New Jersey Audit Reports

Issue Date: September 12, 2007
Audit Report No.: 2007-NY-1012
File Size: 402.55KB

Title: the City of Passaic, New Jersey's Community Development Department Has Weaknesses in Its HOME Investment Partnerships Program

We completed an audit of the City of Passaic's (City) HOME Investment Partnerships Program (HOME) as a result of an October 2006 request for an audit by the director of the U.S. Department of Housing and Urban Development's (HUD) Newark Office of Community Planning and Development. Our audit objectives were to determine whether the City followed HUD and HOME regulations regarding the receipt and disbursement of program income; rehabilitation, acquisition, and new construction activities; and procurement practices. The City did not follow HUD and HOME regulations regarding the receipt and disbursement of program income.

The City also did not always document compliance with HUD and local program regulations regarding rehabilitation, acquisition, new construction, and monitoring activities. Furthermore, the City did not follow federal procurement regulations regarding a professional service contract and a funding agreement to provide rehabilitation and acquisition services, respectively.

We recommend that the director of the HUD New Jersey Office of Community Planning and Development instruct the City to record $528,974 in program income into HUD's Integrated Disbursement and Information System, provide adequate support for $53,053 in disbursements of program income, and expend the $475,921 balance in its two local accounts before making additional drawdowns from HOME funds. Also the City should reimburse the HOME program from nonfederal funds $97,500 related to the ineligible acquisition and new construction costs incurred; provide documentation for $583,602 in unsupported activities; and ensure that annual monitoring reviews are performed so that $790,441 will be put to better use. Finally the City should provide contracts/written agreements for the unsupported disbursements of $204,711, implement proper bidding procedures and obtain a current funding agreement with its community housing development organization to ensure that future expenditures of $360,280 will be put to better use, and repay the $4,127 paid for rehabilitation services incurred in excess of contract limits.


Issue Date: August 17, 2007
Audit Report No.: 2007-NY-1011
File Size: 598.66KB

Title: The Hoboken Housing Authority, Hoboken, New Jersey, Requires Improved Controls Over Its Capital Fund Program and Cash Disbursement Process

We completed an audit of the Housing Authority of the City of Hoboken, Hoboken, New Jersey. The audit objectives were to determine whether (1) the Authority administrated its capital grant program in accordance with applicable U.S. Department of Housing and Urban Development (HUD) laws and regulations and (2) payments to the City of Hoboken (City) for police services were reasonable and supported.

The Authority did not adequately administer its capital grant program. It used $818,534 of its fiscal years 2000 through 2003 capital grant funds to pay administrative and management improvement costs in excess of the limitations imposed by HUD and also transferred a total of $637,039 from its fiscal years 2003-01, 2004, and 2005 capital grants to pay operating expenses for its low-rent public housing program. These deficiencies occurred because the Authority did not have sufficient funds in the low-rent public housing program to pay the operating expenses. Further, the Authority made total payments of $333,244 to the City for police services without obtaining or maintaining adequate and complete documentation to support the payments.

We recommend that the director of the New Jersey Office of Public Housing instruct the Authority to (1) reimburse the capital fund program $818,536 , (2) reduce the Authority's future capital grants by $632,039, (3) transfer $5,000 from the low-rent public housing program to the capital fund program, (4) establish and implement internal control policies and procedures that will prevent funds allocated to site and unit improvements from being used to pay the Authority's operating expenses, (5) provide HUD with adequate and compete documents to support the total payments of $333,244 made to the City for police services and have the City reimburse the Authority or provide the Authority with comparable future services for any payments determined to be unsupported, (6) establish and implement adequate internal control procedures to ensure that contracts are conducted in compliance with HUD's requirements and federal regulations, and (7) to ensure the accuracy of financial information entered into HUD systems such as the Line of Credit Control System and Financial Assessment Submission-Public Housing Authority System.


Issue Date: June 22, 2007
Audit Report No.: 2007-NY-1008
File Size: 2.18MB

Title: The City of Newark Did Not Always Administer Its Community Development Block Grant Program in Accordance with HUD Requirements

We completed an audit of the City of Newark's (City) Community Development Block Grant (CDBG) program. Our audit objectives were to determine whether the City (1) disbursed CDBG funds efficiently and effectively in accordance with its submission to HUD and with applicable rules and regulations, (2) had a financial management system in place to adequately safeguard the funds, and (3) had program controls in place to ensure that activities were administered properly and met the CDBG national objectives.

The City did not always comply with applicable regulations and its submission to HUD while disbursing CDBG funds. Specifically, it did not (1) maintain proper supporting documents for payments made on a bond obligation, (2) report and adequately account for program income, and (3) maintain adequate supporting documents for its draw downs. As a result, more than $10 million in bond and other payments is unsupported, $261,228 in disbursements is ineligible, and the City cannot ensure that more than $9.7 million in future bond payments will be an efficient use of funds.

There were control weaknesses in the City's financial management system in that it did not ensure that (1) administrative costs were expended in proportion to delivery costs, (2) adequate time distribution records were used to allocate personnel expenses to various programs, (3) accounting records were accurate, and (4) key positions had adequate separation of duties. The City also did not implement proper program controls to adequately administer and monitor its CDBG programs.

We recommended that the director of HUD's New Jersey Office of Community Planning and Development instruct the City to (1) reimburse the CDBG program from nonfederal funds the $246,523 paid in excessive bond draw downs, (2) provide supporting documentation for more than $9.8 million in disbursements made related to bond payments or reimburse the CDBG program for any amounts not supported from nonfederal funds. In addition, we made other recommendations that when implemented will ensure the proper administration of all CDBG activities.


