Rhode Island Audit Reports

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Issue Date: May 14, 2008
Audit Report No.: 2008-BO-1006
File Size: 441.79KB

Title: Woonsocket Housing Authority, Woonsocket, Rhode Island, Housing Choice Voucher Program and Public Housing Program Deficieincies Resulted in Cost Exceptions Totaling $904,494

We audited the Housing Choice Voucher (Voucher) and public housing programs at the Woonsocket Housing Authority (Authority) as part of our annual audit plan. The overall objective of the audit was to determine whether the Authority efficiently and effectively administered its Voucher and public housing programs in compliance with its annual contributions contracts and U.S. Department of Housing and Urban Development (HUD) regulations. In addition, we wanted to determine whether the Authority’s board of commissioners (board) had conflicts of interest and whether the Authority established and followed a reasonable policy for travel costs charged to federal programs. Our efforts focused on whether the Authority properly (1) used federal funds to subsidize a separate nonprofit entity; (2) allocated costs and accounting for interfund transactions; (3) adhered to its procurement practices; (4) account for travel per diem rates and travel expense vouchers; and (5) adhered to its waiting lists procedures.

The Authority generally administered the Voucher and public housing programs in compliance with its annual contributions contract and HUD regulations. In addition, HUD’s Regional Counsel rendered an opinion that the Authority’s board members did not violate conflict-of-interest provisions of section 19(A) of the contract. However, we identified several deficiencies, including $663,413 in unsupported costs and $241,081 in opportunities for funds to be put to better use, because the Authority

• Improperly used federal funds to subsidize the development activities of Blackstone,
• Did not establish an adequate cost allocation plan for administrative and indirect costs and improperly advanced and used funds between its public housing and Voucher programs,
• Did not always comply with HUD procurement regulations and its own procurement policy,
• Did not establish a reasonable policy for travel per diem rates charged to federal programs and ensure that board members always submitted travel expense vouchers, and
• Did not always follow its HUD-approved waiting list procedures.

We recommend that the Director of the Office of Public Housing require the Authority to (1) cease the practice of improperly using federal funds to pay nonprogram costs and repay $2,608 in unreimbursed funds, (2) provide support for $587,000 in salary expenses and $67,855 in indirect costs charged to the Voucher program or reimburse these costs and cease the practice of advancing and using funds between its federal programs, (3) comply with HUD procurement regulations and its own procurement policy, (4) establish a reasonable policy for travel per diem rates charged to federal programs and ensure that board members always submit travel expense vouchers, and (5) obtain HUD approval on all actions that are contrary to its waiting list procedures.

We also recommend that Authority establish controls to ensure that all interprogram transactions are recorded and reconciled monthly, thereby eliminating the average daily balance of $241,081 that was owed between federal programs during the period January 2005 through June 2007. Further, we recommend that HUD’s Departmental Enforcement Center consider sanctions as appropriate against the responsible parties for the improper use of federal funds used to pay nonprogram costs of an affiliated nonprofit entity.

Issue Date: March 22, 2007
Audit Report No.: 2007-BO-1004
File Size: 447.97KB

Title: Harris Health Center, East Providence, Rhode Island, Did Not Ensure That Renovations Were Properly Completed, Paid $21,729 for Unnecessary and Nonproject Costs, and Did Not Calculate Management Fees Properly

We reviewed operations at Harris Health Center (Center), 016-43106, a 34-bed nursing home located in East Providence, Rhode Island, because the mortgage was delinquent and final endorsement of the U.S. Department of Housing and Urban Development (HUD)-insured loan was delayed. We examined whether project renovations were completed properly, only necessary interest and credit card fees were paid, and management agent fees were properly calculated and paid.

The Center did not ensure that renovations were completed properly. It also paid unnecessary interest and non-project-related costs and did not properly calculate and pay fees to its related management agent. These conditions were caused by inconsistent supervision of the renovations and a misunderstanding of the HUD regulatory requirements. As a result, the Center did not receive the full benefits of its renovations and spent money on unnecessary expenses, all of which contributed to operating losses and cash flow shortfalls.

We recommend that the director of HUD’s Boston Multifamily Hub require the Center’s owner to correct the renovation deficiencies, develop a repayment plan to reimburse the project $21,729 for unnecessary and non-project-related costs, and establish a consistent management agent structure and method for computing and paying management agent fees.

