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Ohio Audit ReportsIssue Date: September 30, 2007 Title: The City of Cincinnati, Ohio Lacked Adequate Controls over Its HOME Investment Partnerships ProgramThe U.S. Department of Housing and Urban Development's (HUD)audited the City of Cincinnati's (City) HOME Investment Partnerships Program (Program). The audit was part of the activities in our fiscal year 2007 annual audit plan. We selected the City based upon a request from Columbus Office of Community Planning and Development and our analysis of risk factors relating to Program grantees in Region V's jurisdiction. Our audit objectives were to determine whether the City effectively administered its Program and followed HUD's requirements. This is the first of two audit reports on the City's Program. The City did not effectively administer its Program and violated HUD's requirements. It did not comply with HUD's regulations in providing housing rehabilitation assistance for owner-occupied single-family rehabilitation projects (projects) and/or downpayments, closing costs, homebuyer counseling, and home inspections for American Dream Downpayment Initiative (Initiative) activities. It inappropriately provided more than $225,000 in Program funds to assist three projects that either did not qualify as affordable housing or in which the household was not income eligible, inappropriately provided $41,000 in Initiative funds to assist five households in which they were not income eligible, and was unable to support its use of nearly $1.4 million in Program and Initiative funds for projects and activities. We recommend that the Director of HUD's Columbus Office of Community Planning and Development require the City to reimburse its Program and Initiative from nonfederal funds for the improper use of funds, provide support or reimburse its Program and Initiative from nonfederal funds for the unsupported payments, and implement adequate procedures and controls to address the findings cited in this audit report. These procedures and controls should help ensure that more than $134,000 in Program and Initiative funds is appropriately used over the next year. Issue Date: September 20, 2007 Title: The Butler Metropolitan Housing Authority, Hamilton, Ohio, Lacked Adequate Controls over Its Homeownership ProceedsThe U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Butler Metropolitan Housing Authority's (Authority) 5(h) homeownership (5(h)) and its Turnkey III Homeownership Opportunity (Turnkey III) programs (programs). We selected the Authority based on a risk analysis showing that it may have improperly used the programs' funds. Our objectives were to determine whether the Authority properly accounted for and used its programs' proceeds in accordance with HUD requirements. The Authority failed to properly account for nearly $400,000 of the programs' proceeds for more than five years because it commingled the proceeds with funds in its retained earnings account. The $400,000 consisted of more than $166,000 in 5(h) sales proceeds from four properties sold between May 1997 and October 1998 and nearly $232,000 in Turnkey III proceeds. It also did not use the 5(h) proceeds in a timely manner. As a result, the programs' proceeds were not used to assist low- and moderate-income families. We informed the Authority's executive director, the director of HUD's Cleveland Office of Public Housing, and the director of HUD's Columbus Office of Fair Housing and Equal Opportunity of minor deficiencies through a memorandum, dated September 18, 2007. We recommend that the director of HUD's Cleveland Office of Public Housing require the Authority to transfer from its retained earnings account to the applicable accounts the 5(h) and Turnkey III proceeds plus earned interest, submit a proposal(s) for HUD's approval on how the programs' proceeds will be used, and implement procedures and controls to ensure that the proceeds are used to support the development of affordable housing for low- and moderate-income families in accordance with HUD's requirements.
Issue Date: June 19, 2007 Title: The Dayton Metropolitan Housing Authority, Dayton, Ohio, Did Not Effectively Operate Its Section 8 Housing Choice Voucher ProgramThe U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Dayton Metropolitan Housing Authority's (Authority) Section 8 Housing Choice Voucher program (program). The audit was part of the activities in our fiscal year 2006 annual audit plan. We selected the Authority based upon our analysis of risk factors relating to the housing agencies in Region V's jurisdiction. Our objective was to determine whether the Authority administered its program in accordance with HUD's requirements. The Authority's program administration regarding housing unit conditions, abatement of units that did not meet housing quality standards, housing assistance payments calculations, and adequate documentation to support the calculation of households' housing assistance payments was inadequate. Of the 59 housing units statistically selected for inspection, all 59 did not meet HUD's housing quality standards, and 56 had 214 violations that existed at the time of the Authority's previous inspections. The 56 units had between 1 and 11 preexisting violations per unit. Based on our statistical sample, we estimate that over the next year, HUD will pay nearly $1.8 million in housing assistance payments for units with housing quality standards violations. Program rents were not abated for units that failed the Authority's quality control inspections. Five units that failed quality control inspections performed in December 2006 also failed quality control reinspections in January or February 2007. However, the Authority failed to abate the program rents for the five units, resulting in an improper payment of nearly $3,900 in housing assistance and administrative fees. The Authority incorrectly calculated households' payments, resulting in nearly $39,000 in overpayments and more than $1,500 in underpayments for the period January 2005 through August 2006. Based on our statistical sample, we estimate that over the next year, the Authority will overpay more than $1 million in housing assistance and utility allowance payments. The Authority did not ensure that its households' files contained required documentation to support its housing assistance and utility allowance payments. Of the 67 files statistically selected for review, 37 did not contain documentation required by HUD and the Authority's program administrative plan to support more than $254,000 in housing assistance and utility allowance payments. We informed the Authority's executive director and the director of HUD's Cleveland Office of Public Housing of minor deficiencies through a memorandum, dated June 7, 2007. We recommend that the director of HUD's Cleveland Office of Public Housing require the Authority to reimburse its program from