Issue Date: June 13, 2007
Audit Report No.: 2007-NY-1007
File Size: 988.74KB

Title: The City of Jersey, New Jersey, Did Not Always Adequately Administer Its HOME Investment Partnerships Program

We completed an audit of the City of Jersey City, New Jersey's (City) HOME Investment Partnerships Program (HOME). The objectives of the audit were to determine whether the City disbursed HOME funds efficiently and effectively in accordance with applicable rules and regulations, and had a financial management system in place to adequately safeguard the funds.

The City did not always disburse HOME funds efficiently and effectively in accordance with applicable rules and regulations, and did not have a financial management system, which adequately safeguarded the funds. Specifically, the City failed to (a) enter into a contract for new construction and ensure that financing was available before disbursing funds, (b) ensure that funds disbursed were adequately secured, (c) repay funds related to two terminated projects, and (d) enter accurate information into HUD's Integrated Disbursement and Information System (IDIS).

We recommend that the director of HUD's Office of Community Planning and Development, Newark field office, require the City to submit all supporting documentation to HUD regarding $354,581 in HOME funds disbursed without a contract so that HUD can make an eligibility determination. Any amounts determined to be ineligible should be repaid from nonfederal funds. In addition, the City should repay $267,547 plus interest for the two terminated rehabilitation projects. Lastly, the City should establish and implement controls to ensure that HOME funds are used in accordance with all program requirements and written agreements, periodic monitoring is performed on the activities so that appropriate action can be taken when performance problems arise, amounts disbursed are properly recorded on mortgage notes and agreements, and accurate information is entered into IDIS.


Issue Date: May 24, 2007
Audit Report No.: 2007-NY-1006
File Size: 751.03KB

Title: The Housing Authority of the City of Ashbury Park, Ashbury Park, New Jersey, Requires Improved Controls over Capital Funds Salaries, and Maintenance

We completed an audit of the Housing Authority of the City of Asbury Park, Asbury Park, New Jersey. The objectives of the audit were to determine whether (1) capital funds were properly expended and obligated in accordance with HUD requirements, (2) salaries and related benefits allocated to different programs were reasonable and supported, and (3) controls over maintenance and repairs were adequate.

The Authority did not adequately administer its capital grant program. It did not (1) disburse funds for administrative costs within budget limitations, (2) obligate capital grant funds in a timely manner, and (3) use prudent procurement practices. These deficiencies occurred because the Authority did not have adequate procedures in place to ensure that limits on administrative costs were not exceeded, capital grant funds were obligated within 24 months, and procurements were made in a cost-effective manner. The Authority's employee compensation cost was not always reasonable and supported. The Authority does not have adequate controls in place to ensure that its preventive maintenance program is effective. As a result, it did not operate in a manner that promoted the serviceability of the projects.

We recommend that the director, New Jersey Office of Public Housing, instruct the Authority to (1) reimburse HUD for the $692,990 in excess administrative fees charge to the capital fund grant, (2) reimburse HUD $721,701 related to the untimely obligation of capital funds, (3) comply with federal procurement requirements to ensure that the Authority procures its goods and services in the most economical manner, (4) request the Authority to repay $190,339 for excessive employee compensation from nonfederal funds, and (5) develop and implement procedures to ensure units meet uniform physical condition standards and repairs are completed and inspected before closing the work order.


Issue Date: September 22, 2006
Audit Report No.: 2006-NY-1012
File Size: 746.53KB

Title: The Housing Authority of the City of Passaic, Passaic, New Jersey, Has Allegations of Mismanagement That Needs to Be Addressed

We completed an audit of the Housing Authority of the City of Passaic, Passaic, New Jersey. The objectives of the audit were to verify whether the allegations of a hotline complaint were valid and whether Section 8 units complied with housing quality standards.

Some complaint allegations were valid and others could not be substantiated. From 2002 through 2005, the Authority did not adequately manage its Section 8 program. Contrary to federal regulations the Authority made ineligible transfers of program funds from Section 8 administrative fee reserves to the low-rent housing program and from the capital fund to the Section 8 program. In addition, the Authority did not maintain adequate documentation for rent and employee benefits costs charged to the Section 8 program and for payments to the City of Passaic for police services. Furthermore, our inspection of 65 units revealed that 44 units failed for material noncompliance with housing quality standards. Based on results of our statistical sample at least 823 units may have been in material noncompliance with housing quality standards.

We recommend that the director, New Jersey Office of Public Housing instruct the Authority to (1) reimburse the Section 8 administrative fee reserve for the $1 million transferred to the low-rent housing program and recapture or reduce Section 8 administrative fees by $590,042, (2) reimburse the capital fund $401,046 from the Section 8 program, (3) provide additional supporting documentation for rent expenses, employee benefits costs, and payments for police services and repay any unsupported costs determined to be ineligible, and (4) develop and implement procedures to ensure that units meet housing quality standards.


Issue Date: September 20, 2006
Audit Report No.: 2006-NY-1011
File Size: 347KB

Title: Orange City Housing Authority, Low-Rent Housing Program, Orange, New Jersey, Incorrectly Paid the City's Stree Lighting Cost and Improperly Wrote-off a Receivable

We completed an audit of the Orange City Housing Authority (Authority), Orange, New Jersey, pertaining to its payments to and on behalf of the City of Orange (City) and the write-off of an account receivable from the City. Our audit objective was to determine whether payments to the City for street lighting and a write-off of an account receivable from the City were proper.

The Authority paid for street lighting expenses, which should have been furnished by the City at no cost to the Authority. The Authority also wrote off an account receivable pertaining to the cost of the lights without obtaining board approval. As a result, from April 2003 through March 2006, the Authority paid for the City's street lighting costs and was deprived of funds from a $156,409 receivable, which could be used to pay for necessary operating expenses if collected.

