublease agreements. Also, as of June 1, 2004, NovaStar is no longer allowing the employment of independent loan officers. These changes should help ensure that NovaStar complies with HUD requirements in its use of net branches.

We recommended that the Assistant Secretary for Housing - Federal Housing Commissioner, Chairman, Mortgagee Review Board verify that NovaStar follows through and corrects all the deficiencies identified in its branch office agreements. At a minimum this should include:

• Removal of all limited liability company agreements.
• Removal of prohibited language from employment agreements.
• Removal of prohibited language from lease/sublease agreements.

Issue Date: September 30, 2004
Audit Report No.: 2004-KC-1006
File Size: 324.2KB

Title: The Housing Authority of Kansas City, Missouri Did Not Consistently Follow HUD Rules Over its Housing Choice Voucher Program

We selected the Housing Authority of Kansas City, Missouri based on information from the Kansas City Office of Public Housing regarding recent reviews of the Housing Authority's Housing Choice Voucher Program. The results of these reviews, performed in 2002 and 2003, indicated that the Housing Authority was not consistently following HUD rules in administering its Housing Choice Voucher Program. The reviews identified problems regarding quality control, verification of tenant information, and a lack of proper documentation. Because of the volume of vouchers administered by the Housing Authority, it poses a significant risk to the voucher program in the Kansas City area.

Our objective was to determine if the Housing Authority was following HUD rules and regulations in establishing tenant eligibility and calculating tenant income and rent, and was performing Housing Quality Standards inspections in a timely manner.

Housing Authority of Kansas City, Missouri, personnel did not consistently follow HUD rules and regulations in calculating tenant income and rent or verifying tenant information. These results confirmed problems identified in previous reviews. Further, the Housing Authority did not follow an established quality control plan to ensure that errors would be captured and immediately corrected. As a result, the Housing Authority could not ensure that it would identify and correct errors in rents and subsidies.

We also determined that the Housing Authority performed Housing Quality Standards inspections within the timeframes established by HUD and properly documented the completed inspections.

We recommend that the Kansas City Office of Public Housing ensure that the Housing Authority has implemented an adequate quality control plan and made all appropriate corrections to the tenant files, rents, and subsidies.

Issue Date: August 11, 2004
Audit Report No.: 2004-KC-1005
File Size: 3.12MB

Title: The City's Housing Program and the Role of the Housing Economic Development Financial Corporation, City of Kansas City, Missouri

We have completed an audit of Kansas City, Missouri's Housing Program and the role of the Housing and Economic Development Financial Corporation (HEDFC) in that program. This was a joint audit conducted with the City Auditor for Kansas City, Missouri. Our objectives for this audit were to determine what system the City used to implement its housing policy, what role HEDFC played in the system, how well HEDFC carried out that role, and whether changes in the system could improve the City's performance and its ability to meet its housing goals.

We found that the City's system is fragmented and overly complex, resulting in higher than necessary administrative costs; lack of information; poor communication; delays; and lack of accountability for poor performance. In addition, the City has failed to adequately define HEDFC's role in providing affordable housing, causing it to cede decisions about the use of public funds to HEDFC, and preventing it from fulfilling its responsibilities as a recipient of federal grant funds. We also noted significant deficiencies in HEDFC's operations. Since HEDFC is an integral component of the City's housing program, financial and operational problems result in not just underperformance for HEDFC, but for the system as a whole.

We recommend that the City Manager reevaluate and revise the city's processes for developing housing policy and administering housing funds. These revisions should include bringing some functions of the program in-house and competitively awarding the remaining services. We also recommend that the City Manager require HEDFC to repay $900,000 in Beacon Hill program income it used without authorization and to repay the $600,000 balance of the Westside Business Park Section 108 loan.

We recommend that the Director of HUD's Office of Community Planning and Development ensure the City develops and implements the procedures necessary to ensure an effective and efficient housing program, and recovers from HEDFC the $900,000 in Beacon Hill program income it used without authorization and the $600,000 balance of the Westside Business Park Section 108 loan.

