Title: Capmark Finance, Inc. Misrepresented Asbury Square Apartments', Tulsa, Oklahoma, Financial and Physical Condition When Underwriting the $9.098 Million Loan

At the request of the U. S. Department of Housing and Urban Development (HUD), we audited Capmark Finance, Inc. (Capmark) underwriting and processing of the mortgage loan for Asbury Square Apartments (Asbury), located in Tulsa, Oklahoma. We had previously audited Asbury's owner/management agent. The audit objective was to determine whether Capmark followed multifamily accelerated processing (MAP) and HUD requirements when underwriting and processing the Asbury loan.

Our audit disclosed that Capmark misrepresented Asbury's financial and physical situation to HUD in its underwriting narrative. Further, it did not exercise the required amount of due diligence required to support its recommendation for HUD endorsement. The Asbury mortgage loan, as recommended by Capmark, did not provide enough funds to restore the project to a financially viable condition. While Capmark complied with most MAP requirements when underwriting the loan, its underwriting narrative lacked material financial information and analysis. In addition, Capmark did not perform its property site inspection within MAP requirements. As a result, Asbury defaulted on the loan before final closing, causing HUD a possible loss of more than $5.9 million.

We recommended that the assistant secretary for housing refer Capmark to the Mortgagee Review Board for appropriate action. Further, we recommend that the acting deputy assistant secretary for multifamily housing establish a MAP Lender Review Board. We recommend the MAP Lender Review Board address and resolve violations by Capmark that could cause losses exceeding $5.9 million to HUD's Federal Housing Administration insurance fund and deficiencies in its quality control plan.

Issue Date: March 7, 2007
Audit Report No.: 2007-FW-1006
File Size: 935.45KB

Title: Aberdeen Villa Apartments, Formerly Asbury Square Apartments, Tulsa, Oklahoma, FHA #118-35200, Spent Almost $35,000 in Project Funds on Ineligible and Unsupported Costs

We audited Asbury Square Apartments (Asbury), located in Tulsa, Oklahoma, in response to a request from the U.S. Department of Housing and Urban Development's (HUD) Office of Multifamily Housing. We concluded that Sheltering Palms - Tulsa I, LLC (Sheltering Palms), the owner and borrower, and Paramount Property Group, LLC (Paramount), the management agent, spent $34,649 on ineligible and unsupported costs.

We recommended that HUD require Sheltering Palms to support or reimburse HUD's Federal Housing Administration insurance fund $34,649. We also recommended that HUD take appropriate administrative sanctions against Sheltering Palms and its principals/officers and Paramount and its owners.

Issue Date: December 8, 2006
Audit Report No.: 2007-FW-1004
File Size: 159.92KB

Title: Oklahoma City Housing Authority, Oklahoma City, Oklahoma, Generally Complied with HUD's Standards

We conducted a survey of the Oklahoma City Housing Authority (Authority) to determine whether the Authority overhoused tenants, computed housing assistance payments correctly, and complied with housing quality standards. We selected the Authority because our analysis indicated that it potentially overpaid housing assistance payment vouchers for 251 properties.

We concluded that the Authority operated its Section 8 program in compliance with HUD requirements. Generally, it computed housing assistance payments correctly and had effective controls in place to ensure that it met housing quality standards, however, the Authority made minor errors in computing housing assistance payments. We informed the director of the Authority and HUD's program center coordinator of the minor deficiencies through a separate memorandum. Since the Authority generally complied with HUD's requirements, we do not recommend corrective action.

Issue Date: June 29, 2006
Audit Report No.: 2006-FW-1012
File Size: 653.04KB

Title: Oklahoma Housing Finance Agency, Oklahoma City, Oklahoma, Made Minor Mistakes in Computing Housing Assistance Payments and Housing Tenants

We audited the Oklahoma Housing Finance Agency's (Agency) Section 8 program to determine whether the Agency overhoused or underhoused tenants, computed housing assistance payments correctly, and complied with housing quality standards. We concluded the Agency operated its Section 8 program in accordance with HUD requirements and complied with housing quality standards. It miscalculated nine housing assistance payments and one utility reimbursement and overhoused two tenants. One Agency employee was responsible for 8 of the 12 mistakes. The miscalculations and overhousing of tenants resulted in $815 in overpayments and $1,214 in underpayments. The Agency took appropriate corrective actions and incorporated improvements into its training sessions.