nonfederal funds for the improper use of more than $63,000 in program funds, provide documentation or reimburse its program more than $282,000 from nonfederal funds for the unsupported housing assistance payments and administrative fees, and implement adequate procedures and controls to address the findings cited in this audit report to prevent more than $2.8 million from being spent on units with material housing quality standards violations and excessive housing assistance. Issue Date: April 30, 2007 Title: Trumbull Metropolitan Housing Authority, Warren, Ohio, Did Not Ensure Its Nonprofit Followed HUD 's Section 8 Housing RequirementsThe U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Trumbull Metropolitan Housing Authority's (Authority) activities with its related nonprofit organizations. The review of housing authorities' development activities is set forth in our fiscal year 2006 annual audit plan. We selected the Authority for audit because it was identified as having high-risk indicators of nonprofit development activity. Our objective was to determine whether the Authority's nonprofit received Section 8 housing assistance payments in accordance with HUD's requirements. The Warren Housing Development Corporation (Corporation), a nonprofit entity created by the Authority, received more than $2.2 million in housing assistance payments from July 1, 2005, through February 28, 2007, contrary to HUD's requirements. The Corporation was created in May 1977 as a nonprofit instrumentality of the Authority. However, the Corporation revised its articles of incorporation in June 2005 and was no longer an instrumentality of the Authority. According to HUD's regulations at 24 CFR [Code of Federal Regulation] Part 880, the project must be owned by a public housing agency (instrumentality) throughout the term of the housing assistance payments contract. The Authority revised the Corporation's articles of incorporation on March 13, 2007, to reinstate the Corporation as an instrumentality of the Authority. We recommend that the acting director of HUD's Columbus Office of Multifamily Housing require the Authority to implement procedures and controls to ensure that it follows HUD's requirements regarding Section 8 housing assistance payments to its instrumentality. Issue Date: March 26, 2007 Title: Colony Mortgage Corporation, Supervised Lender, Fairview Park, Ohio, Did Not Always Comply with HUD's Requirements Regarding Underwriting of Loans and Quality Control ReviewsThe U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited Colony Mortgage Corporation (Colony), a supervised lender approved to originate, underwrite, and submit insurance endorsement requests under HUD's single-family direct endorsement program. The audit was part of the activities in our fiscal year 2006 annual audit plan. We selected Colony for audit because of its high default-to-claim rate. Our objectives were to determine whether (1) Colony complied with HUD's regulations, procedures, and instructions in the underwriting Federal Housing Administration-insured loans and (2) Colony's quality control plan, as implemented, met HUD's requirements. Colony approved 9 of 22 Federal Housing Administration loans reviewed that did not meet HUD's requirements. The nine loans went to claim between October 1, 2003, and September 30, 2005. Further, Colony incorrectly certified to the integrity of the data supporting the underwriting deficiencies or to the due diligence used in underwriting the nine loans. During the audit period, Colony's quality control plan did not fully comply with HUD's requirements, and its quality control reviews were not adequately performed. Its deficient quality control may have contributed to the underwriting deficiencies. For the loans in question, the risk to the Federal Housing Administration fund was increased. We recommend that HUD's assistant secretary for housing-federal housing commissioner require Colony to reimburse HUD for any future net loss once the associated properties are sold, reimburse HUD nearly $199,000 for the loss incurred on four loans already sold and for one over-insured loan, improve its existing procedures and controls to ensure that its underwriters follow HUD's underwriting requirements, implement its revised quality control plan, and ensure that quality control reviews are performed in accordance with its revised plan. These procedures and controls should help ensure that more than $141,000 in Federal Housing Administration funds is protected from loss or misuse. We also recommend that HUD's associate general counsel for program enforcement determine legal sufficiency and if legally sufficient, pursue remedies under the Program Fraud Civil Remedies Act against Colony and/or its principals for the nine incorrect certifications cited in this audit report. Issue Date: March 15, 2007 Title: The Columbus Metropolitan Housing Authority, Columbus, Ohio, Failed to Adequately Operate Its Section 8 Housing Choice Voucher ProgramThe U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Columbus Metropolitan Housing Authority's (Authority) Section 8 Housing Choice Voucher program (program). The audit was part of the activities in our fiscal year 2006 annual audit plan. We selected the Authority based upon our analysis of risk factors relating to the housing agencies in Region Vs jurisdiction. Our objective was to determine whether the Authority operated its program in accordance with HUD's requirements. This is the second of two audit reports on the Authority's program. The Authority administered its Section 8 Project-Based Voucher program contrary to HUD's requirements. It did not perform environmental reviews, rent reasonableness determinations, and housing quality standard inspections in accordance with HUD requirements before executing housing assistance payments contracts. It paid housing assistance for units not under housing assistance payments contracts, underpaid housing assistance for program households, issued duplicate housing assistance payments for three units, and did not use the proper HUD form to execute housing assistance payments contracts. The Authority did not administer its Family Self-Sufficiency program correctly and paid more than $431,000 in escrow payments to households contrary to federal requirements. It failed to complete required forms, include individual training and service plans in the contract of participation, ensure that participants sought and maintained suitable employment, ensure that participants identified and met interim goals, ensure that participants met interim goals before being issued early escrow payments, offer supportive services, and require participants to meet regularly to ensure that they met interim goals and final goals and properly changed goals. The Authority did not comply with HUD's requirements and its own program administrative plan. It failed to remove from its program households that did not receive housing assistance payments for 180 days or more and made payments after households should have been terminated. It did not follow its plan regarding households with zero income, which requires the Authority to reverify zero-income households every 180 days. It also did not follow HUD's requirements concerning special admissions, waiting list reinstatements, third-party verifications, and other excluded sources of annual income and stated that it would pay owners a household's portion of unpaid rent. We recommend that the director of HUD's Cleveland Office of Public Housing require the Authority to reimburse its program from nonfederal funds for the improper use of funds, reimburse its Family Self-Sufficiency program from nonfederal funds for its improper use of contract and program funds, provide support or reimburse its program from nonfederal funds for the unsupported housing assistance payments, and implement adequate procedures and controls to address the findings cited in this audit report. Issue
