Kansas Audit Reports

Date Issued: September 22, 2009
Audit Report No.: 2009-KC-1010
File Size: 547.01KB

Title: The Kansas City, Kansas, Housing Authority Inappropriately Spent Federal Funds for Nonfederal Development Activities

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General audited the development activities of the Kansas City, Kansas, Housing Authority (Authority) to determine whether the Authority improperly spent federal public housing funds when developing and operating nonfederal developments. We conducted the audit because of a citizen complaint received by our office.

We concluded that the Authority inappropriately transferred nearly $1 million of its public housing funds to a nonprofit affiliate, which used the funds for nonfederal development activities. The Authority also inappropriately spent federal funds for payroll costs when its staff worked on nonfederal development activities.

We recommended that HUD require the Authority to repay its public housing program nearly $184,000 from nonfederal sources for federal funds that were inappropriately used and not yet repaid. We also recommended that HUD require the Authority to provide documentation to support payroll costs allocated to HUD programs or reimburse its HUD programs from nonfederal sources for costs that it cannot adequately support.

Date Issued: August 5, 2009
Audit Report No.: 2009-KC-1009
File Size: 567.37KB

Title: Milestone Management Systems Inc.’s Management Controls for Managing Multifamily Properties Were Not Adequate

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General, audited Milestone Management Services, Inc. (Milestone), of Topeka, Kansas, in response to a request from the HUD's Office of Multifamily Housing in Kansas City, Kansas. HUD was concerned that Milestone had not complied with cash management requirements. Our audit objective was to determine whether Milestone complied with HUD's cash management requirements for management agents.

Milestone's management controls were not adequate in three respects. Milestone did not (1) adequately segregate duties of on-site staff or provide proper oversight of these employees, (2) have a system for tracking significant rehabilitation and related costs for individual units, or (3) practice proper budgetary controls. In addition, Milestone did not provide its properties with adequate fidelity bond coverage, and it overpaid itself management fees.

We recommended that HUD ensure that Milestone/property owners implement an adequate system of management controls and provide technical assistance and guidance as needed. We also recommended that HUD require Milestone/property owners to implement procedures to periodically assess the adequacy of fidelity bond coverage and adjust the coverage for each property when needed. Further, we recommended that HUD ensure that Milestone/property owners use a reliable process to calculate and pay management fees and that Milestone immediately repays overpaid management fees to the overcharged properties. Lastly, we recommended that HUD take appropriate administrative actions against Milestone/property owners if Milestone is unable or unwilling to comply with HUD requirements.

Date Issued: June 29, 2009
Audit Report No.: 2009-KC-1006
File Size: 511.69KB

Title: The City of Kansas City, Kansas, Did Not Comply with the Home Investment Partnerships Program Regulations

The U.S. Department of Housing and Urban Development (HUD) Office of Inspector General audited the HOME Investment Partnerships (HOME) program of the City of Kansas City, Kansas (City). Our objective was to determine whether the City followed HUD requirements when establishing and managing HOME projects.

We concluded that the City did not obtain adequate environmental reviews, improperly awarded HOME construction projects, improperly charged employee costs to the HOME program, and allowed contracts that did not include required provisions. In addition, the City did not verify the eligibility of community housing development organizations (CHDO) before awarding them HOME funds, nor did it spend program income and recaptured funds before drawing down additional funds.

We recommended that HUD require the City to properly support or repay to its HOME program more than $400,000 in unsupported costs; repay more than $17,500 in ineligible costs; and obtain environmental review, procurement, contract content, and CHDO eligibility training.

Date Issued: December 17, 2008
Audit Report No.: 2009-KC-1003
File Size: 395.94KB

Title: CTX Mortgage Did Not Follow HUD’s Requirements When Underwriting 12 FHA Loans and Developing Its Quality Control Plan

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General, reviewed 23 Federal Housing Administration (FHA) loans originated by CTX Mortgage's Overland Park, Kansas, branch office. Our audit objectives were to determine whether CTX Mortgage followed U.S. Department of Housing and Urban Development (HUD) requirements for (1) borrower eligibility and creditworthiness and property eligibility when underwriting loans and (2) developing a written quality control plan. We concluded that CTX Mortgage did not follow HUD's requirements when underwriting 12 FHA loans. In addition, CTX Mortgage's written quality control plan did not contain all of HUD's required elements.