We recommended that HUD require the Agency to (1) repay $2,029 for housing assistance overpayments and underpayments, (2) review potentially overhoused tenants at their next annual reexamination to ensure proper support for an additional bedroom, and (3) perform a quality control review of the files of the employee who had the majority of the mistakes and correct mistakes.

Issue Date: August 3, 2005
Audit Report No.: 2005-FW-1013
File Size: 1.18MB

Title: First Mortgage Company Generally Complied with HUD Loan Origination Requirement but Did Not Perform Quality Control Reviews of All Early Defaults

We surveyed First Mortgage Company (lender), Oklahoma City, Oklahoma, because of its high number of defaults and claims. The lender is the largest originator of Federal Housing Administration (FHA) loans in the state. The lender originated 2,021 FHA loans during the two-year period ending January 31, 2005. According to the U.S. Department of Housing and Urban Development's (HUD) Neighborhood Watch, the lender had 71 defaults and claims in the State of Oklahoma. This is more than any other lender in the state during the two-year period. The lender's default and claim rate was 106 percent of the rate for the State of Oklahoma. The survey objective was to determine whether the lender acted in a prudent manner and complied with HUD regulations, procedures, and instructions in the origination of FHA single family mortgages. An additional objective was to decide whether deficiencies warrant an in-depth audit.

For eleven of the thirteen loans reviewed, we found that the lender acted in a prudent manner and complied with HUD regulations, procedures, and instructions in originating FHA single-family mortgages. However, two loans exhibited poor underwriting. One loan warrants reimbursement of HUD for the loss on foreclosure. The other loan warrants indemnification of HUD. In addition, the lender did not make the required review of each early payment default. HUD reported in February 2003 that the lender was not reviewing early payment defaults as required. We concluded the deficiencies do not warrant further audit work by us.

We recommend that the assistant secretary for housing - federal housing commissioner require the lender to reimburse HUD for the loss incurred on one deficient loan, indemnify HUD for the other deficient loan, and take appropriate administrative action against the lender for not reviewing early payment defaults, which is a recurrence of a HUD quality assurance review finding. We also recommend that the lender improve its procedures for reviewing early payment defaults.

Issue Date: June 1, 2005
Audit Report No.: 2005-FW-1011
File Size: 557.58KB

Title: Harry Mortgage Company Generally Complied with HUD Loan Origination Requirements but Did Not Perform Quality Control Reviews of All Early Defaults, Oklahoma City, OK

We surveyed Harry Mortgage Company (lender), Oklahoma City, Oklahoma, because of its high default and claim rate. The survey objective was to determine whether the lender acted in a prudent manner and complied with HUD regulations, procedures, and instructions in the origination of Federal Housing Administration single family mortgages. An additional objective was to decide whether deficiencies warrant an in-depth audit. For 14 of the 15 loans reviewed, we found that the lender acted in a prudent manner and complied with HUD regulations, procedures, and instructions in originating Federal Housing Administration single family mortgages. However, one loan exhibited poor underwriting and warrants indemnification. In addition, the lender did not make required reviews of early defaults. HUD reported the deficiency in December 2002. The deficiencies do not warrant further audit work by us.

We recommend that the General Deputy Assistant Secretary for Housing require the lender to indemnify HUD for the deficient loan, ensure that the lender has procedures to monitor defaults, and take appropriate administrative action against the lender for not reviewing early payment defaults, a recurrence of a finding that HUD reported.

Issue Date: December 10, 2004
Audit Memorandum No.: 2005-FW-1003
File Size: 330KB

We audited the Heartland Health Care Center of Bethany (Center), a nursing home that had a HUD insured mortgage. Our audit objective was to determine whether owners or other parties managing the Center complied with the project regulatory agreement and HUD requirements when disbursing project funds.

The audit disclosed Center officials did not disburse funds in accordance with their regulatory agreement. Specifically, Center officials used $2,310,160 for ineligible costs, such as loan repayments and late fees and could not support $4,508,688 in expenditures. Further, Center officials did not provide documentation to support the use of revenue amounting to $11,909,900 for 3 years.

Center officials ignored requirements of the regulatory agreement and as a result they misspent funds. This ultimately resulted in mortgage default and closure of the Center.

We recommend the Director of the Multifamily Program Center require Center officials to reimburse HUD for the ineligible costs and provide support or reimburse HUD for the unsupported expenditures. We also recommend that the Director take appropriate administrative actions.