Date: September 29, 2006 Title: Lucas Metropolitan Housing Authority, Toledo, Ohio, Did Not Effectively Operate Its Section 8 Housing Choice Voucher ProgramThe U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Lucas Metropolitan Housing Authority's (Authority) Section 8 Housing Choice Voucher program (program). The audit was part of the activities in our fiscal year 2006 annual audit plan. We selected the Authority based upon a risk analysis that identified it as having a high-risk program. Our objective was to determine whether the Authority managed its program in accordance with HUD's requirements. The Authority's program administration regarding housing unit conditions and required documentation to support housing assistance and utility allowance payments was inadequate. Of the 62 housing units statistically selected for inspection, 49 (79 percent) did not meet HUD's housing quality standards, and 45 had 212 violations that existed at the time of the Authority's previous inspections. The 45 units had between 1 and 12 preexisting violations per unit. Based on our statistical sample, we estimate that over the next year the Authority will pay more than $1.3 million in housing assistance payments on units with material housing quality standards violations. The Authority failed to ensure that household files contained required documentation to support its payment of housing assistance and utility allowances. Of the 67 files statistically selected for review, 37 did not contain the documentation required by HUD and the Authority's program administrative plan. The Authority also incorrectly calculated housing assistance payments, resulting in nearly $23,000 in unsupported payments, more than $21,000 in overpayments, and nearly $1,300 in underpayments from April 2004 through March 2006. The Authority had adequate procedures for abating units, conducted recertifications on time, and initiated quality control reinspections in June 2005. We recommend that the director of HUD's Cleveland Office of Public Housing require the Authority to reimburse its program from nonfederal funds for the improper use of program funds, provide support or reimburse its program from nonfederal funds for the unsupported housing assistance and utility allowance payments and related administrative fees, and implement adequate procedures and controls to address the findings cited in this audit report. These procedures and controls should help ensure that nearly $2 million in program funds are spent on payments that meet HUD's requirements. Issue
Date: September 26, 2006 Title: Pickaway Metropolitan Housing Authority, Circleville, Ohio, Improperly Used Homeownership Sales Proceeds to Fund Its Nonprofit Development ActivitiesThe U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Pickaway Metropolitan Housing Authority's (Authority) activities with its related nonprofit organization. The review of housing authorities' development activities is set forth in our fiscal year 2006 annual audit plan. We selected the Authority for audit because it was identified as having high-risk indicators of nonprofit development activity. Our objective was to determine whether the Authority diverted resources subject to its annual contributions contract, other agreement, or regulation for the benefit of non-HUD developments. The Authority improperly loaned nearly $256,000 in 5(h) Homeownership Plan (program) sales proceeds to its nonprofit, Building Affordable Housing Corporation (Corporation). The two loans occurred without HUD approval and did not follow federal requirements regarding the use of the program proceeds. Because of the Authority's improper use of these proceeds, its program also lost more than $60,000 in interest income that would have been realized if the proceeds had been invested. Further, the Authority paid more than $22,000 in expenses that would not have been incurred if it had conducted the Corporation's development activities. The improper expenses included real estate taxes, accounting fees for the Corporation's tax returns, and directors' and officers' liability insurance for the Corporation. The Corporation used nearly $2,400 in program proceeds to pay legal expenses related to its development activities that were not adequately supported by detailed invoices. We recommend that the director of HUD's Cleveland Office of Public Housing require the Authority to reimburse its program from nonfederal funds for the improper use of program funds, provide documentation or reimburse its program from nonfederal funds for the unsupported payments cited in this report, and implement adequate procedures and controls to correct the cited weaknesses. Issue
Date: July 31, 2006 Title: National City Mortgage Company, Nonsupervised Lender, Miamisburg, Ohio, Did Not Comply with HUD's Requirements Regarding Underwriting of Loans and Quality Control ReviewsThe U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited National City Mortgage Company (National City), a nonsupervised lender approved to originate, underwrite, and submit insurance endorsement requests under HUD's single family-direct endorsement program. The audit was part of the activities in our fiscal year 2005 annual audit plan. We selected National City for audit as a continuation to our previous audit of its late requests for endorsement (see audit report 2005-CH-1015, dated August 23, 2005). Our objectives were to determine whether (1) National City complied with HUD's regulations, procedures, and instructions for underwriting Federal Housing Administration loans and (2) its quality control plan met HUD's requirements and was properly implemented. National City approved 20 of 41 Federal Housing Administration loans in our statistical sample that did not fully meet HUD's requirements. The 20 loans defaulted early and/or went to claim between February 1, 2004, and August 31, 2005. The underwriting deficiencies