We recommend that the director of the U.S. Department of Housing and Urban Development's (HUD) New Jersey Office of Public Housing instruct the Authority to record an account receivable for the $156,409 due from the City and notify the City to pay for street lighting costs, which are the City's responsibility under the cooperation agreement.


Issue Date: September 20, 2006
Audit Report No.: 2006-NY-1010
File Size: 1.11MB

Title: Orange City Housing Authority, Housing Choice Voucher Program, Orange, New Jersey, Has Weaknesses in Its Housing Choice Voucher Program

We completed an audit of the Orange City Housing Authority's (Authority), Orange, New Jersey, Housing Choice Voucher program. The objectives of the audit were to determine whether (1) the Authority's Housing Choice Voucher program units met housing quality standards; (2) costs charged to the Housing Choice Voucher program were eligible and properly supported; and (3) rental assistance payments were properly calculated, and application and recertification information was properly verified.

Our inspection of 59 Section 8 units found that 55 units (93 percent) did not meet minimum housing quality standards. Of the 55 units, 37 were in material noncompliance with standards. As a result, tenants lived in units that were not decent, safe, and sanitary, and HUD made housing assistance payments for units that did not meet housing quality standards. Additionally, the Authority did not always allocate expenses accurately to the Housing Choice Voucher program and did not always correctly calculate its housing assistance payments and obtain necessary documents related to tenant recertifications.

We recommend that the director of the U.S. Department of Housing and Urban Development's (HUD) New Jersey Office of Public Housing instruct the Authority to (1) to ensure that units meet housing quality standards and that corrective action has been taken on those units that failed to meet standards, (2) develop procedures and controls for allocating and charging costs to the Housing Choice Voucher program, (3) provide documentation for all unsupported cost and reimburse any cost determined to be ineligible, and (4) establish procedures to ensure that all voucher recertification information for tenants and landlords is adequately supported and documented.


Issue Date: August 14, 2006
Audit Report No.: 2006-NY-1009
File Size: 2.08MB

Title: First Residential Mortgage Services Corporation, Englewood Cliffs, New Jersey, Did Not Always Comply with HUD/Federal Housing Administration Loan Origination Requirements

We completed an audit of First Residential Mortgage Services Corporation, a non-supervised direct endorsement lender located in Englewood Cliffs, New Jersey. The objectives of the audit were to determine whether First Residential: (1) complied with the U.S. Department of Housing and Urban Development (HUD) regulations in the origination of Federal Housing Administration loans, and (2) developed and implemented a quality control plan that complied with HUD requirements. The review generally covered the period between October 1, 2003 and September 30, 2005, and involved a review of 15 HUD/Federal Housing Administration insured loans.

First Residential did not always comply with HUD underwriting requirements. Seven of 11 loans we reviewed exhibited significant underwriting deficiencies such as inadequate credit analysis, inadequate verification of funds to close, minimum cash investment not met, and inadequate verification of income and/or employment. The remaining four loans contained technical violations. In addition, one borrower was charged a $495 ineligible commitment fee. These deficiencies occurred because First Residential lacked adequate controls to ensure that loans were processed in accordance with HUD requirements. In addition, it did not ensure that its quality control plan was implemented in accordance with both HUD and its own requirements to ensure (1) quality control reviews were conducted for all loans that defaulted within six months of closing, (2) at least ten percent of the closed and rejected loans were always selected for quality assurance reviews, (3) quality control reviews were performed timely, (4) management follow-up was provided for the quality control reviews of the loans from the wholesale division, and (5) HUD was informed of significant deficiencies that it discovered with one of its loan correspondents. Consequently, the effectiveness of First Residential's quality control plan, which is designed to ensure accuracy, validity, and completeness in its loan underwriting process, was lessened.

We recommend that the assistant secretary for housing - federal housing commissioner require First Residential to: indemnify HUD for potential losses and/or claims on loans with significant underwriting deficiencies, reimburse one borrower for an ineligible charge, and implement a quality control process in accordance with HUD requirements.


Issue Date: July 18, 2006
Audit Report No.: 2006-DE-1004
File Size: 238.69KB

Title: Juniper Communities, Bloomfield, New Jersey, Did Not Comply with Its Regulatory Agreement or HUD Regulations in Managing Its Federal Housing Administration-Insured Projects

In response to a referral from HUD's Departmental Enforcement Center, HUD's Office of Inspector General completed an audit of two projects owned and managed by Juniper Communities. The audit objectives were to determine whether the projects made inappropriate disbursements to the owners and/or loaned project funds to other projects.

One of the projects, Wellspring at Aurora, made unauthorized cash distributions totaling more than $165,000, prematurely withdrew more than $912,000, and had loans outstanding from other Federal Housing Administration-insured projects totaling almost $127,500 as of December 31, 2005. In addition, Juniper accrued unallowable asset management fees totaling almost $130,000 and improperly allocated corporate expenses to Wellspring at Aurora. The other project, Wellspring at Louisville, did not make unauthorized distributions or loan funds to other projects.

We recommended that HUD require Juniper to repay Wellspring at Aurora for the unauthorized cash distributions, develop and implement management controls to ensure that unauthorized cash distributions do not recur, repay Wellspring at Aurora for the unauthorized loans to other projects, develop and implement management controls to ensure that unauthorized loans do not recur, eliminate all asset management fee accrual accounts, develop and implement management controls to ensure that expenses accrued and/or charged to projects are legitimate project-related expenses, and properly allocate its corporate expenses.


Issue Date: February 15, 2006
Audit Report No.: 2006-PH-1007
File Size: 2.2MB

Title: The Loan Origination Process and Quality Control Plan of American Mortgage, Inc., Cherry Hill, New Jersey, Did Not Comply with HUD Regulations and Requirements

We audited American Mortgage, Inc. (American), a nonsupervised lender approved to originate Federal Housing Administration single-family mortgage loans, because it had a high default rate and the Quality Assurance Division recommended we audit this lender. Our objectives were to determine whether American complied with the U.S. Department of Housing and Urban Development�s (HUD) regulations, procedures, and instructions in the origination of Federal Housing Administration loans and whether American�s quality control plan, as implemented, met HUD requirements.

