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Tennessee Audit Reports

Issue Date: May 18, 2006
Audit Report No.:2006-AT-1009
File Size: 1.19MB

Title: The Metropolitan Development and Housing Agency, Nashville, Tennessee, Did Not Ensure Section 8-Assisted Units Were Decent, Safe, and Sanitary

We audited the Metropolitan Development and Housing Agency's (Agency) inspection of Section 8 units under the Section 8 Housing Choice Voucher program. Our audit objective was to determine whether Section 8 units met housing quality standards in accordance with HUD requirements.

Our inspection of a statistical sample of 71 Section 8 units found that 52 units (73 percent) did not meet minimum housing quality standards. Of the 52 units, 30 were in material noncompliance. This condition occurred because Agency management did not implement an effective internal control plan that ensured it complied with HUD requirements at all times or complied with the Agency's administrative plan for inspecting units. As a result, tenants lived in units that were not decent, safe, and sanitary, and the Agency made housing assistance payments for units that did not meet standards. We estimate that over the next year, the Agency will pay housing assistance payments of more than $8.7 million for units in material noncompliance with housing quality standards if it does not implement adequate controls.

We recommend that the director of the Office of Public Housing require the Agency to inspect the 52 units that did not meet minimum housing quality standards to verify that the owners took appropriate corrective action to make the units decent, safe, and sanitary. If appropriate actions were not taken, the Agency should abate the rents or terminate the housing assistance payment contracts. The director should also require the Agency to implement internal controls that ensure units meet housing quality standards and inspections meet HUD requirements to prevent more than $8.7 million from being spent on units that are in material noncompliance with standards.

Issue Date: July 7, 2005
Audit Report No.: 2005-KC-1007
File Size: 107.22KB

Title: Union Planters Bank Did Not Follow HUD Requirments When Processing Federal Housing Administration Loans

In connection with an audit of a Federal Housing Administration-approved loan correspondent, we reviewed one loan sponsored by Union Planters Bank (Union Planters) of Memphis, Tennessee, to determine if Union Planters properly underwrote the loan according to U.S. Department of Housing and Urban Development (HUD) regulations. We found that Union Planters did not adequately support the monthly income used in an automated underwriting system that approved the loan, placing the insurance fund at risk for $74,333. In addition, the loan contained $641 in unallowable fees charged to the borrower. We recommended that HUD obtain indemnification for the loan and reimbursement of the unallowable charges to the appropriate parties. Union Planters agreed with our conclusions and to indemnify HUD for the improperly originated loan.

Issue Date: July 6, 2005
Audit Report No.: 2005-AT-1012
File Size: 472.06KB

Title: The Town of Crossville, TN, Housing Authority Improperly Used Public Housing Funds for Other Activities

The Authority spent $583,800 from its public housing programs for ineligible activities. In violation of its annual contributions contract, the Authority used the funds to support its affordable housing development activities, including several tax credit properties substantially owned by other entities. As a result, the funds were not available for operation or modernization of the Authority's public housing units. This occurred because management mistakenly believed it was allowed to use the funds for the development activities.

The Authority did not adequately support costs allocated to its federal programs as required by Office of Management and Budget Circular A-87. This occurred because the Authority was not aware of the requirements. Without adequate support, the Authority cannot assure that its various programs, including HUD programs, paid only their fair share of costs.

Our recommendations include the Authority's reimbursement of $417,800 and HUD's recapture of $130,000 in capital funds. We made other recommendations as appropriate

Issue Date: June 9, 2005
Audit Report No.: 2005-AT-1010
File Size: 2.23MB

Title: The Chattanooga Housing Authority Chattanooga, Tennessee

We completed an audit of the Chattanooga Housing Authority's (Authority) Section 8 Housing Choice Voucher program. Our audit objectives were to determine whether the Authority made Section 8 subsidy payments only for units that were decent, safe, and sanitary and whether the Authority properly determined tenant program eligibility and subsidy payment amounts.