Issue Date: December 1, 2006
Audit Report No.: 2007-BO-1002
File Size: 407.22KB

Title: Mortgage Amenities Corporation, Lincoln, Rhode Island, Did Not Comply with Certain HUD Requirements in Administering Its Federal Housing Administration Insured Loan Programs

We audited Mortgage Amenities Corporation (Mortgage Amenities), a nonsupervised mortgage company approved by the U.S. Department of Housing and Urban Development (HUD) to originate, underwrite, and service Federal Housing Administration (FHA) single-family insured loans. We selected Mortgage Amenities based on a lender risk analysis, which showed that the loans it originated or sponsored had a higher default percentage than the nationwide average. Our objectives were to determine whether Mortgage Amenities acted in a prudent manner and complied with HUD regulations, procedures, and instructions in the origination of the FHA-insured single-family mortgages selected for review and whether its quality control plan as implemented met HUD requirements. We also assessed other general aspects of the mortgagee's operations as they relate to continued mortgagee approval.

Mortgage Amenities did not comply with certain HUD requirements concerning the origination and servicing of FHA-insured loans. Mortgage Amenities approved one loan that was not eligible for FHA insurance because of questionable citizenship and/or immigration status. However, this approval was not an indication of a pattern of noncompliance, but the loan represents a higher risk of loss to the FHA insurance fund. Mortgage Amenities also charged ineligible document preparation fees to borrowers, and did not establish or operate its branches in accordance with HUD requirements. This resulted in borrowers paying excessive and/or unreasonable fees, and any loans originated by branches that do not comply with HUD requirements increase the risk to the FHA insurance fund and the American public. We also found a significant amount of mortgage records in HUD’s Single Family Insurance System were not accurate for loans originated or sponsored by Mortgage Amenities. Inaccurate or untimely reporting of mortgage record changes can delay the payment of claims for insurance benefits.

In addition, Mortgage Amenities did not establish or implement a quality control plan that met all of HUD’s requirements. As a result, it may not identify and correct potential deficiencies in a timely manner, resulting in an unnecessary risk to the FHA insurance fund.

We recommend that HUD’s assistant secretary for housing–federal housing commissioner require Mortgage Amenities to (1) indemnify HUD against future losses for the ineligible FHA–insured loan, (2) refund the ineligible closing fees, (3) terminate its branches that do not comply with HUD requirements, (4) review HUD's mortgage records and update them accordingly, and (5) update and fully implement its quality control plan. We also recommend that the assistant secretary refer Mortgage Amenities to the Mortgagee Review Board for consideration of administrative sanctions and/or civil money penalties for the violations disclosed in this report.

Issue Date: July 6, 2006
Audit Report No.: 2006-BO-1009
File Size: 618.37

Title: The Rhode Island Housing and Mortgage Finance Corporation, Providence, Rhode Island, Incorrectly Made More than $1.8 Million in Section 8 Subsidy Payments and Released More Than $900,000 from Restricted Residual Receipts Accounts

At the request of the U.S. Department of Housing and Urban Development (HUD), we audited the Rhode Island Housing and Mortgage Finance Corporation (Corporation), a state housing agency located in Providence, Rhode Island. Our audit objectives were to determine whether the Corporation (1) correctly processed Section 8 housing assistance payment contract renewals and (2) released residual receipts to development owners and itself in violation of federal regulations.

The Corporation incorrectly processed Section 8 housing assistance payment contract renewals for eight developments. It included debt service at incorrect levels and failed to reduce Section 8 contract rents. The inflated contract rents resulted in more than $1.8 million in Section 8 subsidy overpayments to the development owners. In addition, the Corporation did not recover the overpayments due to the failure of the owners to submit repayment plans on the advice of their legal counsel and because it was awaiting the outcome of our audit.

The Corporation also violated federal regulations when it incorrectly interpreted those regulations and allowed two developments to use more than $900,000 in restricted residual receipts to pay financing fees to the Corporation, the Corporation’s affiliated Affordability Housing Trust, and one development owner. The Corporation believed using residual receipts in a refinancing transaction as an incentive to the owner to extend affordability use restrictions for another forty years was an appropriate use of project funds. It indicated that it had returned the funds with interest to the residual receipts accounts of the two developments.

We recommend that HUD require the Corporation to (1) actively pursue and recover just under $1.2 million in Section 8 subsidy overpayments from six development owners, (2) confirm that the Corporation returned more than $657,000 in overpayments collected from two development owners to the appropriate accounts, (3) develop and implement procedures to ensure that HUD requirements governing the renewal of expiring Section 8 housing assistance payment contracts are followed, and (4) clarify its procedures to ensure residual receipts are restricted to authorized uses. Further, we recommend that HUD confirm that the Corporation returned more than $945,000 to the appropriate restricted accounts.

Issue Date: March 28, 2006
Audit Report No.: 2006-BO-1006
File Size: 4.98MB

Title: Coventry Health Center, Federal Housing Administration Loan Number 016-43071, Coventry, Rhode Island

We reviewed the books and records of Coventry Health Center (project) to determine whether Coventry Health Center Associates, L.P. (owner), and-or Sterling Health Care Management Company, an identity-of-interest management agent, used the project’s funds in compliance with the regulatory agreement and the U.S. Department of Housing and Urgan Development’s (HUD) requirements. The review was performed based upon our fiscal year 2004 annual audit plan.