American did not originate all Federal Housing Administration loans in accordance with HUD�s loan origination requirements. Of the 23 loans we selected for review, American did not fully comply with Federal Housing Administration requirements for 15 of the loans originally valued at $1,672,584 and could not locate three of the 23 case files. American did not exercise due diligence in the review of assets and liabilities; and did not resolve inconsistencies in calculations, signatures, and Social Security numbers. These deficiencies were caused by a lack of written procedures and a lack of due diligence by its employees, which contributed to an increased risk to the Federal Housing Administration insurance fund.

American charged ineligible fees totaling $4,589 on nine loans. American charged these fees due to confusion over eligibility for document preparation, warehousing, commitment, expediting, and express mail fees. Finally, American�s quality control plan and the corresponding contractor agreement for quality control reviews did not contain requirements to identify patterns of early defaults and commonalities among loan origination participants. Also, the quality control plan required on-site branch reviews, but the contractor did not perform the on-site reviews. American was not aware of the requirement to identify patterns of early defaults and thought it was exempt from the on-site review requirement because it had recently established the branches.

We recommend that the assistant secretary for housing-federal housing commissioner determine whether American�s deficiencies in the loan origination process warrant administrative action, including indemnification from American on 15 Federal Housing Administration loans valued at $1,632,468, which it issued contrary to HUD�s loan origination procedures; require American to develop written internal loan origination procedures to more closely monitor its loan origination process; require American to refund ineligible fees collected totaling $4,589; and require American to revise its quality control plan to include reviews for patterns and commonalities among the loan origination participants and ensure the contractor performs on-site branch reviews.


Issue Date: February 14, 2006
Audit Report No.: 2006-NY-1003
File Size: 1.87MB

Title: The Housing Authority of the City of Newark Controls Over Bond Financing Activities, Obtaining Supporting Documentation, and Legal Settlements Require Improvement

We completed an audit of the Housing Authority of the City of Newark, Newark, NJ (the Authority). The objectives of this audit were to determine whether the Authority's (1) Housing Finance Corporation conducted its operations in accordance with HUD regulations, (2) payments made to the City of Newark in addition to the payments in lieu of taxes for municipal services were allowable, (3) costs for legal settlements were properly authorized, and (4) self-insurance program is cost effective.

In our opinion, the Authority (1) did not conduct its bond financing activities in accordance with HUD requirements, (2) cannot substantiate that the $6.9 million paid to the City of Newark was for necessary, reasonable, and additional services provided to the Authority, (3) settled general liability claims without obtaining prior written HUD approval, and (4) could not assure that more than $1.2 million in legal settlements paid under the self-insurance program were processed in a cost-effective manner.

We recommend that HUD obtain a legal opinion as to the disposition of $3.7 million in funds being retained by the Authority and its Housing Finance Corporation, review the documentation provided to determine if the evidence supports that city services were provided that exceeded the services that were to be provided in accordance with the cooperation agreement and seek reimbursement for any amounts not supported, and require the Authority to seek HUD approval for general liability settlements, and ensure that contract services are provided as required.


Issue Date: January 31, 2006
Audit Report No.: 2006-NY-1002
File Size: 165.37KB

Title: WomenRising, Inc., HUD/Supportive Housing Program, Jersey City, New Jersey

We completed a limited review of WomenRising, Inc. (the grantee), located in Jersey City, New Jersey. The review was initiated based on a complaint that was received from the Government Accountability Office. The complaint generally alleged that the grantee was misappropriating funds in regard to reimbursable expenses and the payment of salaries under its Project Home, part of the U.S. Department of Housing and Urban Development's (HUD) Supportive Housing Program. Our review objectives were to determine whether (1) the allegations in the complaint were valid, (2) the grantee has adequate controls over disbursements and drawdowns, and (3) the grantee's cost allocation plan was approved by HUD.

Our review concluded that the allegations in the complaint regarding HUD funding were not valid. In addition, although the grantee generally had adequate controls over disbursements and drawdowns, $94,759 in drawdowns was not supported by invoices or evidence that costs were incurred; and the grantee's cost allocation plan had not been approved by HUD.

We recommended that the grantee be directed to provide documentation for the $94,597 in drawdowns or reimburse HUD from nonfederal funds for the unsupported costs. In addition, the grantee should establish controls to ensure that all drawdowns are properly supported with documentation to show that eligible costs have been incurred, and submit its cost allocation plan to HUD for review and approval.


Issue Date: September 16, 2005
Audit Report: No: 2005-NY-1007
File Size: 2.63MB

Title: Security Atlantic Mortgage Company, Inc., Nonsupervised Mortgagee, Edison, New Jersey

We completed an audit of Security Atlantic Mortgage Company, Inc. (Security Atlantic), a non-supervised mortgagee located in Edison, New Jersey. The objectives of the audit were to determine whether Security Atlantic: (1) approved loans in accordance with United States Department of Housing and Urban Development (HUD)/Federal Housing Administration requirements, which require adherence to prudent lending practices, and (2) developed and implemented a quality control plan that complied with HUD requirements. The review generally covered the period between October 1, 2002 and September 30, 2004, and involved a review of 31 HUD/Federal Housing Administration insured loans.

The audit disclosed that Security Atlantic (1) did not follow HUD/Federal Housing Administration requirements in the approval of 16 loans valued at $3,208,308, resulting in an unnecessary risk to the Federal Housing Administration insurance fund, (2) charged borrowers $11,256 for ineligible and/or unsupported fees, (3) did not comply with HUD tier pricing regulations, resulting in $60,546 in inappropriate charges on 38 loans, and (4) could not document that it complied with HUD regulations regarding commitment fees. Further, Security Atlantic did not implement its quality control plan in accordance with both HUD's and its own requirements.