Issue Date: April 19, 2004
Audit Memorandum No.: 2004-FW-1005
File Size: 212KB

Title: Mustang Nursing Center Project Number 117-22003
Section 233 Nursing Home Audit
Mustang, Oklahoma

We completed a limited audit of the Mustang Nursing Center (Center) while owned by the Mustang Nursing Center, Inc. The Center officials defaulted on a mortgage HUD insured under Section 232 pursuant to 223(f). The objective of the audit was to determine whether the Center's owners and management agent complied with regulatory requirements when disbursing project funds. The audit covered a 34-month period: from February 26, 1998, the date officials signed the HUD Regulatory Agreement, to December 31, 2000, the day after the Center ceased operations. The audit disclosed that officials had violated the Regulatory Agreement with HUD. They used project-operating funds to pay owners' debt, repay an owner's loans, pay car lease payments for an owner, and pay for the architectural design of another living center. In addition, they overpaid and made unsupported payments to the management agent. As a result, the Center misspent $171,554.

Issue Date: September 10, 2003
Audit Report No.: 2003-FW-1005
File Size: 3.15MB

Title: Procurement of Housing Rehabilitation Services, Land, and Mobile Homes Housing Authority of the Seminole Nation of Oklahoma Wewoka, Oklahoma

We have completed an audit of the Housing Authority of the Seminole Nation of Oklahoma (Authority), based on complaints by former Executive Directors. The objective of the audit was to determine whether the Authority used Indian Housing Block Grant funds consistent with HUD requirements. Specifically, we reviewed Authority procurement of housing rehabilitation services, parcels of land, and mobile homes.

Authority officials improperly procured housing rehabilitation services, land, and mobile homes with Indian Housing Block Grant (Grant) funds. Specifically, officials procured: (1) housing rehabilitation services without required bid solicitations, contracts, work specifications, and accurate inspections; (2) land without required appraisals and environmental reviews; and (3) mobile homes without competitive proposals and properly executed contracts. The improper procurements occurred because officials disregarded the Authority's procurement policy and HUD requirements. As a result, the Authority misspent $780,447 in Grant funds. Officials paid for: (1) poor workmanship and work not done on housing rehabilitation, (2) land without assurance of satisfying environmental requirements and that the price was fair, and (3) mobile homes without assurance of delivery and that they were priced competitively. In addition, officials should put to better use $90,840 of Grant funds intended to pay off mobile homes. Therefore, low-income Indian families, which could have been helped, continue to live in deplorable conditions.

We are recommending HUD take action to ensure the Board of Commissioners and the Executive Director have the necessary training and knowledge of procurement policy and NAHASDA regulations. In addition, we are recommending the reimbursement of Grant funds totaling $780,447 and the avoidance of ineligible Grant expenditures totaling $90,840.

Issue Date: March 7, 2003
Audit Report No.: 2003-FW-1002
File Size: 154KB

Title: Indian Housing Block Grant
Caddo Nation of Oklahoma
Binger, Oklahoma

In response to a citizen's complaint, we completed a limited audit of the Indian Housing Block Grant of the Caddo Nation of Oklahoma (Nation). Our objective was to determine whether Indian Housing Block Grant funds were used for eligible activities. Specifically, we determined whether the Nation followed sound procurement policy and expended funds on eligible housing Activities.

The Nation had a sound procurement policy and generally used funds for eligible activities. However, the former Director of Housing at times bypassed the controls. As a result, the Nation made $4,795 in ineligible and unsupported payment to one contractor.

Issue Date: June 3, 2002
Audit Memorandum No.: 2002-FW-1803
File Size: 227KB

Title: Complaint-Apache Trace Apartments Guymon, Oklahoma

Based upon your complaint, we performed a limited review of Reid and Gary Strickland Company's (RGS) Cost Certifications of Apache Trace Apartments located in Guymon, Oklahoma. The complaint alleged RGS made false claims in its required construction cost certification for Apache Trace Apartments. Our objectives were to determine the validity of the complaint and whether RGS submitted any unallowed costs in its cost certifications. We could not substantiate that RGS submitted any false claims. However, we concluded RGS claimed $25,393 more than HUD regulations allowed.

Issue Date: April 6, 2001
Audit Memorandum No.: 2001-FW-1804
File Size: 67KB

Title: Congressional Inquiry, Neighborhood Housing Services, Inc., Tulsa, Oklahoma

At the request of Congressman Steve Largent, we looked into allegations that Neighborhood Housing Services, Inc. (NHS) made against the City of Tulsa.

