Indiana Audit Reports

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Issue Date: September 29, 2009
Audit Report No.: 2009-CH-1017
File Size: 80.25KB

Title: The Housing Authority of the City of Terre Haute, Indiana, Failed to Follow Federal Requirements Regarding Its Turnkey III Homeownership Program Units' Sales Proceeds

The U.S. Department of housing and Urban Development's (HUD) Office of Inspector General audited the Housing Authority of the City of Terre Haute, Indiana's (Authority) Turnkey III Homeownership program (program). We selected the Authority for review based on the results of our audit of the Authority's nonprofit development activities (see Office of Inspector General audit report #2009-CH-1011, issued on July 31, 2009). The audit was a part of the activities in our fiscal year 2009 annual audit plan. Our objective was to determine whether the Authority followed HUD's requirements regarding the administration of its program.

Under the direction of the former executive director and board of commissioners, the Authority did not comply with HUD's requirements regarding the use of the program proceeds from the sale of its program units. The Authority did not maintain documentation to support that the sales proceeds were used in accordance with its approved program plan. As a result, the Authority and HUD lacked assurance that the sales proceeds benefitted low-income families.

We recommend that the Director of HUD's Cleveland Office of Public Housing require the Authority to maintain accurate books of record to account for the activities and expenditures under the program and provide adequate supporting documentation for the use of the program proceeds from the sale of its program units. If the Authority cannot determine the activities and expenditures under the program and/or provide supporting documentation, it should reimburse more than $579,000 in sales proceeds to the program from nonfederal funds.

Issue Date: July 31, 2009
Audit Report No.: 2009-CH-1011
File Size: 388.89KB

Title: The Housing Authority of the City of Terre Haute, Indiana, Failed to Follow Federal Requirements and Its Employment Contract Regarding Nonprofit Development Activities

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Housing Authority of the City of Terre Haute's (Authority) nonprofit development activities. The review of public housing authorities' development activities is set forth in our annual audit plan. We selected the Authority because it had 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 (contract), other agreement, or regulation for the benefit of non-HUD developments.

Under the direction of the former executive director and board of commissioners, the Authority diverted assets subject to its contract, other agreements, or HUD's regulations for the benefit of Terre Haute Housing Authority Development Corporation (nonprofit), the Authority's nonprofit entity. The Authority's 21 properties, valued at more than $1 million, were used to support the activities of its nonprofit. As a result, HUD lacked assurance that the disposition of the 21 properties served the best interests of the Authority and its residents.

The Authority violated its contract with HUD when it provided $33,000 to its nonprofit to finance preconstruction costs for its nonprofit's housing units and did not maintain complete and accurate books of record. As a result, HUD lacked assurance that the Authority used HUD funds in accordance with specific program requirements and that these funds were not used for non-HUD development activities.

The Authority's former executive director created a conflict-of-interest relationship as the Authority's executive director/resident agent for its nonprofit developments. As a result, the Authority and HUD lack assurance that the former executive director performed his official duties for the benefit of HUD, the Authority, and its residents.

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 July 31, 2009.

We recommend that the Director of HUD's Cleveland Office of Public Housing require the Authority to (1) transfer the 21 properties, valued at more than $1 million, back to the Authority and secure deeds of trust or provide documentation to show that HUD funds were not used to acquire and/or rehabilitate the properties and (2) improve its existing procedures and controls to ensure that Authority assets are safeguarded against mismanagement. These procedures and controls should include but are not limited to maintaining pertinent records and providing training to its staff to ensure compliance with HUD's requirements.

We also recommend that the Director require the Authority to (1) reimburse the applicable HUD program $33,000 from nonfederal funds for the improper payments cited in this report or provide documentation to show that HUD funds were not used, (2) implement adequate procedures and controls to ensure compliance with its contract with HUD regarding the general fund account, (3) continue restructuring its books of record to adequately identify the source and application of its funds, and (4) reimburse its low-rent housing program $136,500 from nonfederal funds for the former executive director's payments as the resident agent of the nonprofits in addition to his salary.

Issue Date: January 23, 2009
Audit Report No.: 2009-CH-1002
File Size: 1.39MB

Title: The Indianapolis Housing Agency, Indianapolis, Indiana, Failed to Operate Its Housing Choice Voucher Program According to HUD ’s and Its Requirements

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Indianapolis Housing Agency's (Agency) Section 8 Housing Choice Voucher program. The audit was part of the activities in our fiscal year 2008 annual audit plan. We selected the Agency's program based upon our prior audits of the Agency's program and recent press coverage regarding conditions at two of the Agency's Section 8 Project-Based Voucher program apartment complexes. Our objectives were to determine whether the Agency effectively administered its program and followed HUD's requirements. This is the third of three audit reports on the Agency's program.

The Agency failed to administer its Section 8 Housing Choice Voucher program according to HUD's requirements. Further, its administration regarding the utilization of available program funding, selection and approval of project-based units, and housing conditions for its Section 8 Project-Based Voucher program units was inadequate. The Agency's failure to meet HUD's lease-up thresholds resulted in approximately 1,569 households not being housed in fiscal year 2008 and more than $8.7 million in program funds not being used to provide decent, safe, and sanitary housing for eligible households. By implementing adequate procedures and controls regarding its program utilization, we estimate that nearly $9 million in excess program funds could be put to better use over the next year.