We recommend that the assistant secretary for housing - federal housing commissioner require Security Atlantic to: indemnify HUD for potential losses and/or claims on loans with significant underwriting deficiencies, reimburse borrowers for ineligible, unsupported, and inappropriate charges, and implement a quality control process in accordance with HUD requirements.


Issue Date: August 11, 2005
Audit Report No.: 2005-PH-1015
File Size: 1.55MB

Title: Gateway Funding Diversified, Cherry Hill, New Jersey - Lender Review Gateway Funding Diversified Issued and Submitted for Endorsement Loans with an Increased Risk of Defaults and Claims

We audited the Cherry Hill branch of Gateway Funding Diversified (Gateway), a non-supervised direct endorsement lender approved to originate Federal Housing Administration single-family mortgage loans because it had a high default rate. Our objective was to determine whether Gateway complied with the U.S. Department of Housing and Urban Development�s (HUD) regulations, procedures, and instructions in the origination of Federal Housing Administration loans.

Gateway�s Cherry Hill branch did not originate all Federal Housing Administration loans in accordance with HUD�s loan origination requirements. Of the 32 loans we selected for review, the branch did not fully comply with Federal Housing Administration requirements for 7 of the loans valued at $690,241. Gateway did not exercise due diligence in the review of assets, liabilities, and income; did not verify rental history; and approved loans with excessive debt to income ratios. These deficiencies were caused by a lack of due professional care and contributed to an increased risk to the Federal Housing Administration insurance fund.

We recommend that the Assistant Secretary for Housing � Federal Housing Commissioner request indemnification from Gateway on Federal Housing Administration loans valued at $690,241, which it issued contrary to HUD�s loan origination procedures, and require Gateway to develop internal procedures to more closely monitor its underwriting procedures.


Issue Date: May 26, 2005
Audit Memorandum No.: 2005-NY-1005
File Size: 274KB

Title: The Housing Authority of the City of Newark Bond Financing Activities and Section 8 Choice Voucher Administrative Fee Reserves

We completed an audit of the Housing Authority of the City of Newark, Newark, NJ (the Authority). The objectives of the audit were to determine whether the Authority (1) complied with the United States Department of Housing and Urban Development (HUD) requirements for the disposition of proceeds from the redemption of tax-exempt bond financing, and (2) properly expended its Section 8 housing choice voucher administrative fee reserves. The review generally covered the period from January 1, 2003 through December 31, 2004.

The audit disclosed that the Authority improperly (1) allowed its Housing Finance Corporation to retain more than $2.5 million in funds remaining after the redemption of the Authority's 1980 tax-exempt mortgage revenue bonds, and (2) used its Section 8 housing choice voucher administrative fee reserves for non-housing related purposes by committing over $4.4 million, of which $3.9 million was expended, to acquire properties for the construction of a hockey arena. The improper commitment of the housing choice voucher administrative fee reserves caused an underreporting of the administrative fee reserve balance as of January 31, 2003. Consequently, $729,423 in administrative fee reserves should have been subject to recapture by HUD.

We recommend that HUD (1) request the Authority to pay HUD the $2,533,536 that remained after redemption of the Authority's 1980 mortgage revenue bonds, (2) ensure that the Authority reimburse the housing choice voucher administrative fee reserve account the $3,991,350 expended for non-housing related purposes, and (3) recapture $729,423 of the housing choice administrative fee reserves that exceeded the allowable level as of January 31, 2003. In addition, we recommend that controls be established to ensure the proper (1) disposition of the proceeds from bond redemptions, and (2) use and reporting of housing choice voucher administrative fee reserves.


Issue Date: January 21, 2005
Audit Memorandum No.: 2005-NY-1802
File Size: KB

Title: Arlington Arms, Multifamily Project No. 031-35237, Jersey City, NJ

We completed a limited review of expenditures reported by Arlington Arms, Federal Housing Administration project number 031-35237, containing 51 rental apartments in Jersey City, NJ. Our objectives were to determine whether expenditures made by Arlington Arms complied with the project's Regulatory Agreement and other U.S. Department of Housing and Urban Development (HUD) regulations.

Our limited review work disclosed that Arlington Arms made expenditures in violation of its Regulatory Agreement and HUD regulations. Specifically, the project paid $10,661 in trustee fees in calendar years 2001 through 2003, and $1,138 for nonresident partners' state income tax withholdings. Absent any prior approval by HUD, the trustee fees should be considered entity expenses that should be paid by the owners or from allowable distributions. The $1,138 represented an unallowable loan to the partners in violation of the Regulatory Agreement. Consequently, we recommended that HUD instruct the partnership to reimburse the project, from non-project funds, the amount of the ineligible expenditures and obtain written HUD approval prior to making any payments for these fees in the future.


Issue Date: December 28, 2004
Audit Report No.: 2005-NY-1002
File Size: 1.4MB

Title: First United Mortgage Company, Inc., Non-Supervised Mortgagee, Cranford, New Jersey

We completed an audit of First United Mortgage Company, Inc. (First United), a non-supervised mortgagee located in Cranford, NJ. The objectives of the audit were to determine whether First United: (1) originated and underwrote loans insured by the United States Department of Housing and Urban Development/Federal Housing Administration (HUD/FHA) in accordance with HUD/FHA requirements, which require adherence to prudent lending practices, and (2) designed and implemented a quality control plan in accordance with` HUD/FHA requirements. The review generally covered the period between February 1, 2002, and January 31, 2004, and involved a review of 25 HUD/FHA insured loans with mortgage amounts totaling $3,073,370.