Issue Date: July 28, 2004
Audit Report No.: 2004-KC-1004
File Size: 1.07MB

Title: Gershman Investment Corporation,
Non-Supervised Direct Endorsement Lender, Clayton, MO

We have completed an audit of Gershman Investment Corporation, a non-supervised direct endorsement lender approved to originate Federal Housing Administration insured loans. We selected Gershman for audit because they are one of the larger mortgagees in the St. Louis area and had a slightly above average default rate.

Our audit objectives were to determine if Gershman complied with HUD regulations, procedures, and instructions in the origination of the FHA-insured single-family mortgages and to determine whether Gershman's late requests for endorsement complied with HUD's requirements.

Gershman did not adhere to HUD requirements and prudent lending practices when originating 27 of the 43 loans we examined for compliance. The 27 loan files contained unsupported income, unsupported assets, underreported liabilities, questionable and/or derogatory credit histories, inadequate qualifying ratios, and other inconsistent and/or questionable documentation. The deficiencies occurred because Gershman did not have an adequate control environment to ensure that its employees followed HUD requirements when processing and underwriting loans. These 27 loans totaling $2,476,749, represent an increased risk to the Federal Housing Administration insurance fund.

Overall, Gershman's procedures for submitting late requests for endorsement were effective. However, Gershman did improperly submit five loans for insurance endorsement when the borrowers had delinquent payments prior to loan submission. These five improperly submitted loans, with mortgages totaling $525,402, represent an increased risk to the Federal Housing Administration insurance fund.

Gershman was deficient in its quality control review activities. Gershman did not conduct reviews within 90 days of loan closing and did not review the required number of loans closed. Without fully implementing adequate quality control policies and procedures, Gershman is unable 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 Gershman Investment Corporation. This action should, at a minimum, include requiring indemnification for the 28 actively insured loans and reimbursement for claims and related losses already incurred on the three loans that have gone into claim status.

Issue Date: March 10, 2004
Audit Report No.: 2004-KC-1002
File Size: 936.8KB

Title: Use of Project Funds, Timberlake Care Center, Kansas City, Missouri

We have completed an audit of Timberlake Care Center, a nursing home located in Kansas City, Missouri. We selected the project based on an audit request from the Office of Multifamily Housing, Kansas City Hub, which indicated there were unallowable disbursements from project funds. Our objective was to determine whether the Owner/Management Agent used project funds in accordance with applicable requirements.

Timberlake Care Center made payments for other than reasonable operating expenses and necessary repairs of the project. Timberlake paid $76,192 in unsupported and/or unallowable disbursements from the operating account during fiscal years 2002 and 2003. Timberlake's owner did not alter property operations to ensure HUD rules and regulations were followed after Timberlake obtained HUD insured financing in August 2001. As a result, funds that should have been used to pay the operating expenses of the property were used for unsupported and/or unallowable purposes, contributing to Timberlake's negative surplus cash position.

Timberlake Care Center also did not reconcile the operating account bank statements to the general ledger each month to ensure the amounts balanced. Over the two-year audit period, the operating account general ledger balance was understated by $17,590. Timberlake's staff was aware that the operating account bank statements did not reconcile to the general ledger balance. However, they did not know how to correct the problems, and therefore, took no action.

We recommend that HUD ensure Timberlake Care Center owners develop and implement policies and procedures to control funds in accordance with HUD requirements, and require that Timberlake's operating account be reimbursed $76,192 for the unsupported and/or unallowable disbursements paid during our audit period. We also recommend that HUD ensure Timberlake owners provide adequate support for the adjusting entry to cash made at the end of fiscal year 2002, and properly correct the fiscal year 2003 general ledger, or repay Timberlake's general operating account the amount that cannot be supported up to $17,590. Finally, we recommend that HUD verify that Timberlake owners are correctly reconciling the bank statements to the general ledger each month, and if they are unable to determine how to identify and resolve all reconciling items, have obtained outside assistance in doing so.