The Agency lacked documentation to support its selection and approval of Section 8 Project-Based Voucher program projects because it lacked adequate procedures and controls to ensure that HUD's requirements were appropriately followed. As a result, it could not support that any of the 11 projects was eligible for more than $2 million in project-based assistance and nearly $212,000 in program administrative fees received by the Agency were appropriate. We estimate that over the next 12 months, the Agency will spend more than $127,000 in program funds for improper administrative fees.

Of the 18 Section 8 Project-Based Voucher program units selected for inspection, 17 did not meet minimum housing quality standards, and 11 had material violations that existed before the Agency's previous inspections. As a result, more than $24,000 in program funds was spent on units that were not decent, safe, and sanitary. We estimate that over the next year, HUD will pay more than $72,000 in housing assistance on units with material housing quality standards violations.

We recommend that the Director of HUD's Cleveland Office of Public Housing require the Agency to reimburse its Section 8 Housing Choice Voucher program from nonfederal funds for the improper use of nearly $236,000 in program funds, provide documentation or reimburse its program more than $2 million from nonfederal funds for the unsupported payments cited in this audit report, and implement adequate procedures and controls to address the findings cited in this audit report to prevent nearly $9 million in program funds from not being used over the next year to house needy families. We also recommend that the Director require the Agency to implement a detailed comprehensive written action plan to improve its procedures and controls to ensure that the Agency operates its program in accordance with HUD's and its own requirements.

Issue Date: April 18, 2008
Audit Report No.: 2008-CH-1007
File Size: 479.42KB

Title: The Housing Authority of the City of Fort Wayne, Indiana, Needs to Improve Its Section 8 Housing Choice Voucher Program Administration

The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General audited the Housing Authority of the City of Fort Wayne’s (Authority) Section 8 Housing Choice Voucher program (program). The audit was part of the activities in our fiscal year 2007 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 assistance payment calculations, documentation to support households’ eligibility for housing assistance, monitoring of reported zero-income households, administration of the Family Self-Sufficiency Program, and voucher utilization were inadequate. The Authority incorrectly calculated households’ payments resulting in more than $73,000 in overpayments and nearly $7,000 in underpayments for the period July 2005 through June 2007. 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 allowances.

The Authority also did not ensure that its households’ files contained the required documentation to support its housing assistance and utility allowances. Of the 67 files statistically selected for review, 30 did not contain documentation required by HUD and the Authority’s program administrative plan to support nearly $195,000 in housing assistance and utility allowances. Further, the Authority did not perform periodic reviews to determine that reported zero-income households had unreported income resulting in more than $28,000 in improper housing assistance and utility allowances.

The Authority failed to administer its Family Self-Sufficiency Program according to federal requirements. As a result, it overfunded and underfunded participants’ escrow accounts by more than $8,000 and nearly $4,000, respectively, had nearly $15,000 in escrow funds that should have been reimbursed to the program, could not support more than $151,000 in Housing Choice Voucher - Family Self-Sufficiency/Homeownership Coordinator funds, and failed to support nearly $890,000 that it determined was to be forfeited from escrow accounts.

Although the Authority had nearly $6.2 million in program funds which could be used to house additional eligible households, its program was significantly under leased. As a result, eligible participants were denied the opportunity to seek decent, safe, and sanitary housing under the program.

We recommend that the Director of HUD’s Cleveland Office of Public Housing require the Authority to reimburse the applicable program from nonfederal funds for the improper use of more than $135,000 in funds, provide documentation or reimburse the applicable program nearly $1.3 million from nonfederal funds for the unsupported payments cited in this audit report, and implement adequate procedures and controls to address the findings cited in this audit report to prevent more than $1 million in program funds from being spent on excessive housing assistance and utility allowances and more than $3 million from not being used to provide decent, safe, and sanitary housing to eligible households.

Issue Date: April 15, 2008
Audit Report No.: 2008-CH-1006
File Size: 779.24KB

Date Issued: April 7, 1008
Audit Report No.: 2008-CH-1004
File Size: 370.17KB

Title: City of Muncie, Indiana Lacked Adequate Controls over Its HOME Investment Partnerships Program

The the U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General audited the City of Muncie’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 our analysis of risk factors relating to Program grantees in Region V’s jurisdiction. Our objectives were to determine whether the City effectively administered its Program and followed HUD’s requirements.

The City did not maintain an adequate system of controls to ensure that it commits Program funds within HUD’s 24-month commitment deadline and avoids losing the Program funds. As a result, the City must commit more than $1.2 million in Program funds for eligible activities by July 31, 2008, to avoid losing the funds.

The City lacked documentation to support that it followed HUD’s regulations and/or its requirements when it used Program funds and/or Program income to provide rehabilitation assistance; downpayments, closing costs, and/or gap financing; and tenant-based rental assistance for Program activities. In addition, it improperly used Program funds after an operating agency agreement with a subrecipient expired. Therefore, it was unable to support its use of more than $215,000 in Program funds and Program income and improperly disbursed more than $6,000 in Program funds.

We informed the director of the City’s Community Development Department (Department) and the Director of HUD’s Indianapolis Office of Community Planning and Development of minor deficiencies through a memorandum, dated April 1, 2008.

We recommend that the Director of HUD’s Indianapolis Office of Community Planning and Development require the City to reimburse its Program from nonfederal funds for the improper use of funds, provide support or reimburse its Program 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 Program funds and Program income are used in accordance with HUD’s regulations and the City’s requirements and the City does not lose more than $1.1 million in Program funds over the next five months.