In completing our review, we talked to representatives of NHS, City officials, and HUD's Community Planning and Development staff in Oklahoma City, Oklahoma. We reviewed materials such as correspondence and payment requests provided by NHS, the City, and HUD. Our review covered the 1997, 1998, 1999, and 2000 program years.

We could not validate the allegations against the City. NHS submitted reimbursement requests to the City but they lacked sufficient documentation to support full payment of each request. The City requested additional documentation, but NHS did not provide it. The City asked NHS to remit program income collected in accordance with the terms of the contract. Although NHS agreed it had collected program income and owed it to the City, NHS chose not to remit the funds to the City. We found no evidence to indicate the City discriminated against NHS by requiring more documentation than required of other subrecipients or to indicate an orchestrated attempt to run NHS out of business. In addition, we concluded the termination clause in the contract permits the City to terminate the contract when the City determines sufficient cause exists, such as not remitting program income in a timely manner.

Issue Date: June 26, 1998
Audit Report No.: 98-FW-202-1812
File Size: 44KB

Title: Housing Authority of the SAC and Fox Nation, Shawnee, OK

In response to tribal members' complaints, we have reviewed allegations against officials of the Housing Authority of the Sac and Fox Nation (the Authority). Our objective was to find out whether the members have valid complaints and decide whether the complaints justify an in-depth audit of the Authority's Comprehensive Grant and Mutual Help housing programs. Members alleged:

1. Authority officials wrongly used Comprehensive Grant funds to rehabilitate a mutual help house after the homeowner had paid off the house. Also the homeowner was not an Indian and the family was not a low or moderate income family.

2. Officials changed a bid amount so the complainant's company would not get the contract.

3. Officials paid an excessive amount to rehabilitate a mutual help house in Tryon, Oklahoma.

4. Officials violated requirements against conflicts of interest by awarding electrical contracts to the father of the Authority's construction manager.

5. Officials awarded work to contractors who did not have a bond.

6. Officials use intimidation to control program participants.

7. Officials ignore the waiting list when assigning families to new houses.

Six of the seven allegations are not valid. One is valid, but the matter does not violate HUD requirements. The Sac and Fox Housing Authority did not require contractors to be bonded for housing modernization work under the Comprehensive Grant Program. HUD requires contractors to be bonded when the contract amount is $100,000 or more. However, no housing modernization contract reached $100,000. We concluded the complaints do not justify an in-depth audit of the Authority's programs.

Issue Date: May 26, 1998
Audit Report No.: 98-FW-259-1811
File Size: 34KB

Title: Congressional Inquiry, Withdrawal of Funds from HUD Grants, Cherokee Nation of Oklahoma

We found no evidence to indicate the Cherokee Nation had misused grant funds drawn down from HUD. For HUD grants, program expenses exceeded drawdowns by more than $230,000 as of December 31, 1997. The house Nation officials renovated was eligible for grant funds. Also, we found no evidence that officials had used HUD funds to pay for lobbying activities.

The Nation had not fully implemented its American Fundware accounting system at the time of our review. As a result, the new system could not produce a complete report of receipts and expenses, financial management reports, or a reliable general ledger for fiscal periods since September 30, 1996. This significantly impacts management's ability to make financial decisions. However, the Nation is taking steps to correct this problem. The Nation's accounting staff prepared a report of receipts and expenses for each HUD grant for our review by using data from both the old and the new systems.

Issue Date: March 6, 1998
Audit Report No.: 98-FW-241-1809
File Size: 29KB

Title: Citizens' Complaints, Tulsa, OK

We did not find that officials were biased against low-income minority and handicapped persons. Nor did we find that City officials had allowed local agencies to misuse and waste grant funds. Therefore, we found no reason to do an in-depth audit of the City's Community Development Block Grant Program.

We did find the City had budgeted over $275,000 in Community Development Block Grant funds that the City needed to consider for reprogramming to other activities. Two local agencies, the Tulsa Community Action Agency and Neighborhood Housing Services, had not needed funds as officials had anticipated. The Tulsa Community Action Agency operated a Self Employment Entrepreneurial Development System. Neighborhood Housing services provides loans to homeowners to rehabilitate and preserve older established neighborhoods. The City subsequently provided us evidence they had terminated the contract with the Tulsa Community Action Agency and transferred the program to another agency. Also, the City had conditioned funding recommendations for Neighborhood Housing Services based on the resolution of the City's administrative concerns for the program. Since the City has taken corrective action, we are not including a finding and recommendation regarding this matter.