Issue Date: November 24, 2003
Audit Report No.: 2004-KC-1001
File Size: 1.50MB

Title: Use of HUD Grant Funds, East Meyer Community Association, Kansas City, Missouri

We have completed an audit of East Meyer Community Association, a Community Development Corporation located in Kansas City, Missouri. We selected East Meyer Community Association for review on the basis of a request by the Kansas City Office of Community Planning and Development. Our audit objective was to determine if East Meyer used the Community Development Block Grant and Neighborhood Initiative Grant funds it received during fiscal years 2000 and 2001 in accordance with applicable guidelines.

East Meyer Community Association (East Meyer) mismanaged Neighborhood Initiative and Community Development Block grant funds by improperly using the grant funds for purposes other than those specified in the contract and/or grant agreement. East Meyer improperly spent $726,850 of the $1,000,000 Neighborhood Initiative Grant, incurred $57,464 of unsupported expenses charged to its Neighborhood Initiative Grant, and charged $65,379 of unsupported expenses to its Community Development Block Grant. We recommend that the Director, Economic Development Initiative take administrative action against East Meyer management and Board of Directors, that will prevent them from participating in future HUD funded activities. Additionally, we recommend that the Director take action to recoup the $726,850 that was inappropriately spent. Further, we recommend the Director require East Meyer to provide documentation to support $57,464 in unsupported Neighborhood Initiative Grant expenditures and the Director, Office of Community Planning and Development, 7AD require East Meyer to provide documentation to support $65,379 in unsupported Community Development Block Grant funds or repay the amounts that cannot be supported.

Issue Date: March 24, 2003
Audit Memorandum No.: 2003-KC-1803
File Size: 164KB

Title: Richmond Terrace Retirement Center, Richmond Heights, Missouri, (FHA #085-43068)

We have completed a review of the Richmond Terrace Retirement Center. The review was initiated as a result of our local audit planning and concerns raised by the St. Louis Multifamily Program Center. Our objective was to determine if bond funds and project funds were properly handled.

We concluded that the mortgagee provided key certifications at initial closing that contained incorrect cost amounts, causing mortgage proceeds to be drawn down and used for unsupported expenses. These acts exposed HUD's mortgage insurance fund to unnecessary risk because the owner did not have adequate funds at initial closing. We also identified residual bond funds that were improperly being held by the Bond Trustee. During our review we coordinated with the Office of Housing and the Office of General Counsel to exercise HUD's legal claim to the residual bond funds. As a result, HUD collected residual bond funds totaling $50,063 from the Bond Trustee.

We recommend that the St. Louis Multfamily Program Center take appropriate legal and administrative actions in coordination with the Region 7 Regional Counsel/Office of Program Enforcement.

Issue Date: December 26, 2002
Audit Memorandum No.: 2003-KC-1802
File Size: 142KB

Title: Housing Authority of Independence, Section 8 Review,
Independence, MO

We have completed a review of the Section 8 department of the Housing Authority of Independence. We conducted this review as a follow-up to a prior audit in which we identified discrepancies in the Authority's Section 8 department. The overall objective of our review was to determine if the Authority's Section 8 department is complying with applicable HUD rules and regulations. We determined that the Authority has an effective and well-run Section 8 department and is substantially complying with all applicable rules and regulations. This memorandum does not contain any recommendations.

Issue Date December 26, 2002
Audit Report No.: 2003-KC-1003
File Size: 201KB

Title: St. Louis, Missouri/East St. Louis, Illinois Empowerment Zones

We have completed an audit of the City of St. Louis Empowerment Zone program. We conducted the audit based on a request from Congress. The objectives of the audit were to determine whether the City: (1) efficiently and effectively used Empowerment Zone funds; and (2) accurately reported the accomplishments of its Empowerment Zone program to HUD. We concluded that the City did not accurately report all planned and actual outputs or funding commitments in its June 30, 2002 Performance Review. For one of four projects we evaluated, the Performance Review contained information that overstated the projected number of area residents to be served and understated the actual number of area residents served. For two projects, total funding commitments were understated. We made one recommendation that the City of St. Louis establishes and implements management controls to ensure accurate reporting.