Date Issued: November 19, 2007
Audit Report No.: 2008-CH-1001
File Size: 378.08KB

Title: The Housing Authority of the City of Michigan City, Indiana, Failed to Follow Federal Requirements for Its Nonprofit Development Activities

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Housing Authority of the City of Michigan City’s (Authority) nonprofit development activities. The review of public housing authorities’ development activities is set forth in our annual audit plan. We selected the Authority 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 (contract), other agreement, or regulation for the benefit of non-HUD developments.

The Authority diverted and pledged assets subject to its contract, other agreements, or HUD’s regulations for the benefit of Michigan City Housing Development, Incorporated (nonprofit), the Authority’s nonprofit entity. It failed to file declarations of trust on 32 properties purchased using Turnkey III Homeownership (Turnkey III) sales proceeds. It also inappropriately transferred ownership of 29 of the 32 properties valued at more than $1.1 million to its nonprofit without HUD approval and did not ensure that it complied with its HUD-approved plan regarding the use of the sales proceeds. As a result, fewer funds were available to serve the Authority’s low-income families.

Further, the Authority did not comply with HUD’s property disposition requirements and did not ensure that its nonprofit used the proceeds from the sale of property in accordance with its agreement with HUD. As a result, HUD lacks assurance that the sale of the property served the best interests of HUD, the Authority, and its residents.

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 November 19, 2007.

We recommend that the Director of HUD’s Cleveland Office of Public Housing require the Authority to submit executed declarations of trust for the Turnkey III properties to HUD, negotiate with its nonprofit to transfer ownership of the 29 Turnkey III properties back to the Authority and amend its promissory note with Horizon Bank to remove the properties held as collateral or pay HUD for the properties from nonfederal funds, reimburse its Public Housing program from nonfederal funds for rental income received from the Turnkey III properties, and replenish its Public Housing program to comply with its approved HUD plan or provide a revised plan to HUD for review and approval. We also recommend that the Director require the Authority to implement adequate procedures and controls for monitoring the progress of the urban park development or exercise its right to reversion of title if the park is not fully developed, negotiate with its nonprofit to discontinue using sales proceeds to pay interest payments, and implement a written plan for use of the proceeds. Additionally, we also recommend that the Director take appropriate action to declare the Authority in substantial default of its contract.

Date Issued: July 23, 2007
Audit Report No.: 2007-CH-1011
File Size: 525.26KB

Title: The Indianapolis Housing Agency, Indianapolis, Indiana, Lacked Adequate Controls over Expenses Charged to Its Section 8 Program

The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General audited the Indianapolis Housing Agency’s (Agency) Section 8 Housing Choice Voucher program (program). The audit was part of the activities in our fiscal year 2007 annual audit plan. We selected the Agency based upon our analysis of risk factors relating to the housing agencies in Region V’s jurisdiction. The objective of the audit was to determine whether the Agency appropriately used its program funds in accordance with HUD's requirements. This is the first of two audit reports on the Agency’s program.

The Agency failed to comply with HUD’s requirements and its cost allocation plan regarding the allocation of administrative expenses. It did not document its initial allocation analysis in 2005, base allocations on actual historical data, or update its allocation percentages for 2006. Based on our review of administrative expenses for the period January 1, 2005, to November 30, 2006, the Agency used its restricted program administrative fees (fees) to pay more than $1.6 million for expenses that exceeded the program’s reasonable fair share, allocated expenses that were unrelated to the program’s operation, and lacked documentation to support expenses incurred. Based on our review, we estimate that over the next year the Agency will use more than $855,000 in fees for expenses not related to its program.

We recommend that the director of HUD’s Cleveland Office of Public Housing require the Agency to reimburse its program administrative fee reserve for the improper use of fees, provide documentation to support the reasonableness of the allocation of vehicle costs to its program or reimburse its program administrative fee reserve from nonfederal funds for the improper use of fees, and implement adequate procedures and controls to ensure that the Agency uses an appropriate basis for allocating administrative expenses to its program and that adequate expense documentation is maintained.

Date Issued: March 23, 2007
Audit Report No.: 2007-CH-1005
File Size: 508KB

Title: The Housing Authority of the City of Gary, Indiana, Lacked Adequate Controls over Refunding Savings

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Housing Authority of the City of Gary’s (Authority) nonprofit development activities. The review of public housing authorities’ development activities is set forth in our fiscal year 2006 annual audit plan. We selected the Authority because it was identified as having high-risk indicators of nonprofit development activity. Our objective was to determine whether the Authority effectively and efficiently used resources subject to its annual contributions contract, other agreements, or HUD regulations regarding its nonprofit development activities.

The Authority did not effectively and efficiently use resources subject to its annual contributions contract, other agreements, or HUD’s regulations regarding its nonprofit development activity. It failed to properly administer refunding savings from the Fifth Avenue Housing Development Corporation’s (Corporation) June 1992 refunding of mortgage revenue bonds, May 1993 redemption of mortgage revenue refunding bonds, and June 2001 refunding of mortgage revenue refunding bonds. It lacked adequate documentation to support that it used more than $900,000 in refunding savings from the Corporation’s 1992 refunding of mortgage revenue bonds and 1993 redemption of mortgage revenue refunding bonds to provide affordable decent, safe, and sanitary housing to very low-income households. Further, the Authority and HUD were not aware of nearly $800,000 and at least $260,000, respectively, in refunding savings funds available to them until we brought it to their attention during our audit.