We recommended that the Assistant Secretary for Housing - Federal Housing Commissioner require CTX Mortgage to indemnify HUD for 12 loans with unpaid principal balances totaling more than $1.2 million. Further, we recommended that HUD ensure that CTX Mortgage revises its quality control plan to fully comply with HUD's requirements.

Date Issued: December 17, 2008
Audit Report No.: 2009-KC-1002
File Size: 295.87KB

Title: Clarion Mortgage Capital Did Not Fully Comply with HUD’s or Its Own Quality Control Requirements

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General, audited the Leawood, Kansas, branch office of Clarion Mortgage Capital, a Federal Housing Administration (FHA)-approved loan correspondent. Our audit objective was to determine whether Clarion Mortgage Capital followed HUD requirements for implementing a quality control program. We concluded that Clarion Mortgage Capital did not fully comply with HUD's or its own quality control process. It did not ensure that its quality control contractor reviewed loans within the proper timeframes. Also, it did not document on-site quality control reviews of the branch office and document corrective actions taken to address deficiencies identified in the quality control reports.

We recommended that the Assistant Secretary for Housing - Federal Housing Commissioner verify that Clarion Mortgage Capital has fully implemented a quality control program that complies with HUD requirements.

Date Issued: August 20, 2008
Audit Report No.: 2008-KC-1004
File Size: 1622 KB

Title: Peoples Bank Did Not Follow HUD's Requirements When Underwriting Nine FHA Loans and Implementing Its Quality Control Program

The U.S. Department of Housing and Urban Development (HUD) Office of Inspector General reviewed 23 Federal Housing Administration (FHA) loans underwritten by Peoples Bank of Overland Park, Kansas. Our audit objectives were to determine whether Peoples Bank followed HUD requirements for (1) borrower eligibility and creditworthiness and property eligibility when underwriting loans and (2) implementing a quality control program. We concluded that Peoples Bank did not follow HUD's requirements when underwriting nine FHA loans. In addition, its quality control program did not comply with HUD's requirements.

We recommended that HUD require Peoples Bank to indemnify HUD for eight actively insured loans and reimburse HUD for one loan for which HUD incurred losses when it sold the property. We also recommended that HUD verify that Peoples Bank has implemented an adequate supervisory structure and adequately trained its underwriters regarding HUD requirements for FHA loans. Further, we recommended that HUD ensure that Peoples Bank implements a quality control program that meets HUD requirements.

Issue Date: December 12, 2005
Audit Report No.: 2006-KC-1002
File Size: 431.28KB

Title: First Magnus Financial Corporation Did Not Follow HUD Regulations When Underwriting 23 Federal Housing Administration Loans

HUD-OIG reviewed 45 Federal Housing Administration loans underwritten by the Overland Park, Kansas, branch office of First Magnus Financial Corporation (First Magnus). We concluded that First Magnus did not follow HUD regulations when underwriting 23 of the 45 loans reviewed. The 23 loans contain material deficiencies that affect the insurability of the loans. Material deficiencies include unsupported income and assets, questionable gift funds, underreported liabilities, and questionable employment and credit histories. As a result, these loans place the insurance fund at risk for $2,239,504.

We recommended that HUD take appropriate administrative action against First Magnus for not following HUD requirements, including requiring First Magnus to indemnify 21 loans with original mortgage amounts of over $2,018,167 and to indemnify HUD for future losses on two properties not yet sold that HUD paid claims totaling $221,337.

Issue Date: May 13, 2005
Audit Report No.: 2005-KC-1006
File Size: 1.36MB

Title: Corinthian Mortgage Corporation, Mission, KS, Did Not Always Comply with Federal Housing Administration Requirements

We audited Corinthian Mortgage Corporation (Corinthian Mortgage), a nonsupervised direct endorsement lender located in Mission, KS, because its default rate was significantly higher than the U.S. Department of Housing and Urban Development (HUD) Kansas City field office's average over the past 2 years.

Our audit objectives were to determine whether Corinthian Mortgage properly developed and implemented a quality control plan and to determine whether it properly originated Federal Housing Administration loans.

Corinthian Mortgage's quality control process did not comply with HUD requirements. Corinthian Mortgage did not ensure that it conducted sufficient and timely quality control reviews. It also did not take prompt corrective action when quality control reports identified material deficiencies.

Further, Corinthian Mortgage did not follow HUD requirements when processing and underwriting Federal Housing Administration loans. It improperly originated 3 of the 44 loans reviewed. Additionally, Corinthian Mortgage submitted one loan with a serious misstatement. As a result, HUD insured four loans that placed the insurance fund at risk for $472,833.