Our statistical sample of 60 Section 8 units found that 40 units did not meet minimum housing quality standards. Of the 40 units, 28 were in material noncompliance with housing quality standards. Projecting the results of the statistical sample to the population indicates at least 1,486 of the Authority's 2,778 units did not meet minimum housing quality standards. Further, 939 units were in material noncompliance with housing quality standards. We also found that the Authority did not consistently determine or verify family incomes, calculate utility allowances, perform timely recertifications, or correctly calculate Section 8 housing assistance payment amounts.

Our recommendations include requiring the Authority to correct the deficiencies identified in our unit inspections, inspect all of its Section 8 housing choice voucher-assisted units within the next 12 months, develop and implement an internal control plan to ensure units meet housing quality standards and inspections meet HUD requirements to prevent an estimated $4,710,024 from being spent on units that are in material noncompliance with standards, and repay $9,201 for housing assistance payments it made for ineligible units. Further, since the Authority failed to correct deficiencies identified by HUD in September 2002, HUD should reduce the Authority's administrative fees by 10 percent retroactively to August 2004, or about $125,000. HUD should continue to monitor the Authority and withhold 10 percent of the administrative fee until the Authority has complied with requirements.

Issue Date: May 3, 2004
Audit Report No.: 2004-AT-1008
File Size: 825.2KB

Title: American Mortgage Services, Inc., Non-supervised Loan Correspondent, Millington, Tennessee

Our review showed American Mortgage did not always follow prudent lending practices or always demonstrate responsibility when it originated FHA-insured loans. For 5 of the 15 cases we reviewed, American Mortgage did not exercise due diligence or fully consider all factors in its review of borrowers' liabilities, credit, assets, and income. While the borrowers may have met minimum requirements to qualify for loan approval, we question whether American Mortgage originated the loans with the same care that it would have exercised if the loans were entirely dependent on the properties as security. This occurred because American Mortgage's quality control plan did not meet HUD requirements and its quality control review process was ineffective. Further, by American Mortgage's own admission, it was concerned that applicants would file suits if their applications were denied and subsequently approved by another mortgagee. As a result, American Mortgage originated loans for borrowers who were, at best, marginally qualified for FHA?insured loans. American Mortgage's questionable loan origination practices resulted in its high loan default rate of 12.88 percent, well above the national average of 2.99 percent for the 2-year period ending December 31, 2002. Further, HUD paid claims totaling $170,636 for three of the five loans. We recommend you uphold the American Mortgage's suspension under Credit Watch until such time as your office performs a quality assurance review to assess American Mortgage's ability to properly originate loans in accordance with all HUD requirements.

Issue Date: April 8, 2004
Audit Report No.: 2004-AT-1004
File Size: 1.48MB

Title: Cookeville Housing Authority
Cookeville, Tennessee

As part of our audit of the HUD's oversight of Public Housing Agency activities with related nonprofit entities, we performed a narrow focus review of the Cookeville Housing Authority. We found that Authority management violated its Annual Contributions Contract with HUD by inappropriately guaranteeing performance by its related nonprofit corporation, Holladay Homes, Inc. Also in violation of its Annual Contributions Contract, the Authority advanced $392,861 to Judge O.K. Holladay Homes, L.P. prior to obtaining approval of its mixed-finance proposal from HUD Headquarters. Further, the Authority incurred questionable costs of $367,067, $42,772 for the LP's operating costs and $324,295 for development costs in excess of HUD approved expenditures. Additionally, the Authority's Executive Director, who was also the Executive Director and Secretary/Treasurer of Holladay Homes, Inc., violated conflict of interest restrictions. These actions occurred because the Board of Commissioners did not establish sufficient controls to monitor the nonprofit and ensure transactions adhered to Federal regulations.