We recommend that the director of HUD’s Cleveland Office of Public Housing require the Authority to provide documentation or reimburse its refunding savings from nonfederal funds for the unsupported payments; submit a proposal for HUD’s approval regarding the Authority’s planned use of the unused refunding savings for affordable, decent, safe, and sanitary housing for very low-income households; and implement adequate procedures and controls to ensure that it uses the refunding savings and submits required certifications and reports in accordance with its financial adjustment factor refunding agreement with HUD.

We also recommend that the director of HUD’s Cleveland Office of Public Housing request The Bank of New York Trust Company, N.A., to disburse to HUD the remaining refunding savings in the trust account from the Corporation’s refunding of the mortgage revenue refunding bonds in 2001.

Date Issued: February 13, 2007
Audit Report No.: 2007-CH-1003
File Size: 674KB

Title: The Housing Authority of the City of Evansville, Indiana, Needs to Improve Its Section 8 Housing Choice Voucher Program Administration

The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General audited the Housing Authority of the City of Evansville’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 administered its program in accordance with HUD's requirements.

The Authority’s program administration regarding housing unit conditions, documentation to support tenant eligibility, the effectiveness of its abatement and reinspection processes, and dependents being claimed by multiple households under both its Section 8 and public housing programs needs improvement. Of the 63 housing units statistically selected for inspection, 48 did not meet HUD’s housing quality standards, and 44 had 230 violations that existed at the time of the Authority’s previous inspections. The 44 units had between 1 and 18 preexisting violations per unit. Based on our statistical sample, we estimate that over the next year, the Authority will pay more than $1.5 million in housing assistance payments on units with housing quality standards violations.

The Authority needs to improve controls over its admissions and recertification processes. Of the 68 household files statistically selected for review, 20 did not contain the proper documentation to support the Authority’s payment of housing assistance and utility allowances as required by HUD and the Authority’s program administrative plan.

The Authority did not comply with its abatement and reinspection processes. It did not abate 5 of the 25 program units that failed an annual housing quality standards inspection and reinspection(s) between January and June 2006. Additionally, it did not ensure that 138 of the 320 unit reinspections were performed in a timely manner. The Authority also needs to improve its controls over dependents being claimed by more than one household. It allowed four household members to be claimed as household dependents under both its Section 8 and public housing programs.

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 January 30, 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 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 more than $1.5 million in program funds is spent on payments that meet HUD’s requirements.

Date Issued: December 13, 2006
Audit Report No.: 2007-CH-1001
File Size: 247KB

Title: The Marion Housing Authority, Marion, Indiana, Improperly Used HUD Funds for Nonprofit Development Activities

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Marion Housing Authority’s (Authority) nonprofit development activities. The review of public housing authorities’ development activities is set forth in our fiscal year 2006 annual audit plan. We selected the Authority 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 (contract), other agreement, or regulation for the benefit of non-HUD developments.

The Authority, under direction of its former executive director and a considerably different board of commissioners (board), defaulted substantially on its contract when it inappropriately used public housing operating funds to support the activities of the Affordable Housing Corporation (Corporation), a nonprofit organization created by the Authority, without HUD approval. As of November 2006, the Authority owed its public housing program more than $180,000.

The Authority inappropriately used nearly $19,000 in Housing Choice Voucher/Family Self-Sufficiency Program Coordinators (Coordinators) funds from January 2003 through June 2004 to pay its former family self-sufficiency/housing counselor’s (former counselor) salary and benefits while the former counselor worked on the Corporation’s activities. In addition, the Authority could not provide adequate documentation to support that its use of more than $25,000 in Coordinators funds to pay the former counselor’s salary and benefits during the same period was appropriate.

We recommend that the director of HUD’s Cleveland Office of Public Housing require the Authority to reimburse its public housing operating and Coordinators funds from nonfederal funds for the inappropriate disbursements and implement adequate procedures and controls to ensure it uses public housing program and Coordinators funds appropriately. We also recommend that the director refer the Authority’s substantial default of its contract to HUD headquarters and request appropriate action be taken against the Authority.

Date Issued: December 22, 2005
Audit Report No.: 2006-CH-1004
File Size: 207.90KB

Title: Trustcorp Mortgage Company, Nonsupervised Lender; South Bend, Indiana, Substantially Complied with Requirements Regarding Late Requests for Endorsement and Underwriting of Loans

The U.S. Department of Housing and Urban Development’s Office of Inspector General audited Trustcorp Mortgage Company (Trustcorp), 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 Trustcorp for audit because of its high late endorsement rate. Our objectives were to determine whether Trustcorp complied with HUD’s regulations, procedures, and instructions in the submission of insurance endorsement requests and underwriting of Federal Housing Administration loans.

Trustcorp substantially complied with HUD’s requirements on late requests for insurance endorsement; however, before Trustcorp improved its procedures, it improperly submitted five late requests for endorsement out of 1,035 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. Four of the five loans were later paid in full and no longer pose a risk to the Federal Housing Administration insurance fund. Trustcorp also incorrectly certified that escrow accounts for taxes, hazard insurance, and mortgage insurance premiums for two of 34 loans’ certifications reviewed were current when they were not.

Further, Trustcorp substantially complied with HUD’s underwriting requirements for nine loans reviewed. However, it included unallowable charges when determining the debt for two loans that went to claim in excess of HUD’s maximum insurable mortgage limits. It also incorrectly certified that due diligence was used in underwriting the two loans reviewed when it was not.

As a result, the risk to HUD’s Federal Housing Administration insurance fund was increased.