We found that the project’s owner and/or management agent used project funds for inappropriate and unsupported disbursements. The inappropriate and unsupported disbursements occurred while the project was in a non-surplus-cash position and/or in default of its HUD-insured loan. HUD sold the project’s note and lost more than $6.3 million. We identified $1,858,100 in questionable cash disbursements made by the project’s owner and/or management agent between January 1998 and February 2001. The project’s owner and/or management agent disbursed these funds and paid for non-project-related expenses, loan repayments, management fees, and unnecessary services while the project was in a non-surplus-cash position and/or in default of its HUD-insured loan.

The owner and/or management agent caused the conditions identified above by failing to operate the project in accordance with its regulatory agreement and other applicable laws and regulations. The owner and/or management agent disregarded prudent business practices and exploited weak management controls.

We recommend that the director of HUD’s Boston Multifamily Housing Hub,

• Pursue the recovery of double the amount of questionable cash disbursements to identities-of-interest as stipulated in 12 U.S.C. [United States Code] Sec. 1715z-4a.

Title: Mount Saint Francis Heath Center
Federal Housing Administration Loan Number 016-43077, Woonsocket, Rhode Island

We audited Mount Saint Francis Health Center (project), located in Woonsocket, Rhode Island, to determine whether the owner complied with its U.S. Department of Housing and Urban Development (HUD) regulatory agreement and other applicable laws and regulations.

We identified $4,402,305 in questionable cash disbursements and accrued expenses made by the project. We found that (1) under the direction of the owner and the identity-of-interest management agent, the project made questionable cash disbursements of $1,646,669 and accrued questionable expenses of $192,487 while in a non-surplus-cash position, and (2) The owner and identity-of-interest management agent billed $1,162,150 and $1,288,745, respectively, for services not provided (unsupported). In addition, the general manager of the management agent received a salary as the assistant administrator of the nursing home for a total of $112,254 in unnecessary expenses. We recommend that the director, Rhode Island Multifamily Program Center:

• Pursue the recovery of double the amount of questionable cash disbursements to
identities-of-interest as stipulated in 12 U.S.C. [United States Code]
Sec. 1715z-4a.
• Obtain from the owner justification supporting the cash disbursements for unsupported costs.
• Obtain from the owner adequate justification for disbursements that were deemed unnecessary to the nursing home.
•Pursue the recovery of questionable distributions to non-identities-of-interest.
•Take appropriate action to prevent payment of ineligible and unnecessary cash disbursements after our audit period, including the payment of questionable accrued payables.
• Develop and implement procedures that ensure only eligible expenses are paid from project funds and that documentation is maintained to support the eligibility and the amount of operating funds expended.
• Remove the management agent in accordance with the management certification and HUD regulations.
• Pursue all applicable administrative sanctions against the owner, management agent, and identity-of-interest companies, specifically debarment.

Issue Date: March 31, 2003
Audit Report No. 2003-BO-1002
File Size: 3.67MB

Title: Congressionally Requested Audit of the Outreach and Training Assistance Grant Awarded to the People to End Homelessness Providence, Rhode Island
Grant Number: FFoT00034RI

We completed an audit of the Outreach and Training Assistance Grant (OTAG) awarded to the People to End Homelessness (Grantee). The review was performed at the request of Congress. The audit objective was to determine if the Grantee used Section 514 grant funds for only eligible activities as identified in the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA), Notice of Funds Availability (NOFA) and the OTAG agreement between HUD and the Grantee to further the Mark-to-Market Program. We also determined if the Grantee expended Section 514 funds for any lobbying activities. Congress specifically identified lobbying as an ineligible activity under MAHRA.

Date Issued: September 30, 2002
Audit Memorandum No. 2002-BO-1006
File Size 1,701KB

Title: INTERIM REPORT - Congressionally Requested Audit of the Outreach and Training Assistance Grant Awarded to the People to End Homelessness, Providence, Rhode Island Grant Number: FFOT00034ri

We have issued an Interim Report on the People to End Homelessness. Because of the condition of their internal controls and financial records, we have not yet completed our evaluation of grant expenditures. We will issue a final report covering that area after we finish evaluating the accounting records. We have determined that the Grantee does not have adequate internal controls to ensure grant funds are properly used. Our interim report contains two recommendations to correct the conditions found to date.

Section 1303 of the 2002 Defense Appropriation Act (Public Law 107-117) requires the HUD Office of Inspector General to audit all activities funded by Section 514 of the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA). The directive would include the Outreach and Training Assistance Grants (OTAG) and Intermediary Technical Assistance Grants (ITAG) administered by the Office of Multifamily Housing Assistance Restructuring (OMHAR). Consistent with the Congressional directive, we reviewed the eligibility of costs with particular emphasis on identifying ineligible lobbying activities.