Issue Date December 17, 2002
Audit Memorandum No.: 2003-KC-1002
File Size: 1.12MB

Title: Congressional Requested Audit of the Outreach and Training Assistance Grant awarded to Housing Comes First, St. Louis, Missouri, Grant Numbers FFOT98018MO and FFOT00022MO

We have completed an audit of Housing Comes First and determined that Housing Comes First did not comply with HUD and Office of Management and Budget (OMB) requirements. This occurred because Housing Comes First did not maintain a staff with the experience and knowledge necessary to effectively manage the organization. As a result, HUD has no assurance that grant funds were used within program requirements.

Housing Comes First did not comply with HUD and Office of Management and Budget (OMB) requirements because it:

* Did not establish and implement controls to ensure grant funds were used
according to applicable regulations. The grantee did not have adequate policies
and procedures or complete and reliable accounting records. The grantee also did not segregate executive and financial functions or perform monthly reconciliations of its bank accounts.
* Could not adequately support how it used $336,108 in grant funds.
* Did not use a reasonable method to allocate common costs. The grantee informed us that costs are allocated based on a predetermined percentage rather than on actual use or benefit.
* Made payment requests to HUD based on budget amounts when HUD regulations required it to obtain funds on a reimbursement basis for actual costs incurred.
* Engaged in lobbying that possibly violated Federal regulations.

We concluded that HUD has no assurance that grant funds were used within program requirements, or that Housing Comes First would properly use future OTAG funds. Our report contains one recommendation that HUD take appropriate administrative action against Housing Comes First and its management.

Issue Date: November 14, 2002
Audit Memorandum No.: 2003-KC-1801
File Size: 160KB

Title: University Forest Nursing Care Center University City, Missouri (FHA # 085-43064)

We completed a review of the University Forest Nursing Care Center. The review was initiated as a result of our local audit planning and concerns raised by the St. Louis Multi-Family Program Center on a project related to University Forest. Our objective was to determine if University Forest complied with the provisions of its Regulatory Agreement with HUD. We identified significant violations of University Forest's Regulatory Agreement involving unauthorized payments and unnecessary expenses. During the review we actively coordinated our efforts with HUD's Office of Housing and Office of General Counsel to resolve the violations. While our review was in progress and HUD was pursuing corrective actions, the owner sold the project. We recommended that the St. Louis Program Center ensure that the project's mortgage insurance is terminated as a result of the sale and that the Enforcement Center take appropriate administrative actions against University Forest's president and chairman of the board, members of the board, and the management agent for their noncompliance with HUD's requirements and the Regulatory Agreement.

Issue Date: April 19, 2002
Audit Memorandum No.: 2002-KC-1802
File Size: 107KB

Title: Audit Survey of Golden Oaks Apartments FHA Number 084-35143 Section 8 HAP No. MO16-0003-022 Kansas City, Missouri

We completed a survey of the Golden Oaks Apartments at the request of the Office of Multifamily Housing Kansas City HUB. The Office of Housing requested the review because they believe the owners were disbursing surplus cash while the project was in need of numerous physical improvements. Our survey objective was to determine whether the finanical status and physical condition of Golden Oaks Apartments warranted an audit. We determined that further review at this time is not warranted.

Issue Date: March 29, 2002
Audit Report No.: 2002-KC-1001
File Size: 1,090KB

Title: Dutchtown Care Center, Review of Project Disbursements, St. Louis, MO

We completed an audit of Dutchtown Care Center. The objective of our audit was to determine whether the owners of Dutchtown Care Center complied with the terms of the Regulatory Agreement, as well as all applicable statues, regulations, handbooks and other requirements of HUD. We decided to conduct an audit of Dutchtown because its financial statements had indications of equity skimming.

We found the Dutchtown improperly used $484,253 in project funds to repay owner advances when the project did not have surplus cash. Dutchtown also paid $308,559 in project funds to provide a salary to one of the owners. Salary paid to an owner is prohibitied unless HUD has approved the salary as essential to project operations. In addition, project funds totaling $51,959 were paid for other ineligible or unsupported purposes.

Issue Date: September 28, 2001
Audit Report No.: 2001-KC-1005
File Size: 1,069KB

Title: First Community Resources, Inc., Section 203(b) Home Mortgage Insurance Program, St. Louis, MO

We have completed an audit of First Community Resources, Inc, a loan correspondent approved by HUD on August 3, 1995. We selected First Community for audit because of the high default rate experienced in St. Louis, MO. Our audit objective was to determine whether First Community originated its HUD/Federal Housing Administration (FHA) insured loans in accordance with HUD's requirements.