We recommend that HUD’s assistant secretary for housing-federal housing commissioner take appropriate action against Trustcorp for not following the requirements in effect at the time when it submitted one loan with a total mortgage value of nearly $100,000 without the proper six-month payment history, require Trustcorp to reimburse HUD more than $2,800 for unallowable charges on the two loans that went to claim, implement adequate procedures and controls to ensure its underwriters follow HUD’s underwriting requirements regarding allowable charges and the accuracy of underwriting certifications submitted to HUD, and review Trustcorp’s implementation of procedures and controls for full compliance with HUD’s underwriting requirements.

Date Issued: September 30, 2005
Audit Report No.: 2005-CH-1021
File Size: 219.17KB

Title: HUD ’s Interest in More Than $130,000 in Economic Development Initiative – Special Purpose Grant Funds Awarded to the City of Indianapolis Was Not Secured; Indianapolis, Indiana

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the City of Indianapolis, Indiana’s (City) Economic Development Initiative - Special Purpose Grant (Grant). We initiated the audit in conjunction with our internal review of HUD's oversight of Economic Development Initiative – Special Purpose Grants. The review is part of our fiscal year 2005 annual audit plan. We chose the City’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 City used its Grant funds in accordance with HUD’s requirements and recorded HUD’s interest on the assisted property.

The City used the Grant funds in accordance with HUD’s requirements. It disbursed $134,123 in Grant funds to the Indiana University Research and Technology Corporation (Corporation) to pay for the construction of the Indiana University Emerging Technologies Center’s (Center) wet laboratory space. However, it did not place a covenant on the property title for the Center assuring nondiscrimination based on race, color, national origin, or handicap.

We recommend that HUD’s director of congressional grants require the City to ensure the Corporation records a covenant on the property title for the Center assuring nondiscrimination based on race, color, national origin, or handicap. If the covenant is not recorded, the City should reimburse HUD $134,123 from nonfederal funds for the Grant funds used to pay for the Center’s wet laboratory space.

Date Issued: September 30, 2005
Audit Report No.: 2005-CH-1020
File Size: 989KB

Title: The Housing Authority of the City of Gary, Indiana Did Not Properly Manage its Section 8 Housing Program and Significant Weaknesses Existed

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Housing Authority of the City of Gary’s (Authority) Section 8 housing 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 Section 8 housing program. The objective of the audit was to determine whether the Authority managed its Section 8 program in accordance with HUD's requirements.

Overall, the Section 8 housing program was not operated according to HUD and the Authority’s requirements. The Authority’s board of commissioners did not act responsibly to ensure federal requirements and the Authority’s own policies were followed. The Authority’s executive director did not exercise adequate day-to-day control over the operation of the Section 8 housing program.

The Authority’s Section 8 housing units were in poor physical condition. Our inspections noted 57 of 63 units that did not meet HUD’s housing quality standards. We also noted significant weaknesses in using administrative fees, issuing vouchers without proper documentation, calculating housing assistance payments, and abating Section 8 vouchers. In addition, the Authority misused Section 8 funds by overpaying per diem, improperly disallowing tenant income, and erroneously charging expenses to its Section 8 housing program.

We recommend that HUD’s general deputy assistant secretary for public and Indian housing issue a notice of default to the Authority regarding the administration of its Section 8 housing program. We also recommend that the director of HUD’s Public Housing Hub, Cleveland Field Office, require the Authority to contract out its Section 8 program or transfer control to HUD, and ensure the Authority reimburses its program for the inappropriate uses of Section 8 funds cited in this report.

Date Issued: September 28, 2005
Audit Report No.: 2005-CH-1019
File Size: 253KB

Title: HUD ’s Interest in $1 Million in Economic Development Initiative – Special Purpose Grant Funds Awarded to the City of Carmel Was Not Secured; Carmel, Indiana

The U.S. Department of Housing and Urban Development’s Office of Inspector General audited the City of Carmel, Indiana’s (City) Economic Development Initiative - Special Purpose Grant (Grant). We initiated the audit in conjunction with our internal review of HUD's oversight of Economic Development Initiative – Special Purpose Grants. The review is part of our fiscal year 2005 annual audit plan. We chose the City’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 City used its Grant funds in accordance with HUD’s requirements and recorded HUD’s interest on the assisted property.

The City used the Grant funds in accordance with HUD’s requirements. It used $1 million in Grant funds to pay for the area wide subterranean detention system and reflecting pool design of Veterans Plaza and the Reflecting Pond. However, it did not place a covenant on the property title for Veterans Plaza and the Reflecting Pond, assuring nondiscrimination based on race, color, national origin, or handicap. Further, HUD did not request the City to record HUD’s interest on the property title for Veterans Plaza and the Reflecting Pond.

We recommend that HUD’s director of congressional grants require the City 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 Veterans Plaza and the Reflecting Pond showing HUD’s interest in the assisted property. If the covenant and lien are not recorded, the City should reimburse HUD $1 million from nonfederal funds for the Grant funds used to pay for the area-wide subterranean detention system and reflecting pool design of Veterans Plaza and the Reflecting Pond.

Date Issued: April 7, 2005
Audit Report No.: 2005-CH-1009
File Size: 838.91KB

Title: Union Federal Bank of Indianapolis, Supervised Direct Endorsement Lender; Fort Wayne, IN

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General reviewed Union Federal Bank of Indianapolis (Union Federal) (also known as Union Federal Savings Bank of Indianapolis), a supervised lender approved to originate Federal Housing Administration mortgage loans under HUD's Single Family Direct Endorsement program. The review was part of the activities in our fiscal year 2004 Annual Audit Plan. We selected Union Federal for audit because of its high late endorsement rate. Our review objectives were to determine whether Union Federal complied with HUD’s regulations, procedures, and instructions in the submission of late insurance endorsement requests and payment of upfront mortgage insurance premiums to HUD.