Issue Date: January 16, 2002
Audit Report No. 2002-AT-1806
File Size 183KB

Title: Citizen's Complaint Chattanooga Neighborhood Enterprise, Inc. (CNE), Chattanooga, TN

In response to a citizen's complaint, the Office of Inspector General (OIG) conducted a survey of Chattanooga Neighborhood Enterprise, Inc. (CNE) in Chattanooga, Tennessee. The allegations centered around CNE or its affiliates or the City of Chattanooga purchasing properties, rehabilitating them, and reselling them at much higher prices in an isolated area of North Chattanooga. The complainant alleged that CNE and City officials improperly forced homeowners, primarily elderly homeowners, to sell their properties to CNE or other entities. The complainant also alleged that an employee of CNE used his position as a City housing board member to harass a citizen into selling properties.

Our review focused primarily on CNE's administration of HOME and Community Development Block Grant (CDBG) Programs as they related to the complainant's allegations. The evidence and interviews indicated that the allegations were not valid. In addition, we found that CNE generally administered its affordable housing programs in compliance with HUD requirements.

Issue Date: December 17, 2001
Audit Report No. 2002-AT-1804
File Size: 953KB

Title: Waverly Housing Authority, Waverly, Tennessee

The report presents the results of our Waverly Housing Authority audit. Our primary objective was to determine the extent of funds diverted by the former Executive Director and identify any other potential fraud.

Between May 2000 and December 2000 the former ED diverted $165,630 to himself, his wife, and Authority staff through excessive salary and bonus payments. The diversions remained undetected over an extended period due to ineffective Board oversight and a lack of management controls. We also found poor property conditions; inappropriate, inefficient, and undocumented expenditures; and missing, incomplete or falsified records. As a result, the Authority is financially troubled and tenants are living in housing that is not decent, safe, and sanitary.

Issue Date: June 28, 1999
Audit Report No. 99-AT-211-1809
File Size: 57KB

Title: Sec. 8 Service Coordinator Funds, Overlook Senior Housing, Knoxville, TN

We found no evidence that OSCH used the service coordinator funds improperly. OSCH, however, did not account for the receipt and disbursement of the service coordinator funds on the projects' records. Instead, OSCH accounted for the funds through its accounting system. OSCH paid the service coordinator's salary and expenses with its funds and sought reimbursement from the Department of Housing and Urban Development (HUD) annually. When OSCH received the reimbursement from HUD it would deposit the funds in its accounts and credit the coordinator's expenses. By not accounting for the receipt and disbursement on the projects' records, OSCH understated the projects' income and expenses. Since the projects' records were not posted, the financial statements would not reflect the coordinator funds.

Issue Date: October 28 , 1998
Audit Report No. 99-AT-202-1801
File Size: 65KB

Title: Hotline Complaints Demolition of College Homes Knoxville's CDC, Knoxville, TN

We have completed a review of hotline complaints pertaining to a HOPE VI grant and related demolition application HUD approved for Knoxville's Community Development Corporation's (KCDC) 320-unit College Homes development in Knoxville, Tennessee. The complainants alleged that (1) HUD approved the demolition application based on inaccurate information, (2) College Homes does not meet HUD's criteria for demolition and HOPE VI funding, (3) KCDC deprived College Homes' residents of the opportunity to purchase the development, (4) funding was provided and KCDC began relocating tenants prior to the approval of the demolition application, (5) HUD acted inappropriately to bolster KCDC's public relations efforts against the residents, and (6) KCDC misrepresented College Homes' crime and drug activity.

We reviewed pertinent HUD regulations, examined relevant records at KCDC and HUD, met with the complainants and other supporters at College Homes, interviewed HUD and KCDC officials, and toured the development.

We found no evidence to support the contentions that College Homes should not have received HOPE VI and demolition funding, or that the project should not proceed as planned.