We reviewed five HUD/FHA insured defaulted loans that were originated by First Community. The loans were originated under HUD's section 203(b) program. We concluded that First Community did not originate four of the five loans in accordance with HUD's requirements. We did not find any problems with the other loan.

Issue Date: September 28, 2001
Audit Memorandum No.: 2001-KC-1803
File Size: 475KB

Title: Review of Oak Tree Park Apartments, Overland, Missouri, Project No. 085-11052

We have completed a review of the operations of Oak Tree Park Apartments for the period from November 1998 until the transfer of physical assets on August 28, 2000. We reviewed Oak Tree Apartment's use of project funds to determine if the owners complied with the terms of their Regulatory Agreement. We did not review any other operations of the property.

We determined that the owners, G & K Properties, used $222,012 in violation of the Regulatory Agreement during the audit period. This includes tenant rental payments that were never deposited to the project bank account and disbursements for uses that were ineligible or not documented. Although the owners were also the HUD-approved management agent, they never accrued or paid themselves a management fee. As the management agent, they earned a management fee of $57,299 during our audit period that they should have paid themselves but did not. We offset the $57,299 against the $222,012 and determined the net diversion was $164,713.

Issue Date: July 9, 2001
Audit Report No.: 2001-KC-1004
File Size: 433KB

Title: Department of Housing and Community Development Review of Subrecipient Selection, Monitoring and Reporting Kansas City, Missouri

We have completed an audit of the Department of Housing and Community Development of the City of Kansas City, Missouri (City). The audit was the second joint effort between the local Office of Inspector General, U.S. Department of Housing and Urban Development (HUD) and the City Auditor's Office of Kansas City, Missouri. The first report, "Kansas City Needs a Housing Policy," was issued in April 2000.

This report focuses on the activities of the City's Department of Housing and Community Development and its use of subrecipients to accomplish housing-related program objectives administered with HUD funds. The overall objectives of our audit were to determine whether the City is adequately ensuring that HUD funds are administered in an efficient and effective manner, and in accordance with applicable rules, regulations and guidance.

We found the City does not have a formal process for selecting subrecipients, does not adequately monitor subrecipients, and does not provide adequate information to the City Council.

Issue Date: May 11, 2001
Audit Report No.: 2001-KC-1002
File Size: 357KB

Title: One McKnight Place - #085-36602, St. Louis, Missouri

We have completed an audit of One McKnight Place's use of project funds to determine if the owners complied with the terms of their regulatory agreement.

Our report contains four findings with recommendations. The four findings address premature distributions of surplus cash to the owners, excessive withdrawals from the replacement reserve account, deficiencies relating to the management agreement, and the use of the project's funds for other than reasonable and necessary project expenses.

Issue Date: October 24, 2000
Audit Report No.: 01-KC-202-1001
File Size: 442KB

Title: Housing Authority of Independence, Internal Control Review, Independence, MO

We completed an audit of the Housing Authority of Independence. The overall objectives of our audit were to evaluate the Authority's internal controls and to determine whether the Authority complied with applicable laws and regulations related to disbursements, receivables and cash, procurement, inventory, investments, human resources, grant administration, Board of Commissioners' oversight, application processes, public housing evictions, maintenance, and the management information system. We assessed the Authority's efforts to resolve deficiencies identified in its financial statement audit for fiscal year ended March 31, 1999. We also assessed the Authority's actions regarding a Section 8 Management Review conducted by HUD in 1999, and two consultant reviews also conducted in 1999. Further, we evaluated the Authority's compliance with the "Housing Opportunity Program Extension Act of 1996."

We found that the Authority did not always have policies and procedures for its operations; and where policies and procedures did exist, they were not always complete, approved by the Board of Commissioners, or enforced. Also, the Authority lacked an acceptable system of controls over its assets; did not resolve deficiencies identified in its financial statement audit for fiscal year ended March 31, 1999; did not ensure Board of Commissioners meetings complied with a Missouri statute; lacked adequate controls over its procurement process; and lacked an acceptable system of controls over its Section 8 program. Further, the Authority needs to improve its human resources function.