Union Federal implemented improvements to its procedures and controls for late requests for endorsement and payment of upfront mortgage insurance premiums. Our audit tests of 662 loans identified only 12 (1.8%) that were improperly submitted for endorsement. Of the 12 loans, 10 remain Federal Housing Administration-insured. These 10 loans increased the risk to the Federal Housing Administration insurance fund by $1,175,305 because the borrowers had not made six consecutive timely monthly payments at the time their loans were submitted to HUD and/or were behind on their mortgage payments. Union Federal also paid penalties for not paying upfront mortgage insurance premiums in a timely manner for 272 loans of the 5,415 total loans subject to HUD’s upfront mortgage insurance premium requirements. The staff of Union Federal’s authorized agent was not adequately trained or was not aware of HUD’s requirements regarding late requests for endorsement. In addition, Union Federal’s authorized agent did not always pay upfront mortgage insurance premiums due to an automation problem and its lack of adequate monitoring of the wholesale and retail areas involved in processing Federal Housing Administration loans.

We recommend that HUD’s Assistant Secretary for Housing-Federal Housing Commissioner and Chairman of the Mortgagee Review Board

• Require Union Federal to indemnify HUD for any future losses on nine loans with a total mortgage value of $965,777.

Date Issued: September 23, 2004
Audit Report No.: 2004-CH-1009
File Size: 2.90MB

Title: Decatur Mortgage Company, L.L.C., Non-Supervised Loan Correspondent, Indianapolis, IN

HUD's Office of Inspector General completed an audit of Decatur Mortgage Company, L.L.C., a non-supervised loan correspondent approved to originate FHA mortgage loans under the Single Family Direct Endorsement Program. We selected Decatur for audit because of its high loan default rate. Our audit objectives were to determine whether: (1) Decatur acted in a prudent manner and complied with HUD’s regulations, procedures, and instructions in the origination of FHA loans; and (2) Decatur’s Quality Control Plan as implemented met HUD’s requirements.

Decatur did not originate FHA-insured loans in accordance with HUD’s requirements and prudent lending practices. Decatur did not exercise due diligence to: (1) verify or support borrowers’ income level and stability; (2) support appraisals; (3) investigate credit inquiries and additional Social Security Numbers shown on credit reports; (4) establish the borrower’s ability and willingness to pay; (5) document the source of deposits and gift funds, and not use gift funds to pay off borrower’s debts; (6) estimate borrower’s expenses and property taxes; and (7) keep interested third parties from handling key documentation. Additionally, Decatur did not ensure that Quality Control reviews were completed on FHA loans as required. Specifically, Decatur did not: (1) perform Quality Control Reviews on early default FHA loans as required; (2) document work done to determine if loans were originated properly; and (3) identify origination deficiencies and corrective actions needed for its loan originations.

We recommend that HUD’s Assistant Secretary for Housing-Federal Housing Commissioner and Chairman, Mortgagee Review Board:

• Requires Decatur Mortgage’s sponsors to reimburse HUD for $675,063 in losses on the 11 resold properties;
• Requires Decatur Mortgage’s sponsors to reimburse the appropriate amount of $20,017 for the eight partial claims as well as any losses incurred on the two properties for which HUD paid foreclosure claims totaling $336,706, but had not yet resold;
• Requires Decatur Mortgage Company’s sponsors to indemnify HUD/FHA against future losses on the 28 loans totaling $4,070,036 that are in default, but not yet foreclosed;
• Notifies HUD’s Office of Lender Approval and Recertification Division of the determination by the Mortgagee Review Board regarding Decatur Mortgage Company and its owners as to violations of HUD’s requirements and prudent lending practices; and
• Determines whether Decatur’s deficiencies related to the Quality Control Reviews warrant any actions against Decatur’s sponsors for not ensuring the required plan and reviews were effectively implemented by Decatur.

Additionally, we recommend that HUD’s Director of Departmental Enforcement Center:

• Takes appropriate administrative action against the owners of Decatur Mortgage Company; and
• Obtains a qualified review of the appraisals done for the 41 cases cited in this report to determine if the appraiser properly arrived at a fair property valuation and appropriately raised values when the sale prices changed due to changing gift amounts. If the appraisals are found to be deficient, take appropriate administrative action against the appraiser.

Date Issued: June 23, 2004
Audit Report No.: 2004-CH-1006
File Size: 302KB

Date Issued: September 29, 2003
Audit Memorandum No.: 2003-CH-1802
File Size: 106.9KB

Title: Federal Property Management Corporation, Civil False Claims and Multifamily Equity Skimming, Indianapolis, IN

HUD's Office of Inspector General completed a review of the books and records of Federal Property Management Corporation. The objectives of the review were to determine whether Federal Property Management: (1) used Project funds in compliance with the Regulatory Agreements and HUD’s requirements; and (2) maintained the Projects’ units according to HUD’s Housing Quality Standards. The review was performed based upon a request from the United States Attorney’s Office for the Southern District of Indiana. We did not conduct the review in accordance with Generally Accepted Government Auditing Standards.