were material as well as technical and included errors and documentation omissions clearly contrary to prudent lending practices. Further, National City incorrectly certified to the integrity of the data supporting the underwriting deficiencies and to the due diligence used in underwriting the 20 loans. While National City's Federal Housing Administration lending decisions overall have proved well within acceptable risk levels, its quality control plan was not fully implemented during our audit period and may have contributed to the underwriting deficiencies. For the loans in question, the risk to the Federal Housing Administration fund was increased as HUD paid more than $94,000 in claims for two loans and incurred a loss of nearly $48,000 for another two loans. We recommend that HUD's assistant secretary for housing-federal housing commissioner require National City to indemnify HUD for any future losses on nine loans with a total mortgage value of more than $1 million, reimburse HUD more than $94,000 for the claims paid on two loans once the associated properties are sold, reimburse HUD nearly $48,000 for the loss incurred on two loans since the properties were already sold, buy down two active loans by $2,900, improve its existing procedures and controls to ensure its underwriters follow HUD's underwriting requirements, implement its quality control plan for reviewing loans with early payment defaults, and ensure that quality control reviews under its quality control plan are timely, accurate, and properly documented. Issue
Date: July 6, 2006 Title: The Columbus Metropolitan Housing Authority, Columbus, Ohio, Did Not Effectively Operate Its Section 8 Housing ProgramThe U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Columbus Metropolitan Housing Authority's (Authority) Section 8 Housing Choice Voucher program (program). The audit was part of the activities in our fiscal year 2005 annual audit plan. We selected the Authority based upon a risk analysis that identified it as having a high-risk program. Our objective was to determine whether the Authority managed its program in accordance with HUD's requirements. This is the first of two audit reports on the Authority's program. The Authority's program administration regarding housing unit conditions, timeliness of annual housing unit inspections, and adequate documentation to support housing assistance payments was inadequate. Of the 67 housing units statistically selected for inspection, 47 did not meet HUD's housing quality standards and 34 had 164 violations that existed at the time of the Authority's previous inspection. The 34 units had between 1 and 17 preexisting violations per unit. Based on our statistical sample, we estimate that over the next year HUD will pay more than $7.5 million in housing assistance payments on units with material housing quality standards violations. The Authority failed to ensure that its housing unit inspections were conducted timely. Of the 8,976 unit inspections conducted by the Authority in calendar year 2005, 966 (10.8 percent) inspections were not conducted within the required one year of the previous inspection. The number of days late ranged from 1 to 144 and 93.5 percent of the late inspections were less than 30 days late. The Authority also failed to ensure that its tenant files contained required documentation to support its payment of housing assistance. Of the 76 files statistically selected for review, 35 (46 percent) did not contain the documentation required by HUD and the Authority's program administrative plan. The Authority also incorrectly calculated housing assistance payments resulting in more than $12,000 in overpayments and more than $11,300 in underpayments from January 2003 through December 2005. We recommend that the director of HUD's Cleveland Office of Public Housing require the Authority to reimburse its program from nonfederal funds for the improper use of more than $83,000 in program funds, provide documentation or reimburse its program more than $332,000 from nonfederal funds for the unsupported housing assistance payments and administrative fees, ensure that program housing units inspected during this audit are repaired to meet HUD's housing quality standards, and implement adequate procedures and controls to ensure program units meet housing quality standards to prevent an estimated $7.5 million from being spent on units with material housing quality standards violations. Issue
Date: April 18, 2006 Title: The Youngstown Metropolitan Housing Authority in Youngstown, Ohio, Did Not Use Public Housing Operating Funds Effectively and EfficientlyThe U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Youngstown Metropolitan Housing Authority's (Authority) public housing program. We initiated the audit based on a citizen's complaint to our hotline. The complainant alleged that the Authority's executive director (1) ordered Authority personnel to purchase her a new sport utility vehicle for her personal use, (2) failed to follow HUD's and the Authority's procurement policies, (3) used the Authority's employees for personal services during duty hours, (4) used the Authority's equipment for her own and others' personal use, and (5) tampered with the Authority's records. Our objectives were to determine whether the complainant's allegations were substantiated and whether the Authority used HUD funds in accordance with applicable requirements. The Authority did not follow HUD's requirements for full and open competition and its procurement procedures manual regarding the procurement of legal and housing maintenance training services totaling $99,673 from July 2004 through January 2006. In addition, it did not follow federal requirements regarding its use of $3,632 in public housing operating funds (operating funds) from May 2004 through September 2005. It used $2,080 to pay entertainment expenses for its employees and residents, $1,399 to pay travel expenses, and $153 to pay bereavement expenses. Based on our review, we did not substantiate the complainant's allegations that the Authority's executive director: ordered Authority personnel to purchase her a new sport utility vehicle for her personal use; used the Authority's employees to perform personal items during duty hours; used the Authority's equipment for her own and others' personal use; and tampered with the Authority's records. We informed the Authority's executive director and the director of HUD's Cleveland Public Housing Hub of minor deficiencies through a memorandum, dated April 14, 2006. We recommend that the director of HUD's Cleveland Public Housing Hub require the Authority to (1) support that the use of operating funds for legal services was reasonable or reimburse its operating fund from nonfederal funds for the applicable amount, (2) implement procedures and controls to ensure it follows HUD's requirements and/or the Authority's procurement procedures manual when procuring services and using operating funds, (3) submit its legal services contracts to HUD for review and approval before disbursing additional HUD funds for legal services, and (4) review its use of operating funds to ensure that funds were used for allowable expenses. If operating funds were used to pay inappropriate expenses, the Authority should reimburse its operating fund from nonfederal funds as appropriate. Issue