Because of the lack of controls, HUD has minimal assurance the Authority adequately controlled its operations and conducted business in the most efficient and effective manner.

Issue Date: May 31, 2000
Audit Report No.: 00-KC-209-1002
File Size: 1668KB

Title: St. Louis Housing Authority Paul Simon Tenant Association Board

We have completed an audit of the Tenant Association Board for the Paul Simon Elderly Building. The objective of our audit was to determine if the Board followed proper procedures and fully accounted for its funds. The audit was conducted in response to a citizen's complaint.

We determined that the Board's officers failed to comply with the requirements governing them. They did not apply sound financial management principles, and as a result could not account for $15,158 in funds they received during the audit period. They also did not perform other duties assigned to them and did not meet individual eligibility requirements to serve on the Board. Therefore, the current officers should be replaced. The St. Louis Housing Authority needs to establish procedures to monitor the Association, and execute a written agreement with the Tenant Association that clearly outlines the Association's and its Board's responsibilities.

Issue Date: April 6, 2000
Audit Report No.: 00-KC-231-1801
File Size: 1602KB

Title: City Housing Policies City of Kansas City, Missouri

We have completed a review of the City of Kansas City, Missouri's City housing policy, strategies and activities. This was a joint review conducted with the Kansas City, Missouri City Auditor.

In short, we found that the City of Kansas City needs a housing policy. It currently bases its housing policy on what is contained in its Consolidated Housing and Community Development Plan, which includes only vague descriptions of the City's housing strategies. When these strategies are used to measure performance, any outcome can be viewed as a success. We also found that the City did not maintain current housing related data that could be used for identifying and developing effective housing policy, strategies and activities.

This report recommends that the City Manager take certain actions to ensure that the City develops and maintains an effective housing policy and accurate housing related data.

Issue Date: September 28, 1999
Audit Report No.: 99-KC-244-1002
File Size: 337KB

Title: City of St. Louis Community Development Block Grant Program, St. Louis, MO

We completed a limited scope audit of the Community Development Agency of the City of St. Louis' (Grantee) administration of HUD's Community Development Block Grant program. The purpose of the examination was to determine if the Grantee carried out its activities in an economical, efficient and effective manner; complied with requirements, laws and HUD's regulations; and only charged eligible and reasonable costs to the programs.

We determined the Grantee and its subrecipients did an excellent job managing the housing programs we reviewed; however, the economic development programs did not always comply with program requirements, laws and regulations. The Community Development Agency could not adequately demonstrate that 10 of 16 economic development activities funded by $2,427,000 of Community Development Block Grant monies met a national objective. One of 16 activities examined that had a grant for $730,000, did not use the funds for an eligible purpose. Additionally, nine other assisted projects, with grants/loans totaling $1,697,000, did not have adequate documentation to show that the use of funds was for an eligible purpose. This report contains one finding.

Issue Date: May 28, 1999
Audit Related Memorandum 99-KC-211-1802
File Size: 31KB

Title: Plaza Square Apartments, St. Louis, MO

We concluded that the Project Owner did not comply with the Regulatory Agreement. We identified two significant violations of Plaza Square's Regulatory Agreement. The violations included payments of approximately $1.35 million made from the Project's operating account to the Owner and/or affiliated companies of the Owner while the Project's mortgage was in default or the Project was in a non-surplus cash position. The payments were to repay advances, which the Owner made to the Project when the Project was not generating enough receipts to cover operating expenses and debt service. However, repayment of advances is not permitted by the Regulatory Agreement except when the Project is in a surplus cash position. Also, the Owner did not fund approximately $149,000 in security deposits as required by the Regulatory Agreement.

To resolve the issues we identified, in April 1999, the Owner modified and restructured the HUD-insured mortgage loan by investing capital of more than $2.4 million from non-Project sources. Approximately $1.5 million was used to bring delinquent principle and interest current; and approximately $900,000 was put into escrow accounts under HUD's control. The Owner also fully funded the security deposits in a separate account.