We found that Federal Property Management Corporation inappropriately claimed Section 8 Housing Assistance Payments from HUD for units at all six Projects that did not meet HUD’s Housing Quality Standards and/or its tenant income re-certification requirements. Additionally, Federal violated the Regulatory Agreement by improperly disbursing Savoy-Hoosier Apartments Project funds for ineligible costs. As a result of Federal’s mismanagement, the Projects defaulted on their HUD-insured mortgages.

We referred our draft audit findings to the United States Attorney’s Office for the Southern District of Indiana for civil matters. HUD and the United States Attorney’s Office executed a settlement agreement with Federal Property Management effective September 18, 2003. Under the terms of the settlement, Federal Property Management, without any admission of wrongdoing, agreed to pay the Federal Government $400,000 on or before December 17, 2003. As part of the settlement, Federal agreed to a two-year voluntary exclusion from seeking new contracts with HUD and any other agency of the Executive Branch of the Federal Government.

We recommend that HUD’s Director of Chicago Multifamily Housing Hub, Chicago Regional Office, ensures that Federal Property Management Corporation pays the Federal Government $400,000 as required by the settlement agreement.

Date Issued: July 29, 2003
Audit Report No.: 2003-CH-1020
File Size: 616.3KB

Title: Indiana State Department of Health's Housing Opportunities for Persons With AIDS Program

HUD's Office of Inspector General completed an audit of the Indiana State Department of Health's Housing Opportunities for Persons With AIDS Program. The audit was conducted based upon a citizen's complaint to our office. The complainant alleged that Program funds were misused and wasted. Our audit objectives were to determine whether the complainant's allegations were substantiated and whether HUD's rules and regulations for the Program were followed.

We concluded the Indiana State Department of Health's Human Immunodeficiency Virus Sexually Transmitted Disease Division did not maintain adequate oversight of its Program. Specifically, we determined the Department of Health:

* Inappropriately drew down $53,695 in HUD funds that did not benefit its Program; * Paid AIDServe, the managing entity of its program, $33,322 in non-HUD funds that did not benefit its program, for which the Department of Health is expecting reimbursement from HUD;
* Lacked sufficient documentation to support that another $44,938 in HUD funds benefited its program; and
* Lacked sufficient documentation to support that another $39,761 in non-HUD funds paid to AIDServe for which the State is expecting reimbursement from HUD benefited its grant program.

We recommend that the Indianapolis Field Office Director of Community Planning and Development assure that the Indiana State Department of Health reimburses its Program for the inappropriate drawdowns of HUD funds for its Program and implements controls to correct the weaknesses cited in this report.

Date Issued: July 25, 2003
Audit Report No.: 2003-CH-1019
File Size: 5.13MB

Title: Fayette County Housing Authority Section 8 Housing Program
Connersville, Indiana

HUD's Office of Inspector General completed an audit of the Fayette County Housing Authority's Section 8 Housing Program. The objectives of our audit were to determine whether the Housing Authority operated its Section 8 Program in an efficient and effective manner and provided decent, safe and sanitary housing to its Section 8 tenants in compliance with HUD's requirements. We performed the audit in response to a request from HUD's Public Housing Program Center Coordinator, Indianapolis Field Office.

We found that the Fayette County Housing Authority did not administer its Section 8 Program in an efficient and effective manner, and failed to comply with HUD's Housing Quality Standards for its rental units. We recommend that HUD take administrative action against the former Executive Director and Board members of the Fayette County Housing Authority for the excessive request and improper use of Section 8 funds and their failure to properly maintain Section 8 rental units as cited in this report.

We recommend that HUD require the Housing Authority to provide adequate supporting documentation for expenditures cited in this report and repay its Section 8 Voucher Program from non-Federal funds for the ineligible and unsupported items. We recommend that HUD require the Housing Authority to repay its Section 8 Voucher Program from non-Federal funds for the Section 8 subsidies it received for rental properties that it owned but did not properly maintain.

We also recommend that HUD establish a formal workout agreement with the Housing Authority to recover the excess Section 8 Voucher funds paid to the Authority. The Authority should establish policies and controls to ensure that its Board of Commissioners are fully aware of the Housing Authority's operations and expenses prior to payment in order to avoid a recurrence of these problems.

Date Issued: October 31, 2002
Audit Related Memorandum No.: 2003-CH-1004
File Size: 456KB

Title: Congressionally Requested Audit of Section 514 Outreach and Training Assistance Grants Awarded to Indiana Coalition on Housing and Homeless Issues; Indianapolis, Indiana; Grant Numbers FFOT98008IN and FFOT00014IN

We completed an audit of Indiana Coalition on Housing and Homeless Issues' Section 514 Outreach and Training Assistance Grants awarded under the Multifamily Assisted Housing Reform and Affordability Act of 1997. The objectives of the audit were to determined whether Tenants' had: management controls in place to ensure that Section 514 Grant funds were used for eligible activities; and expended the Grant funds for any lobbying activities. The audit identified that the Coalition: (1) lacked documentation to support $14,113 in Grant funds disbursed; (2) improperly used $21,670 of Outreach Grant funds to pay duplicative expenses and costs not related to the Grants; and (3) did not maintain complete and accurate books and records for the Grants. Our report contains five recommendations to address the issues identified in this audit.

Date Issued: January 29, 2002
Audit Related Memorandum No.: 2002-CH-1801
File Size: 9KB

Title: Housing Authority of the City of Evansville Hotline Complaint Evansville, Indiana

We completed a review of the Housing Authority of the City of Evansville. The review resulted from an anonymous complaint to our Hotline. The objectives of our audit were to determine whether the complainant's allegations were substantiated and whether HUD's rules and regulations were followed.