We recommend that the General Deputy Assistant Secretary for Housing take appropriate administrative action against Corinthian Mortgage including, at a minimum, indemnification for the three actively insured loans and reimbursement for losses already incurred on the remaining loan. Corinthian Mortgage should also reimburse the appropriate parties for unallowable costs charged to borrowers.

Issue Date: April 18, 2005
Audit Report No.: 2005-KC-1004
File Size: 264.38KB

Title: The Kansas City, Kansas, Housing Authority's Controls Over Its Section 8 Program Are Adequate, Except When Conducting Quality Control Reviews of Its Routine Housing Inspections

HUD-OIG reviewed the controls over the Section 8 program of the Kansas City, Kansas, Housing Authority (Authority) to determine whether the Authority is operating its Section 8 program in accordance with U.S. Department of Housing and Urban Development (HUD) requirements. We reviewed the Authority because we had not conducted a review of its Section 8 program for more than 10 years and the Authority is one of the larger housing authorities in the Kansas City and regional area.

The Authority has adequate controls over its Section 8 program, except when conducting quality control reviews of its routine Housing Quality Standards inspections. The Authority has adequate controls to ensure that its staff properly assesses tenant eligibility, assigns appropriate unit size, and calculates Section 8 subsidy payments. The Authority also has adequate controls over the inspectors' daily practices of conducting timely and well-documented inspections and enforcing corrective action when the inspector identifies violations. However, the Authority currently conducts its quality control inspections simultaneously with the routine inspections. This gives the inspector prior knowledge of the units that will be inspected for quality control purposes.

The Authority agreed with our conclusion and recommendation, and plans to seek approval from its Board of Commissioners to amend its quality control plan to comply with HUD requirements.

We recommend that the Director, Office of Public Housing, verify that the Authority amends its quality control plan to require that the Authority select and conduct quality control inspections separately from routine inspections.

Issue Date: January 25, 2005
Audit Report No.: 2005-KC-1003
File Size: 553.26KB

Title: Leader Mortgage Company Did Not Follow HUD Requirements When Processing Loans

We reviewed Leader Mortgage Company (Leader Mortgage), a non-supervised direct endorsement lender located in Lenexa, KS, because its default rate was significantly higher than the U.S. Department of Housing and Urban Development (HUD) Kansas City field office's average over the past three years.

Our audit objectives were to determine whether Leader Mortgage properly originated Federal Housing Administration loans and to determine whether it properly developed and implemented a quality control plan.

Leader Mortgage did not follow HUD requirements when processing and submitting loans for Federal Housing Administration insurance endorsement. It improperly originated 7 of the 23 loans reviewed. These seven loans contained deficiencies that affected the insurability of the loans, including unsupported assets, underreported liabilities, unsupported income, and derogatory credit. As a result, HUD insured seven loans that placed the insurance fund at risk for $911,738.

Further, Leader Mortgage's quality control process did not comply with HUD requirements. Leader Mortgage's written quality control plan lacked many required elements. In addition, Leader Mortgage did not ensure that it obtained quality control reviews that met HUD requirements or that were completed within the established timeframes. Leader Mortgage also did not take prompt corrective action when quality control reports identified material deficiencies. As a result, HUD lacks assurance that Leader Mortgage is able to ensure the accuracy, validity, and completeness of its loan origination operations.

We recommend that the Assistant Secretary for Housing - Federal Housing Commissioner, and Chairman, Mortgagee Review Board, take appropriate administrative action against Leader Mortgage based on the information contained in these findings. This action should, at a minimum, include requiring indemnification for the seven actively insured loans. Leader Mortgage should also reimburse the appropriate parties for unallowable costs charged to borrowers. Additionally, HUD should require Leader Mortgage to implement controls to ensure that it follows HUD's quality control requirements and verify that Leader Mortgage has implemented proper controls.

Issue Date: June 4, 2003
Audit Memorandum No.: 2003-KC-1804
File Size: 121KB

Title: Meadowbrook Manor of Topeka Section 232 Nursing Home Review
Topeka, Kansas

We have completed a review of Meadowbrook Manor of Topeka, a Section 232 Nursing Home. We conducted this review as a follow-on of a nationwide review of HUD's monitoring of 232 Nursing Homes. The overall objective of our review was to determine whether the lessee arrangements at the property were appropriate, and whether project officials used project funds for unallowable purposes. We determined from our review that there were no reportable conditions due to a lease arrangement that dismissed the Management Agent from following HUD's requirements. During our review, this property was foreclosed upon, and was subsequently sold by HUD without insurance.