Issue Date: July 31 , 1998
Audit Report No. 98-AT-212-1810
File Size: 54KB

Title: Report of Illegal Acts Greeneville Manor Apts., Greeneville, TN

The complaint was made verbally to the OIG Office of Investigation in October 1996, and generally pertained to incidences in 1993 and 1994 when the complainant worked at the project. The Office of Investigation re-contacted the complainant and reviewed the complaint in early 1998, and in June 1998, referred the matter to our office. The management agent fired the project manager in March 1998 when they discovered a tenant who had not gone through the application process. Shortly thereafter, a new resident manager determined that at least four residents had been paying the former manager rent in cash even though the residents had been re-certified as zero rent payers. The four residents provided the resident manager 12 rent receipts totaling $999 signed either by the former resident manager or his wife, none of which had been recorded in project records or deposited into the project's bank account.

During our review, we asked six additional tenants encountered at random about improper payments. Two claimed to have paid the former manager rent even though certified at zero rent. We did not ask the tenants to provide copies of receipts as they were outside their apartments, and the management agent's documentation of theft was sufficient. However, it is likely additional theft occurred and could be documented.

We did not attempt to document the other allegations because of their age and, since the two individuals no longer work at the project, the lack of a compelling reason to do so.

Issue Date: July 28, 1998
Audit Report No 98-AT-212-1809
File Size: 52KB

Title: Independent Auditor Report of Illegal Acts Marina Manor East Apartments Nashville, TN

The theft was discovered when a former tenant complained to the management agent that the manager denied his request for a security deposit refund. The manager said he had not paid the deposit, but the tenant had a receipt supporting the payment. Based on the incident, the management agent requested the IA to perform a special review of cash receipts. The IA reviewed cash receipts for the 18 months ended March 31, 1997, and determined $1,967 was unaccounted for (Attachment 1). Subsequently, the management agent and new property manager determined additional amounts were missing. The IA's audit report and audit working papers for the year ended September 30, 1997, reflected a theft loss of $5,453 (Attachment 2). A letter from the management agent dated December 16, 1997, fixed the total loss at $5,561, including $299 taken by the assistant manager (Attachment 3). The management agent allowed both employees to resign.

The former property manager was responsible for the majority of the theft. The assistant manager reportedly took only $299, and repaid it the same month. The former manager was also repaying funds taken. The management agent applied $1,452 of unpaid salary to the debt (Attachment 3), and the former manager made three payments of $100 each (see Attachment 4 for copies of two), reducing the amount owed to $3,510 as of the date of our review.

Title 24 CFR 24.700 authorizes HUD officials designated by the Secretary to order a limited denial of participation (LDP) for any program participant based on adequate evidence of, among other things, irregularities in a participant's past performance in a HUD program. We believe there is need and adequate evidence of irregularities to issue LDP's against the former employees.

Issue Date: January 13, 1997
Audit Case Number 97-AT-201-1001
File Size: 156KB

Title: Memphis Housing Authority, Memphis, Tennessee

MHA is not fulfilling its primary mission of providing decent, safe and sanitary housing for low-income families. MHA's housing stock and grounds are in poor condition due to age, lack of maintenance and ineffective use of modernization funds, and have been for many years. We are recommending that HUD declare MHA in default of its Annual Contributions Contract (ACC), and initiate steps to obtain new management of MHA's maintenance and modernization operations.

Issue Date: November 6, 1996
Audit-Related Memorandum 97-AT-214-1804
File Size: 15KB

Title: Cherokee Health Systems, Talbott, TN

CHS corrective actions were generally adequate, as was IA audit coverage, and we plan no additional audit work pertaining to either CHS or the IA.

Issue Date: October 15, 1996
Audit-Related Memorandum No. 97-AT-212-1803
File Size: 18KB

Title: Wesley Homes of Lake County, Inc., Tiptonville, TN

WHLCI's corrective actions were generally adequate, as was IA audit coverage, and we plan no additional audit work pertaining to either WHLCI or the IA.

Content Archived: September 10, 2010

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