The complainant's specific allegations were: (1) the Housing Authority's former Chief Executive Officer committed racial and sexual discrimination, and harassment against the Authority's residents and employees, and minority owned businesses; (2) the Authority's Board of Commissioners and its former Chief Executive Officer conducted a smear campaign against members of the Evansville community with the intent to slander and diminish the financial opportunities available to the members; (3) the Authority's Interim Director of Section 8 and Staff Attorney violated community members' and Authority employees' civil rights; (4) the Authority and its corporations failed to follow applicable procurement requirements in the award of contracts for the demolition of Lincoln Gardens, development of Lincoln Estates, and the cleaning of the Authority's housing units; and (5) the Authority improperly established corporations.

We found that the Housing Authority's former and current management staff, and its Board of Commissioners did not sufficiently exercise their responsibilities to effectively manage the Authority.

Date Issued: September 13, 2000
Audit Related Memorandum No.: 00-CH-249-1811
File Size: 152KB

Title: City of South Bend, Broadway Street Mortgage Loan Subsidy Program, South Bend, Indiana

We completed a review of the Broadway Street Mortgage Loan Subsidy Program which is funded by the City of South Bend’s Community Development Block Grant Program. The review resulted from a citizen complaint to our Office. The complainant alleged that Block Grant funds were misappropriated and that houses purchased under the Mortgage Loan Subsidy Program were substandard. The objectives of our review were to determine whether the complainant’s allegations were substantiated and whether HUD’s rules and regulations were violated.

The City’s Broadway Street Mortgage Loan Subsidy Program was generally administered correctly. However, we found that the City did not follow the Housing and Community Development Act of 1974 to ensure houses assisted through the Mortgage Loan Subsidy Program met the City’s Building Code. The Housing Inspector for the Housing Assistance Office, which the City contracted with to administer its Program, incorrectly certified that six of the seven houses met the City’s Building Code when they did not. As a result, Block Grant funds were misappropriated. HUD also lacks assurance that houses were in decent condition when the Program participants purchased the houses.

Date Issued: December 9, 1999
Audit Related Memorandum No.: 00-CH-211-1805
File Size: 27KB

Title: Mayfair Manor, Multifamily Equity Skimming, Indianapolis, In

The United States Attorney’s Office in Indianapolis, Indiana has executed a Settlement Agreement and Stipulation of Dismissal with prejudice in the matter of United States v. John Bartle etal. John Bartle was the general partner of Mayfair Limited Partnership, owner of Mayfair Manor, a HUD-insured nursing home in Indianapolis, Indiana. The partnership defaulted on its HUD-insured mortgage in May, 1992. HUD subsequently sold the project at foreclosure in 1996.

The Settlement Agreement requires the project owner to pay the United States a lump sum cash payment of $150,000. In addition, HUD may, if appropriate, suspend or debar the settling parties.

Date Issued: December 23, 1998
Audit Related Memorandum 99-CH-243-1802
File Size: 42KB

Title: Clark County, CDBG, Jeffersonville, In

The complainant made 17 allegations that we reviewed in detail. The complainant also made seven other allegations that we did not review because they were outside of HUD's jurisdiction. They involved local or private issues and/or occurred before the Block Grant was awarded. We grouped the allegations into the following categories:

* Conflicts of interest;
* Properties served;
* Engineering problems;
* Permits;
* Other allegations; and
* Allegations outside of HUD's jurisdiction. We concluded that none of the allegations applicable to HUD could be substantiated.

Date Issued: May 6, 1998
Audit Report No. 98-CH-202-1003
File Size: 131 KB

Title: HA of the Town of Bloomfield, Bloomfield, In

We concluded that the Housing Authority's management controls were weak, and offered an opportunity for its employees to misuse or divert Authority funds; however, we did not find that employees diverted funds. We found that the Authority did not effectively manage its rental units; had inadequate cash management controls; did not disclose conflicts of interest; and had not established a cost allocation plan.

Issue Date: June 12, 1997
Audit Case Number 97-CH-202-1008
File Size: 147KB

Title: Indianapolis PHA, Indianapolis, In

We found the Agency's operations had deteriorated because there was frequent turnover of key management personnel, and it did not have a plan to facilitate continuity of operations. The Agency also did not: have a plan that addressed methods and procedures to reduce an excessive number of vacant units; follow proper procurement procedures; have adequate control over its maintenance operations; follow economical and efficient applicant screening procedures; and document the method it used to allocate its indirect costs to the various HUD programs.

Issue Date: September 27, 1996
AUDIT RELATED MEMORANDUM 96-CH-222-1814
File Size: 43KB

Title: ERA Arbor III Realty CO., Inc., Noblesville, In

We concluded that HUD overpaid Arbor Realty for commissions and bonuses. We calculated the commissions at 9 percent, 7 percent, and 3 percent because of conflicting rates in the contract. Arbor Realty received $390,264 in commissions and bonuses for the sale of 209 properties. Based on a 9 percent commission rate, Arbor Realty received overpayments totalling $156,296. Based on a 7 percent commission rate, Arbor Realty received overpayments totalling $200,940. Based on a 3 percent commission rate, Arbor received overpayments totalling $290,227. Further, Arbor Realty could not adequately support its claimed expenses. Arbor could not provide originals of cancelled checks and invoices for $113,093 in claimed expenses.