Issue Date: September 19, 2002
Audit Report No.: 2002-KC-1002
File Size: 197KB

Title: Congressionally Requested Audit of the Outreach and Training Assistance Grant awarded to the Housing & Credit Counseling, Inc., Topeka, Kansas, Grant Numbers FFOT98010KS and FFOT00015KS

We completed an audit of Housing & Credit Counseling, Inc.'s Outreach and Technical Assistance Grant (OTAG) pursuant to Section 1303 of the 2002 Defense Appropriation Act (Public Law 107-117). Consistent with the Congressional directive, we reviewed the eligibility of costs with particular emphasis on identifying ineligible lobbying activities. The audit concluded the Grantee has an effective and well-run organization with the exception the Grantee could not demonstrate that the allocation plans used to distribute salaries and indirect costs to the grant are reasonable. The Grantee also did not have documentation to support the method of cost allocation used in their plans and did not obtain HUD's approval for the plans. Housing & Credit Counseling, Inc. agreed with the three recommendations we made in the report to improve the cost allocation process.

Issue Date: February 25, 2002
Audit Report No.: 2002-KC-1801
File Size: 848KB

Title: Review of Enhanced Enterprise Community Funding Kansas City, Kansas

We have completed a review of the Enhanced Enterprise Community funds awarded to the City of Kansas City, Kansas in 1994. We performed this review to address a citizen complaint received by our office. We reviewed the City's selection of Enhanced Enterprise Community subrecipients with the purpose of answering the complainant's questions and therefore, did not review any other aspects of the City's Enhanced Enterprise Community program.

We did not identify any specific violations of HUD regulations; however, we did determine that the City cannot fully support its administration of the Enhanced Enterprise Community funds. Because the City has not maintained an adequate recordkeeping system, the City does not have adequate support for actions taken and decisions made regarding the funds. As a result, HUD, the Mayor/Chief Executive Officer, the City Council, and the public lack assurance that the City administered these funds according to applicable regulations and guidelines, and in an efficient, effective, and fair manner.

Issue Date: June 4, 2001
Audit Report No.: 2001-KC-1003
File Size: 789KB

Title: Villa West II Apartments, Topeka, Kansas

We have completed an audit of the Villa West II Apartments. We selected the project based on an audit request from your office that indicated there were unauthorized distributions from project funds. Our overall audit objective was to determine whether project officials used project funds for purposes other than reasonable administrative fees, operating expenses, necessary repairs and allowable distributions from surplus cash.

We concluded the management agent, Metro Developers, Inc., overcharged the project $8,853 for payroll services and did not always follow its HUD approved management plan to allocate direct expenses. Additionally, the management agent did not always follow its management agreement to obtain owner approval for expenditures over $1,000.

We determined Metro Developers, Inc., (Metro) made payments for other than reasonable operating expenses and necessary repairs of the project. This occurred because Metro did not have adequate controls and did not ensure it followed existing policies and procedures. As a result, HUD lacks assurance project operations were conducted in the most efficient and effective manner.

Issue Date: February 21, 2001
Audit Memorandum No. 01-KC-1801
File Size: 32KB

Title: Review of Metro Management Corporation

We have completed a review of Metro Management Corporation (Metro), located in Overland Park, Kansas. Our objective was to assess Metro's compliance with the terms and conditions of the Regulatory Agreement and applicable HUD regulations and instructions regarding Metro's management of Royal Towers/Pickwick Plaza from 1997 through 1999.

We found that Metro generally followed applicable requirements while managing Royal Towers/Pickwick Plaza. However, we did find several instances of non-compliance. Therefore, this memorandum contains two recommendations requiring corrective action.

Issue Date: May 23, 1997
Audit Case Number 97-KC-117-0001
File Size: 84KB

Title: Review of Low Income Housing Tax Credits Program

We concluded NCSHA's standards accomplish the same thing as HUD's subsidy layering guidelines. However, states were not mandated to adopt the standards. We are recommending the Offices of Housing, Public and Indian Housing, and Community Planning and Development work with NCSHA and take the steps necessary to establish mandatory parameters for developer and contractor fees and profits that will have the same effect as subsidy layering reviews.