Date: March 15, 2006 Title: Huntington National Bank, Supervised Lender; Columbus, Ohio; Generally Complied with Requirements Regarding Submission of Late Requests for Endorsement and Underwriting of LoansThe U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited Huntington National Bank (Huntington), a supervised lender approved to originate, underwrite, and submit insurance endorsement requests under HUD's single family direct endorsement program. The audit was part of the activities in our fiscal year 2005 annual audit plan. We selected Huntington for audit because of its high late endorsement rate. Our objectives were to determine whether Huntington complied with HUD's regulations, procedures, and instructions in the submission of insurance endorsement requests and underwriting of Federal Housing Administration loans. Huntington generally complied with HUD's requirements on late requests for insurance endorsement; however, it improperly submitted 20 late requests for endorsement out of 761 loans tested. The loans were either delinquent or otherwise did not meet HUD's requirements of six monthly consecutive timely payments after delinquency but before submission to HUD. Huntington also incorrectly certified that all payments due were made by the borrowers before or within the month due for 12 loans and the escrow account for taxes, hazard insurance, and mortgage insurance premiums was current for one loan when it was not. Further, Huntington generally complied with HUD's underwriting requirements. However, it underwrote two Federal Housing Administration loans that later defaulted by overstating income, understating liabilities, and providing no valid compensating factors to approve the two loans. Huntington also charged excessive and/or unallowable fees on five loans and incorrectly certified that due diligence was used in underwriting 5 of the 32 loans reviewed when it was not. These improperly submitted and underwritten loans increased the risk to HUD's Federal Housing Administration insurance fund. We recommend that HUD's assistant secretary for housing-federal housing commissioner require Huntington to indemnify HUD for any future losses on 14 loans improperly submitted for endorsement with a total mortgage value of more than $1.4 million and take appropriate action against Huntington for violating the requirements in effect at the time when it submitted two loans with a mortgage value of nearly $178,000 without the proper six month payment histories. We also recommend that HUD's assistant secretary for housing-federal housing commissioner require Huntington to indemnify HUD for any future losses on two defaulted loans with a total mortgage value of more than $228,000 that were inappropriately underwritten, require Huntington to reimburse the borrowers or HUD as appropriate more than $1,300 in excessive and/or unallowable fees charged on five loans, and implement adequate procedures and controls to address the deficiencies cited in this report. In addition, we recommend that HUD's associate general counsel for program enforcement determine legal sufficiency and if legally sufficient, pursue remedies under the Program Fraud Civil Remedies Act against Huntington and/or its principals for incorrectly certifying that all payments due were made by the borrowers before or within the month due for 12 loans, the escrow account for taxes, hazard insurance, and mortgage insurance premiums was current for one loan submitted for Federal Housing Administration insurance endorsement when the escrow account was not current, and due diligence was used in underwriting five loans when it was not. Issue Date: December 30, 2005 Title: Fairfield Metropolitan Housing Authority; Lancaster, OhioThe U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Fairfield Metropolitan Housing Authority's (Authority) activities with its related nonprofit organization. The review of housing authorities' development activities is set forth in our fiscal year 2005 annual audit plan. We selected the Authority for audit because it was identified as having high-risk indicators of nonprofit development activity. Our objective was to determine whether the Authority diverted or pledged resources subject to its annual contributions contract, other agreement, or regulation for the benefit of non-HUD developments without specific HUD approval. The
Authority improperly transferred more than $520,000 of its HOPE
1 and 5(h) Homeownership Plan sales proceeds to its nonprofit, the
Lancaster Community Housing Corporation (Corporation). The Authority
received more than $337,000 from 10 HOPE 1 properties sold in 1995
and $78,000 from two 5(h) Homeownership Plan properties sold in
1996. The sales proceeds were pooled and invested in certificates
of deposit accumulating interest until 2004 when the Authority transferred
the proceeds to the Corporation. The transfer occurred without HUD
approval and did not follow federal requirements regarding the use
of the proceeds. The Authority also transferred ownership of three properties that were rehabilitated using HUD's McKinney grant funds to the Corporation without HUD approval. The Corporation sold one property in 2004. The Authority and/or the Corporation did not reimburse HUD more than $23,000 used to rehabilitate the property. We informed the Authority's executive director and the director of HUD's Cleveland Public Housing Hub of minor deficiencies through a memorandum, dated December 21, 2005. We recommend that the director of HUD's Cleveland Public Housing Hub and/or the director of HUD's Columbus Office of Community Planning and Development require the Authority to (1) reimburse its HOPE 1 and 5(h) Homeownership Plan programs collectively more than $520,000 from nonfederal funds for the improper transfer of the sales proceeds to its Corporation, (2) reimburse HUD more than $23,000 from nonfederal funds for the McKinney grant funds used to rehabilitate the one property, and (3) implement procedures and controls to correct the weaknesses cited in this report. Issue Date: November 17, 2005 Title: The General Partner of The Sanctuary of Geneva, Ohio Improperly Used More Than $43,000 in Project FundsThe U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General reviewed the books and records of The Sanctuary (project), a 39-bed assisted living facility located in Geneva, Ohio. The review was part of our efforts to combat multifamily equity skimming on HUD's Federal Housing Administration insurance fund. We chose the