The audit disclosed that First United did not adhere to prudent lending practices as prescribed by HUD/FHA for the loans in our sample. We found that 23 of the 25 loans that we reviewed had at least one underwriting deficiency, such as (1) debt-to-income ratios that exceeded HUD/FHA standards, (2) inadequate documentation of deposit verification, (3) inadequate documentation of gifts, (4) inadequate credit analysis, and (5) inadequate support for income calculations and/or employment. We also found that First United charged borrowers ineligible and/or unsupported fees in 24 cases. In addition, we concluded that First United had not implemented its quality control plan in accordance with HUD/FHA requirements. Indications of this noncompliance included the failure to (1) maintain the independence of the quality control specialist, (2) select loans that defaulted within the first six months for quality control review, (3) examine gift documentation for loans selected for quality control review, and (4) properly select appraisals for quality control review. These deficiencies occurred because First United did not establish procedures to ensure that its quality control plan was properly designed and implemented.

We recommend that HUD request First United to (1) indemnify 20 of the 25 loans with significant underwriting deficiencies; (2) reimburse borrowers ineligible and unsupported fees, and (3) provide HUD a corrective action plan containing assurances that all guidelines pertaining to underwriting HUD/FHA-insured loans will be followed.


Issue Date: November 18, 2004
Audit Report No.: 2005-AT-1003
File Size: 354.2KB

Title: American Mortgage Express Corporation d.b.a. American Residential Mortgage Corporation, Mt. Laurel, NJ

Based on the results of a prior Office of Inspector General audit of Cotton State Mortgage Inc. that identified FHA loan origination deficiencies, we audited American Mortgage Express Corporation, d.b.a. American Residential Mortgage Corporation. We found significant underwriting deficiencies in four of seven loans. American Mortgage Express underwriters did not properly evaluate the borrower liabilities, income, and credit worthiness. The underwriting deficiencies occurred because American Mortgage Express's prior management did not provide adequate control and supervision over the staff, nor did they have adequate internal procedures in place to prevent the deficient underwriting from occurring. As a result, American Mortgage Express approved loans for borrowers who were not qualified for FHA insured mortgages. By approving these loans, American Mortgage Express increased HUD's insurance risk, as three loans with a total unpaid balance of $307,544 defaulted and the fourth loan foreclosed with a $103,794 insurance claim.

We recommend that HUD require American Mortgage Express to indemnify three loans totaling $307,544 and reimburse HUD $103,794 in claims paid for another loan. In addition, HUD should require American Mortgage Express to monitor all loan underwriting functions for compliance with HUD/FHA requirements.


Issue Date: September 27, 2004
Audit Report No.: 2004-NY-1005
File Size: 212.1KB

Title: Jersey City Housing Authority
Section 8 Contract Administrator, Jersey City, New Jersey

We have completed an audit of the Jersey City Housing Authority's (JCHA) performance as contract administrator for the Section 8 program at two HUD insured projects. Our objective was to determine whether JCHA, as contract administrator, ensured that Section 8 rental subsidies were accurate and that the rental units complied with Housing Quality Standards of the U.S. Department of Housing and Urban Development (HUD). We found that JCHA did not establish sufficient controls to carry out its Section 8 contract administrator responsibilities to ensure that claims were properly reviewed and paid, units met Housing Quality Standards, and tenant certifications complied with HUD regulations. As a result, JCHA (1) paid ineligible and erroneous claims, (2) failed to ensure that units met Housing Quality Standards, and (3) did not ensure that projects were properly determining and documenting tenant eligibility. Consequently, we believe that JCHA inadequately performed its contract administrator responsibilities for the Section 8 program at the two projects. Recommendations were made to strengthen JCHA controls for its Section 8 contract administrator oversight, recover ineligible and erroneous claims and payments, ensure projects' compliance with Housing Quality Standards, and evaluate the performance of JCHA as contract administrator.


Issue Date May 12, 2003
Audit Memorandum No.: 2003-NY-1801
File Size: 240KB

Title: Union County Division of Community Development, Section 8 Housing Assistance Program, and Community Development Block Grant Program, Union County, New Jersey

We completed a limited review of the Union County Division of Community Development (also referred to as the County) pertaining to the administration of its Section 8 and Community Development Block Grant (CDBG) programs. We completed the fieldwork in June 2002, but postponed the issuance of this audit memorandum until the completion of a related criminal investigation. The objectives of the review were to determine: (1) the cause of a misappropriation of Section 8 funds; (2) the total amount of Section 8 funds misappropriated; (3) if CDBG rehabilitation funds were misappropriated; and (4) whether the County has procedures in place to monitor the activities of the consultants that is currently administering its Section 8 Program.


Issue Date: March 11, 2003
Audit Report No.: 2003-NY-1002
File Size: 900KB

Title: Chapel Mortgage Corporation, Non-Supervised Mortgagee, Rancocas, New Jersey

We completed an audit of Chapel Mortgage Corporation (Chapel), a non-supervised mortgagee. The objective of the audit was to determine whether Chapel approved loans in accordance with regulations and requirements of the U.S. Department of Housing and Urban Development/Federal Housing Administration (HUD/FHA), which require adherence to prudent lending practices. The review covered the period between December 1, 1999 and November 30, 2001, and consisted of a review of 25 HUD/FHA insured loans that totaled $2,937,120.


Issue Date: October 2, 2002
Audit Report No.: 2003-KC-1001
File Size: 4,214KB

Title: Cendant Mortgage Corporation Non-Supervised Direct Endorsement Lender Mt. Laurel, New Jersey

We have completed an audit of Cendant Mortgage Corporation, a non-supervised direct endorsement lender approved to originate Federal Housing Administration insured loans. We selected Cendant for survey because of the high default rate experienced in St. Louis, MO and Kansas City, KS. Our survey objective was to determine if there were indications that Cendant did not comply with HUD regulations, procedures, and instructions in the origination of the Federal Housing Administration-insured single-family mortgages. Our audit objective was to determine how many of Cendant's late requests for endorsement violated HUD's payment requirements.