We believe the actions the Owner has taken to modify the loan, invest capital from non-Project sources, and put funds in HUD controlled escrow accounts satisfactorily resolves the problems we identified. This report does not contain any recommendations.

Issue Date: February 26, 1999
Audit Report No. No. 99-KC-211-1801
File Size: 30KB

Title: Brittany Acres Apartments, Bridgeton, Missouri

We completed our review of Brittany Acres Apartments, a HUD-insured, 300-unit apartment complex. We performed the review at your request. Our objective was to determine if the owners complied with the terms of their Regulatory Agreement.

We identified significant violations of the Brittany Acres' Regulatory Agreement. At a joint meeting with your staff, we discussed our concerns with one of the partners. He decided that refinancing the mortgage and terminating HUD insurance would be in the partnership's best interest. He later arranged refinancing and full payment of the original mortgage. The HUD insurance was terminated on September 4, 1998. The partners are not currently participating in any other HUD Programs.

Issue Date: March 10, 1998
Audit Report No. 98-KC-204-1001
File Size: 688KB

Title: HA, Kansas City, MO

We concluded the JOC program was developed with internal control weaknesses, implemented with management deficiencies, and abused by a contractor. In addition, the JOC consultant, The Gordian Group (Gordian), did not fulfill all its responsibilities under its contract. As a result, the HAKC was not adequately prepared to administer its JOC program.

Further, we concluded the HAKC has not fully met the provisions of Section 9 of Public Law 104-120. Neither the HAKC screening procedures nor its lease agreement contain all provisions required by Section 9 of the Act regarding tenant alcohol abuse and off premises drug-related criminal activity. Because the HAKC has not fully complied with Section 9 provisions, the HAKC may not be able to deny tenancy to applicants or evict current tenants for violations of these provisions. Therefore, we recommend the Director of the Office of Public Housing require the HAKC to amend its screening procedures and lease agreement to include the appropriate language regarding alcohol abuse and drug-related criminal activity on or off the premises. In response to our draft report, the HAKC provided an amended lease agreement which properly addressed the issue of drug-related criminal activity on or off the premises. However, it did not specifically address alcohol abuse. As a result, we modified our recommendation to address only the alcohol abuse provisions.

Issue Date: December 8, 1998
Audit Report No. 99-KC-244-1001
File Size: 520KB

Title: Community Development Block Grant Program Department of Housing and Community Development, City of Kansas City, Missouri

We performed a limited review of the City's CDBG program. The review was not a comprehensive evaluation of all the activities of the City's Department of Housing and Community Development. Rather, the review concentrated on monitoring of subrecipients and the related activities of some selected subrecipients. Our objectives were to determine whether the City had adequate controls to ensure that subrecipients carried out activities prescribed in their contract and complied with applicable Federal requirements.

We found the City made some improvements in its monitoring of subrecipients through changes made as a result of HUD's monitoring review last year. Also, the City was in the process of establishing a new Monitoring Division to further improve its monitoring efforts by focusing on evaluating performance and compliance of subrecipients.

However, our review showed the City still needs to make further improvements.

The City did not adequately oversee the performance of the Kansas City Downtown Minority Development Corporation (Corporation) and did not hold the board responsible for effecting collections of monies loaned. As a result, businesses receiving loans seldom made the required payments; loan repayments were not available to make new loans; and the Corporation is currently due about $13 million. We recommended the Director, Office of Community Planning and Development, verify that the City implements monitoring procedures and develops, implements and maintains a loan collection program.

The City did not ensure that the East Meyer Community Development Corporation complied with contract award requirements because it did not properly monitor corporation activities. East Meyer did not have a written contract for a major sanitary sewer installation. In addition, it did not properly monitor the contractor's work. As a result, East Meyer and the contractor are now in dispute over the propriety of a $157,000 change order. We recommended that the Director also verify the City strengthens its monitoring and provide subrecipients technical assistance on required Federal contracting requirements.

The City executed contracts with community development corporations to perform housing activities and included performance standards that were not met. The City needs to consider past performance, evaluate reasons for not meeting the performance goals, and adjust subsequent contracts to more realistic goals.