project based upon its negative surplus-cash position since 2002 and indicators of diverted project funds or assets. Our objective was to determine whether the owner/management agent used project funds in compliance with the regulatory agreement and HUD's requirements. Eld-Terra, Incorporated (general partner), the managing general partner of The Sanctuary of Geneva Limited Partnership (owner), improperly used $38,009 in project funds from February 2003 through January 2005 when the project was in a non-surplus-cash position. The inappropriate disbursements included $37,000 to the general partner to repay owner advances to the project and $1,009 in legal services for the general partner. The general partner also lacked documentation to support that an additional $5,475 in project funds was properly used. We provided the general partner a schedule of the improper disbursements. We recommend that the director of HUD's Columbus Multifamily Housing Hub require the general partner to (1) reduce the project's management fee liability for the inappropriate payments, (2) provide documentation to support the unsupported payments or reduce the project's management fee liability for the appropriate amount, and (3) implement procedures and controls to ensure that future repayments of owner advances are made only from project surplus cash or with prior HUD approval and project funds are used according to HUD's requirements. Issue Date: September 28, 2005 Title: HUD's Interest in $1 Million in Economic Development Initiative - Special Purpose Grant Funds Awarded to Mount Union College Was Not Secured; Alliance, OhioThe U.S. Department of Housing and Urban Development's Office of Inspector General audited Mount Union College's (College) Economic Development Initiative - Special Purpose Grant (Grant). We initiated the audit in conjunction with our internal review of the U.S. Department of Housing and Urban Development's (HUD) oversight of Economic Development Initiative - Special Purpose Grants. The review is part of our fiscal year 2005 annual audit plan. We chose the College's Grant based upon a statistical sample of fiscal years 2002 and 2003 Economic Development Initiative - Special Purpose Grants, in which 90 percent or more in funds were disbursed. Our objectives were to determine whether the College used its Grant funds in accordance with HUD's requirements and recorded HUD's interest on the assisted property. The College used the Grant funds in accordance with HUD's requirements. The College used $1 million in Grant funds to pay for architectural fees for the construction of Bracy Hall, a science facility. However, the College did not place a covenant on the property title for Bracy Hall assuring nondiscrimination based on race, color, national origin, or handicap. Further, HUD did not request the College to record HUD's interest on the property title for Bracy Hall. We recommend that HUD's director of congressional grants require the College to record a covenant on the title assuring nondiscrimination based on race, color, national origin, or handicap and record a lien on the property title for Bracy Hall showing HUD's interest in the assisted property. If the covenant and lien are not recorded, the College should reimburse HUD $1 million from nonfederal funds for the Grant funds used to pay for Bracy Hall's architectural fees. Issue Date: September 15, 2005 Title: National City Mortgage Company, Miamisburg, OhioWe audited loans National City Mortgage Company (National City) underwrote at the Altamonte Springs, Florida, and Alpharetta, Georgia, branch offices for seven loan correspondents that originated loans for properties located in central and northern Florida. National City is a nonsupervised direct endorsement lender with headquarters located in Miamisburg, Ohio. We selected the two branch offices and the seven loan correspondents because their default rates were significantly higher than the Florida average. National City did not follow HUD requirements when underwriting 9 of the 19 Federal Housing Administration-insured loans reviewed for compliance. The loans contained deficiencies that affected the credit quality (insurability) of the loans. The loan underwriting deficiencies occurred because National City's underwriters did not adequately evaluate information presented by its loan correspondents for compliance with requirements before approving the loans. The underwriters also allowed questionable information to be entered into the systems used for automated underwritten loans. As a result, HUD insured nine loans that placed the Federal Housing Administration insurance fund at risk for $326,132 in questioned costs and $153,674 in funds to be put to better use. We recommend that the assistant secretary for housing-federal housing commissioner take appropriate administrative action against National City. This action should, at a minimum, include requiring indemnification of $153,674 for two defaulted loans, $159,690 for claims paid on two loans, and reimbursement of $166,442 for losses incurred for five loans. Issue Date: August 23, 2005 Title: National City Mortgage Company, Non-Supervised Lender; Miamisburg, OhioThe U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited National City Mortgage Company (National City), a nonsupervised lender approved to originate, underwrite, and submit insurance endorsement requests under HUD's single family direct endorsement program. The audit was part of the activities in our fiscal year 2005 annual audit plan. We selected National City for audit because of its high late endorsement rate. Our objective was to determine whether National City complied with HUD's regulations, procedures, and instructions in the submission of insurance endorsement requests. National City did not always comply with HUD's requirements on late requests for insurance endorsement. National City submitted 2,071 late requests for endorsement out of 68,730 loans tested. The loans were either delinquent or otherwise did not meet HUD's requirements of six monthly consecutive timely payments subsequent to delinquency, but before submission to HUD. National City also incorrectly certified that both the mortgage and escrow accounts for 133 loans, and the escrow accounts for taxes, hazard insurance premiums, and mortgage insurance premiums for 497 loans were current when they were not. National City lacked adequate procedures and controls to ensure that it followed HUD's requirements regarding late requests for insurance endorsement. These improperly submitted loans increased the risk to the Federal Housing Administration insurance fund. We recommend that HUD's assistant secretary for housing-federal housing commissioner require National City to indemnify HUD for any future losses on 529 loans with a total mortgage value of more than $63.5 million and take other appropriate administrative actions up to and including civil money penalties, and