We reviewed all of Cendant's Federal Housing Administration loans for a 2-year period to ensure that all late endorsement requests were for loans with appropriate borrower payment patterns. We concluded that Cendant improperly submitted 1307 loans, totaling $110,905,714 for late endorsement during that period. In addition, we reviewed 80 Federal Housing Administration defaulted loans, totaling $5,255,952 that were originated by Cendant under HUD's 203(b) or 234(c) programs. We concluded that Cendant did not originate 73 of the 80 loans in accordance with HUD's requirements.

Cendant provided comments that indicate it has planned and initiated corrective actions. We believe if Cendant follows through on the actions, it will prevent reoccurrence of the problems identified in this report. Our report contains two findings with 5 recommendations that require corrective action.


Issue Date: September 23, 2002
Audit Report No.: 2002-NY-1004
File Size: 79KB

Title: Ironbound Community Corporation, Outreach and Technical Assistance, and Public Entity Grants Newark, New Jersey

Our review disclosed that the Grantee did not always comply with HUD and/or Federal requirements pertaining to support for costs charged to the grant and allocated among prescribed activities. More specifically, the review disclosed that the Grantee was unable to: a) provide adequate documentation to support rental expenses of $18,600 that were charged to the OTAG; and b) support the pre-determined percentages used to allocate total cost of $159,673.26 among the four HUD prescribed activities of the OTAG. In this regard, the Grantee did not comply with provisions of OMB Circular A-122, which provide that cost must be adequately documented and commensurate with the benefits derived when allocated to benefiting functions. Consequently, the Grantee paid rental expenses with HUD funds that are unsupported, and reported costs to HUD by activity that may not be accurate. This occurred because Grantee officials believe that a rental agreement is not necessary and are apparently unfamiliar with Federal requirements pertaining to selecting a supportable base to allocate costs among activities benefited. Thus, we recommend that HUD require the Grantee to obtain and maintain a rental agreement/lease to support the rental expenses charged to the grant, and to develop and maintain supporting documentation for the percentages used to allocate costs among the four HUD prescribed activities.


Issue Date: April 15, 2002
Audit Report No.: 2002-NY-1002
File Size: 714KB

Title: Hudson County Division of Community Development Community Planning and Development Programs, New Jersey, New Jersey

We have completed an examination of the operations of Hudson County Division of Community Development (Grantee) pertaining to its administration of its Community Planning and Development Programs. Specifically, we reviewed its Community Development Block Grant (CDBG), Emergency Shelter Grant (ESG), and HOME Investment Partnership (HOME) Programs. The primary objectives were to determine whether the Grantee: (1) carried out its activities in an economical, efficient, and effective manner; (2) complied with applicable CDBG, ESG, and HOME Program requirements, laws and regulations; and (3) had adequate controls to ensure compliance with HUD requirements and Federal regulations.

A Conclusion In this regard, our review disclosed that the Grantee did not always comply with program requirements, laws and regulations; nor did it have adequate controls to ensure that all activities were carried out in an economical, efficient, and effective manner. Instances of noncompliance and the incurrence of uneconomical costs are discussed in the findings and are summarized below.


Issue Date: September 25, 2000
Audit Related Memorandum No.: 00-NY-209-1803
File Size: 294KB

Title: Congressional Complaint, Hoboken Housing Authority, Low-Rent Housing Program, Hoboken, New Jersey

We performed a limited review at the Hoboken Housing Authority (HHA) to determine the validity of complaints made regarding possible improprieties at the HHA.

Based on the results of our review we concluded that three of the ten complaints are valid and considered significant; therefore, the HHA should be instructed to implement the necessary corrective action to address deficiencies pertaining to those complaints, as recommended in this memorandum.


Issue Date: September 1, 2000
Audit Related Memorandum No.: 00-NY-202-1802
File Size: 58KB

Title: North Bergen Housing Authority, Low Rent Housing Program, North Bergen, New Jersey

We conducted a limited review of the PHA�s operations to determine the validity of complaints pertaining to the PHA�s tenant selection procedures and occupancy policy. Specifically, the complainant alleged that: (1) tenants were not reporting their full income or family size; (2) tenants were allowed to occupy units that exceeded their needs; (3) employees were not required to pay appropriate rents; (4) applicants were selected without regard to waiting lists.

We found PHA staff did not recover the assistance improperly provided to the tenants whose rents were inaccurate. As a result, three tenants, who are currently living at the PHA, inappropriately received a total of $42,468 in HUD assistance because their rents were not based on their total household income.

We found that the second complaint is valid because numerous families are improperly housed in units with either an insufficient or an excessive number of bedrooms. We found that the third complaint is not valid. HUD allows PHAs to have such arrangements with tenant employees, and that the tenant employees at the subject PHA are paying the appropriate amount of rents.

Regarding the fourth complaint, we found that this complaint is not valid. Our review disclosed that when applicants apply for units at the PHA, they are assigned priorities, such as a resident or a non-resident status. This gives the appearance that applicants are selected without regard to the waiting list, when in fact it is allowable according to HUD�s polices.