Issue Date: November 5, 1997
Audit Report No.: 98-FW-202-1804
File Size: 31KB

Title: HA, Muskogee, OK

At the request of Congressman Tom Coburn, M.D., we conducted a review of allegations of wrongdoing and violation of HUD requirements by the management of the Housing Authority of the City of Muskogee, Oklahoma (Authority). The primary allegations were that the Authority's management: (1) improperly hired and terminated employees; (2) had a conflict of interest in contracting with two companies; (3) deliberately reported incorrect occupancy information to HUD to increase their Section 8 administrative fees; and (4) improperly used Low Rent Program funds to support the Authority's Nonprofit Corporation and Drug Elimination Grant. While we found that the Authority did not follow its adopted personnel policy in dismissing one employee, the other allegations of favoritism in hiring were not substantiated. Since HUD does not dictate the hiring, evaluation, and termination policies of a public housing authority, we are not recommending any action regarding this issue. Our review did not substantiate that the Authority improperly procured goods and services or deliberately reported incorrect occupancy figures to HUD. However, we did observe that the Authority does not have adequate controls to ensure the accuracy of their occupancy reports and claims for Section 8 administrative fees. The Authority also improperly used Low Rent funds to support the Authority's Nonprofit Corporation and to pay Comprehensive Grant expenses. The Nonprofit Corporation reimbursed the Low Rent Program. However, the Authority still needs to reimburse its Low Rent Program $27,059 from its Comprehensive Grant.

Issue Date: November 5, 1997
Audit Report No.: 98-FW-202-1803
File Size: 34KB

Title: Greater Muskogee Community, Muskogee, OK

We reviewed the Authority/Foundation's contracting for goods and services in excess of $10,000 and requisitioning of funds from HUD. We observed that the Authority/Foundation did not strictly follow the Grant Agreement in the award of contracts. Further, the former Acting Executive Director, in submitting requisitions for grant funds, did not fully explain or reconcile amounts to the supporting documents. However, as more fully discussed later, the procurement violations were technical in nature and do not appear to warrant any sanctions. Further, although the requisitions were not fully reconciled to the supporting documents, the Authority/Foundation had supporting documentation for the transactions we tested, except for: (1) $2,290.82 in reimbursable expenses incurred by and paid to the architect and (2) $42,307.04 of $61,663.04 paid to the security guard company which were not supported by invoices. Appendix A lists the specific checks that need to be supported. We also noted that, in accord with the instructions from your Office, the Authority has retained the services of an accountant to prepare future requisitions. Our review also confirmed that the Foundation's reimbursement to the Authority of $85,970 in January 1997 and $15,099 in August 1997 represented funds the Authority used to pay expenses related to Shawnee Heights. Since the Grant Agreement requires the final costs be audited by an independent certified public accountant, the Authority will need to ensure that it has all supporting invoices including those paid with Authority funds.

Issue Date: May 6, 1997
Audit Memorandum No.: 97-FW-123-0801
File Size: 27KB

Title: Citizen's Complaints, Tulsa, OK

In response to citizen complaints, we have completed a review of allegations made against Jason Properties, Inc., a Real Estate Asset Manager (REAM) under contract to manage single family real estate for HUD's Tulsa Office. The objective of the review was to find out whether the allegations were valid. The three basic complaints are:

1. The REAM is not paying for the cleanup of houses as required by its contracts with HUD. Instead, the REAM is passing the costs on to HUD.

2. The REAM allowed a Tulsa Office contracting specialist to live in a house under custodial care of the REAM and this specialist was involved in the award of recent contract for which the REAM was the successful bidder.

3. The president of the REAM shared a residence with the Director of Tulsa Office of Single Family Housing who was instrumental in obtaining the contract for the REAM.

We found that one allegation was valid and two were not. The REAM had contractors do its work at HUD's expense without HUD knowing it. The REAM had not permitted a HUD contracting specialist to live in a house during the period it was under the REAM's care, as was alleged. Although the Director of Single Family Housing (now former Director) of the Tulsa Office may have been a friend of the president of REAM, we found no indication she had permanently resided in the same house as the president of Jason Properties. Also, we found no evidence to show she could have swayed the outcome of a contract award or that she would knowingly permit the REAM to pass unauthorized cost to HUD.