reimburse HUD more than $2.3 million for the actual losses it incurred on 57 loans since the properties associated with these loans were sold and for any future losses from nearly $3.2 million in claims paid on 45 insured loans with a total mortgage value of nearly $5 million once the associated properties are sold. We also recommend that HUD's assistant secretary for housing-federal housing commissioner take appropriate administrative action against National City for violating the requirements in effect at the time when it submitted 804 loans with a total mortgage value of more than $99.6 million without the proper six-month payment histories. We recommend that HUD's associate general counsel for program enforcement determine legal sufficiency, and, if legally sufficient, pursue remedies under the Program Fraud Civil Remedies Act against National City and/or its principals for incorrectly certifying that the mortgage and/or the escrow accounts for taxes, hazard insurance premiums, and mortgage insurance premiums were current for 630 loans submitted for Federal Housing Administration insurance endorsement when the mortgage and/or escrow accounts were not current at submission. Issue Date: May 31, 2005 Title: Stark Metropolitan Housing Authority; Canton, Ohio; The Authority Used Annual Contributions Contract Funds for Development Activities Outside Its Annual Contributions ContractThe U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General completed an audit of the Stark Metropolitan Housing Authority's (Authority) activities with its related nonprofit organizations. The review of housing authorities' development activities is set forth in our fiscal year 2005 annual audit plan. We selected the Authority for audit because it was identified as having high-risk indicators of nonprofit development activity. Our objectives were to determine whether the Authority: used annual contributions contract funds for non-annual contributions contract activities; accounted for the source and use of funds as required by its annual contributions contract with HUD; and encumbered HUD funds for the benefit of non-HUD development activity without specific HUD approval. The Authority received more than $459,000 of HOME funds from Stark County between August 2001 and September 2002 to develop five low-income housing units. Two of the five units were for the Ruthe and Isadore Freed Housing Corporation (Freed), the Authority's nonprofit affiliate entity. The Authority administered these funds and deposited them into its general fund. The general fund is a pool of funds that consists mainly of federal operating subsidies for the Authority. However, the general fund also included proceeds from the sale of low-income homes. The Authority expended more than $696,000 from its general fund for the development of low-income housing units; however, the Authority could not provide documentation to support whether HUD operating subsidies or nonfederal funds in its general fund was expended. Freed transferred more than $528,000 to the Authority, who deposited the funds into its general fund. The Authority has not demonstrated that these funds were reimbursed to its low-income housing program. The transfers made to Freed were in excess of the amount Freed had on deposit in the Authority's general fund for the period between December 2000 and March 2005. Freed lacked the funds to transfer more than $168,000 to the Authority as of March 2005. The Authority also executed two loan agreements for the purchase of properties that encumbered $278,000 of its general fund, including low-income housing operating subsidies, without HUD approval. The agreements included provisions that allowed the lender to withdraw the funds on deposit if the loan payments were not made. In April 2004, the Authority secured $184,000 of the loan agreements with nonfederal funds. We recommend that HUD's Director of Public Housing Hub, Cleveland Field Office, requires the Authority to (1) collect the more than $168,000 that Freed owes the Authority and reimburse its low-income housing reserve account, or reimburse its low-income housing reserve account from nonfederal funds if Freed cannot repay the Authority, (2) provide adequate documentation to support that the repayment of more than $528,000 from Freed Corporation was from nonfederal funds, or reimburse its low-income housing reserve account from nonfederal funds if adequate documentation is not provided, (3) provide adequate documentation to support that the encumbrance for $94,000 was removed and secured with nonfederal funds, and (4) implement procedures and controls to correct the weaknesses cited in this report. The procedures and controls should help ensure that more than $167,000 in future HUD funding received by the Authority will be appropriately used. Issue Date: October 27, 2004 Title: Prestige Mortgage Group, Inc., Non-Supervised Loan Correspondent, Springfield, OHHUD's Office of Inspector General audited Prestige Mortgage Group, Inc. (Prestige), a non-supervised loan correspondent approved to originate FHA mortgage loans under HUD's Single Family Direct Endorsement Program. The audit was part of the activities in our fiscal year 2004 Annual Audit Plan. We selected Prestige for audit because of its high loan default rate. Our audit objectives were to determine whether Prestige (1) complied with HUD's regulations, procedures, and instructions in the origination of FHA-insured single-family mortgages and (2) implemented a quality control plan according to HUD's requirements. Prestige did not adequately originate FHA-insured loans in accordance with HUD's requirements. Prestige It failed to exercise due diligence to always verify or support borrowers' income and sources of funds to close, and credit information. and In addition, Prestige did not always ensure that unbiased appraisals were provided, cash investment requirements were met, information on inconsistencies contained in loan documents were explained or resolved, face-to-face interviews with borrowers were conducted as claimed, and interested third parties were not handling key documentation. Further, Prestige charged borrowers for fees that were unjustified. Prestige failed to adequately implement its quality control process according to HUD's requirements. It did not always review early payment defaults, perform quality control reviews on FHA loans in a timely manner, formally and consistently document the actions taken to resolve the deficiencies found during its reviews, and perform reviews of its branch office. We recommend that HUD's Assistant Secretary for Housing-Federal Housing Commissioner and Chairman of the Mortgagee Review Board