Issue Date: March 24, 2000
Audit Related Memorandum No.: 00-NY-209-1801
File Size: 191KB

Title: Atlantic City HA, Low Rent Housing Program, Atlantic City, New Jersey

In response to a request received by the New Jersey State Office (NJSO) of the Department of Housing and Urban Development (HUD), we performed a limited review at the Atlantic City Housing Authority (ACHA). The review was conducted to determine the validity of complaints made regarding the ACHA's personnel practices and procedures. Specifically, the complaints allege that: (1) the Executive Director improperly participated in a sick leave buyout plan for ACHA employees without appropriate disclosure to the Board of Commissioners; and, (2) the Executive Director and the Head Project Maintenance Superintendent improperly accrued compensatory time. The review covered the period from April 1, 1996 through March 31, 1998, and the onsite work was performed between March and December 1999. To accomplish our objective, we reviewed and relied upon: ACHA's personnel files, accounting records, and administrative policies and records; interviews with ACHA officials and staff; documentation provided by the HUD NJSO; and Federal, State and local government regulations, statutes and policies. In addition, we reviewed the actions taken by the ACHA Board of Commissioners as part of their ultimate responsibility for ACHA operations. We reviewed documentation from periods prior and subsequent to our review period, as deemed necessary.


Issue Date: December 30, 1999
Audit Report No.: 00-NY-209-1003
File Size: 217KB

Title: Housing Authority of Plainfield, Low-Rent Housing Program, Plainfield, NJ

We completed an audit of the Housing Authority of Plainfield (PHA) pertaining to its Federal Low-Rent Housing (LRH) Program. The audit was conducted on the PHA�s operations based on your request. The survey and audit work show that the PHA needs to strengthen its cash management practices, procurement activities, and management of personnel. Moreover, the PHA needs to increase assurance that its programs are operated in a way that achieves full compliance with the terms and conditions of the Annual Contributions Contract (ACC) and other applicable U.S. Department of Housing and Urban Development (HUD) regulations and requirements.


Issue Date: July 30, 1999
Audit Report No.: 99-NY-202-1006
File Size: 142KB

Title: Irvington Housing Authority Low-Rent Housing Program, Irvington, New Jersey

Our review showed that the IHA generally complied with HUD program regulations, policies and requirements in administering its LRH Program, and that decent, safe and sanitary housing units were provided to its tenants. However, to enhance the effectiveness of its operations, we believe that the IHA should ensure that all funds in its bank accounts are protected against loss, and that controls over cash disbursements, travel and related costs, and the procurement of contract services are strengthened.

This report contains four findings. The findings disclose that balances in the IHA�s bank accounts exceeded the $100,000 Federal Deposit Insurance Corporation (FDIC) insurance limit by $819,248.85. This amount was not secured because a Depository Agreement was not executed with the bank to protect amounts over the FDIC insurance limit. The review also disclosed that the IHA paid for travel and related costs in violation of both established Federal Cost Principles, and provisions of its own travel policy. Additionally, the review disclosed that the IHA needs to improve controls over cash disbursement. In this regard, we noted instances of noncompliances with cash disbursement controls and various procedures that have weakened the IHA�s system of internal controls in that area. The review further disclosed that the IHA did not follow procurement requirements provided in various sections of the Code of Federal Regulations (CFR).


Issue Date: September 6, 1996
Audit Report No.: 96-NY-241-1005
File Size: 118KB

Title: City of Camden, Camden, NJ

The report contains six findings that show a need to improve the Grantee's organizational structure and correct significant weaknesses in financial and administrative controls. The Grantee's financial and program records are not complete, accurate, or current. Our report identifies unallowable costs of $801,364 and unsupported costs of $1,381,045. We have also identified a cost efficiency of $251,400.


Issue Date: July 24, 1996
Audit Case No.: 96-NY-204-1004
File Size: 215KB

Title: Camden HA, Camden, NJ

The audit disclosed that while the Executive Director is working diligently to obtain training for the staff to improve their performance, we believe that a stronger commitment is needed by the Board of Commissioners to ensure that the deficient administration and operating deficiencies discussed in the findings of this report are addressed and that proper accountability and control over its assets and daily operations are maintained. This report contains 13 findings. The findings show that the PHA's administrative policies, practices and procedures did not always comply with applicable HUD regulations and requirements pertaining to its LRH program. To ensure compliance, the PHA needs to: (a) improve its administration of HUD programs; (b) ensure that the system for procurement and contracting comply with HUD and its own requirements; (c) improve its monitoring of subgrantees for the Drug Elimination program; (d) comply with approved staffing levels; (e) ensure the propriety of payments for unused vacation time and for overtime; (f) control the use of gasoline by its personnel; (g) ensure that costs are eligible and properly supported prior to incurrence; (h) improve its administrative controls and its controls over inventory and the leasing of vehicles, and (i) ensure that travel and conference costs are economical and in accordance with established policy. These weaknesses have caused ineligible costs of $37,648.43 and unsupported costs of $1,782,783.66 to be incurred.


Issue Date: March 13, 1996
Audit Report No.: 96-NY-204-1001
File Size: 63KB

Title: HA of the City of Hoboken, Hoboken, NJ

Generally, the PHA maintained its housing units in decent, safe and sanitary condition. In particular, we found that the PHA's housing stock met the required Housing Quality Standards and can be considered comparable to that of commercial apartment buildings in the area. However, this report contains two findings that warrant your attention. The findings showed that the PHA entered into an employment buyout arrangement with its Executive Director that in our opinion was not necessary and reasonable. Also, the PHA procured professional legal services in a manner that did not provide for full and open competition. As a result, we consider $171,476.42 as unnecessary and unreasonable costs and $17,482.10 as unsupported costs.


Issue Date: November 2, 1995
Audit Related Memorandum No.: 96-PH-214-1803
File Size: 24KB

Title: Westgate Management Company, Trenton, NJ

Our survey disclosed the following:

Village of Searights:

- Six of seven units inspected failed HQS for lack of a discharge line on the water heaters.
- Vacancy claims were submitted improperly.
- The project received HAP payments totaling $950 for a unit which was never occupied. Douglas Plaza
- The manager inadvertently processed the last market rent increase incorrectly.

 

 
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