Issue Date: August 9, 2004 Title: Somerset Point Nursing Home, Multifamily Equity Skimming, Shaker Heights, OhioHUD's Office of Inspector General reviewed the books and records of Somerset Point Nursing Home (Project) to determine whether the owner/management agent used the Project's funds in compliance with the Regulatory Agreement between HUD and the Somerset Point Limited Partnership and HUD's requirements. The Somerset Point Limited Partnership and/or Associated Motor Inns inappropriately used $329,255 of Project funds between December 1998 and October 2003. The inappropriate expenses included: $160,227 to repay advances made by SOMSOL, Inc.; $93,591 in excessive management fees paid to Associated Motor Inns; and $75,437 in legal fees unrelated to the Project's operations. We provided Associated Motor Inns, the Somerset Point Limited Partnership, and HUD's staff a schedule of the inappropriate expenses. The Project was in a non-surplus cash position and/or had defaulted on its FHA-insured mortgage when the funds were used. As a result, Project funds were not used efficiently and effectively, and fewer funds were available for the Project's normal operation and debt service. We recommend that HUD's Director of Multifamily Housing Hub, Columbus Field Office, ensure that the Somerset Point Limited Partnership and/or Associated Motor Inns reimburses HUD for the inappropriate payments cited in this audit memorandum. We recommend that HUD's Director of Multifamily Housing Hub in conjunction with HUD's Office of Inspector General pursues double damages remedies if the Limited Partnership and/or Associated Motor Inns do not reimburse HUD for the inappropriate payments cited in this audit memorandum. We also recommend that HUD's Director of Departmental Enforcement Center: pursues administrative sanctions against the Limited Partnership and/or Associated Motor Inns for the inappropriate payments cited in this memorandum; and imposes civil money penalties against the Limited Partnership and/or Associated Motor Inns for the inappropriate payments cited in this audit memorandum while the Project was in a non-surplus cash position and/or in default on its FHA-insured mortgage. Issue Date: December 5, 2003 Title: Carter Manor Apartments Multifamily Equity Skimming, Cleveland, OhioHUD's Office of Inspector General completed a review of the books and records of Carter Manor Apartments. We performed the review to determine whether the Project's funds were used in compliance with the Regulatory Agreement and applicable HUD policies and procedures. The review was performed based upon a request from HUD's Cleveland Office of Multifamily Housing Program Center. We did not conduct the review in accordance with Generally Accepted Government Auditing Standards. We found that J.B. Tipton, Inc. and Carter Manor Apartments Limited Partnership violated the Regulatory Agreement by improperly disbursing Project funds for ineligible and unsupported costs. The inappropriate disbursements occurred when the Project was in a non-surplus cash position and/or after the Project defaulted on its HUD-insured mortgage. As a result, fewer funds were available for the Project's normal operations and debt service that resulted in a claim from HUD's FHA insurance fund. We referred our draft audit findings to the United States Attorney's Office for the Northern District of Ohio for civil matters. HUD and the United States Attorney's Office executed a settlement agreement with the General Partner for Carter Manor Apartments Limited Partnership and the President of J.B. Tipton effective November 24, 2003. Under the terms of the settlement, the General Partner and J.B. Tipton, without any admission of wrong doing, agreed to pay HUD $275,000 on or before December 5, 2003. As part of the settlement, the General Partner and J.B. Tipton agreed not to participate in the Project for a period of five years starting July 1, 2004. The settlement agreement permitted the General Partner to retain a limited partnership share of no more than one percent in the Project. We recommend that HUD's Director of Multifamily Housing Hub, Columbus Field Office, assure Carter Manor Apartments' General Partner and J.B. Tipton, Inc. pays HUD $275,000 as required by the settlement agreement. Issue Date: September 30, 2003 Title: J.T. Eaton & Company, Civil False Claims,Twinsburg, OHHUD's Office of Inspector General completed a review of J.T. Eaton & Company, Incorporated. The objectives of the review were to identify HUD subsidized housing authorities that purchased pest control products from J.T. Eaton and the amounts paid for those products. We performed the review at the request of the United States Attorney's Office for the Northern District of Ohio. We did not conduct the review in accordance with Generally Accepted Government Auditing Standards. Of the 659 housing authorities we contacted, we received one positive response from the Lucas Metropolitan Housing Authority in Toledo, Ohio. In addition, we received positive responses from the New York City Housing Authority and the Wilmington Delaware Housing Authority after expanding our review. The responses demonstrated that between November 1, 1996 and January 12, 2001, the housing authorities paid more for animal repellants and pesticide products manufactured by J.T. Eaton than previously identified to the United States Attorney's Office. The United States Attorney's Office followed-up with the manufacturer and the suppliers we identified. Based on the follow-up, the United States Attorney's Office revised the estimate of HUD related damages from $33,736 to $79,298. The United States Attorney's Office negotiated a settlement agreement effective September 18, 2003 that includes a recovery for damages to HUD. We recommend that HUD's Director of Field Operations for Public and Indian Housing follow-up with the United States Attorney's Office for the Northern District of Ohio to ensure that HUD receives $79,298 from the settlement agreement with J.T. Eaton. Issue Date: April 25, 2003 Title: City of Cleveland, Empowerment Zone Program, Cleveland, OhioHUD's Office of Inspector General completed an audit of the City of Cleveland's Empowerment Zone Program. Our audit objectives were to determine whether the City: (1) efficiently and effectively used HUD funds for its Program; and (2) accurately reported the Program's accomplishments to HUD. The audit was part of our Fiscal Year 2002 Annual Audit Plan. The audit was conducted based upon our survey results and two requests from Congress. The United States House of Representatives' Conference Report 107-272 directed HUD's Office of Inspector General to review the use of Zone funds and to report our findings to the Senate Appropriations Committee. The United States Senate's Report 107-43 also requested us to review the use of Zone funds and report our audit results to Congress. We concluded the City did not maintain adequate oversight of its Program. Specifically, we determined: * Controls over HUD funds were not adequate; Issue Date: March 28, 2003 Title: Coshocton Metropolitan Housing Authority Public Housing
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