Date Issued: April 30, 2002
Audit Report No. 02-BO-1003
File Size 858KB

Title: Newport Resident Council, Inc. Newport, Rhode Island

We performed an audit of the Newport Resident Council, Inc. (NRC). The overall objective of our audit was to determine if the NRC was administering all federal funds it received in an efficient, effective and economical manner and in compliance with the terms of its federal contracts and regulations. The NRC received funds from the Housing Authority of the City of Newport, Rhode Island (Authority) through the Comprehensive Grant Program and Tenant Services Program. The NRC also received funds from the City of Newport, Rhode Island (City) through the Rhode Island Small Cities Community Development Block Grant for the Employment Readiness Program.

Our audit disclosed the NRC did not establish accountability over all federal funds it received from the Authority and City, including Comprehensive Grant Program (CGP), Tenant Services Program and Employment Readiness Program funds, which as of January 31, 2001 totaled $265,275. Specifically, the NRC failed to maintain adequate accounting and monitoring records over Comprehensive Grant Program, Tenant Services Program and Employment Readiness Program funds provided by the Authority and City. We also noted $42,887 in questionable costs. The deficiencies occurred because the NRC Board of Directors did not effectively manage and account for its federal funds.

Date Issued: December 20, 2001
Audit Memorandum No. 02-BO-1801
File Size 246KB

Title: South Kingstown Housing Authority South Kingstown, Rhode Island

We performed a review of the South Kingstown Housing Authority (Authority). The overall objective of our review was to determine if the Authority was administering its Public Housing and Section 8 Programs in an efficient, effective and economical manner. Specifically, our objective was to evaluate the allegations regarding the misuse of Authority funds by the former Executive Director and the misuse of the Authority's credit cards.

Our review disclosed that the Authority does not administer its Public Housing and Section 8 Programs in an efficient, effective and economical manner. Specifically, the Authority lacks the proper internal controls contributing to the improper use of the Authority's credit cards; the poor safeguarding of assets; and the failure to enforce their own travel policies. Further, the Authority has been unable to adequately recover outstanding tenants' accounts receivables.

Date Issued: August 20, 1999
Audit Report No. 99-BO-203-1004
File Size: 146KB

Title: Central Fall Housing Authority Section 8 Program, Central Falls, RI

We conducted an audit of the Central Falls Housing Authority's (PHA) Section 8 Program. The purpose of our review was to determine if the PHA was administering its Section 8 Program efficiently and effectively. The specific objectives were to determine whether:

* PHA's Family Self-Sufficiency (FSS) program was operating in an effective and efficient manner and in compliance with applicable regulations.

* PHA's procedures established to administer the Section 8 Program were adequate.

The PHA is in compliance with program requirements over its FSS Program. However, we found that the Chairman of the Board of Commissioners violated the conflict of interest provisions. The PHA also needs to improve its administration of the Section 8 Program by strengthening the procedures used in its Housing Quality Standards (HQS) inspection process and determinations of contract rent reasonableness.

Date Issued: July 1, 1999
Audit Report No. 99-BO-202-1003
File Size: 1429KB

Title: HA Low-Income Housing Program Newport, RI

We completed an audit of the Newport Public Housing Authority (PHA). The PHA was selected for audit based on tenant complaints of substandard living conditions at the Tonomy Hill property.

Our audit objectives were to evaluate a tenant complaint to determine if substandard living conditions existed at Tonomy Hill, and to determine whether the PHA repairs and rents vacant units in a timely manner.

This report contains two findings: 1) the PHA is not adequately maintaining the Tonomy Hill property, and 2) the PHA is not repairing vacant units in a timely manner. This resulted in substandard and dangerous living conditions for tenants; lack of available housing for low-income families; and lost rental income of approximately $705,000.

Date Issued: January 29, 1999
Audit Report No. 99-BO-207-1001
File Size: 106KB

Title: Narragansett Indian Wetuomuck Housing Authority Housing Development Grant Charlestown, RI

We performed an audit of the Narragansett Indian Wetuomuck Housing Authority's (Authority) administration of its Housing Development Grant for the production of 50 low rent housing units. The objective of our audit was to determine the disposition of development funds; whether the Authority had proper accountability over the HUD development funds; and whether the Authority operated in accordance with the terms and conditions of its Annual Contribution Contract, HUD regulations, and other directives.

This report contains one finding concerning the expenditure of $3.2 million without producing any habitable low rent housing units because the Authority lacked the administrative capability to carry out its development program. HUD needs to decide whether to work with the Narragansett Indian Wetuomuck Housing Committee, who replaced the Authority in 1998 as the entity responsible for carrying out the housing program, to develop a viable plan to complete the uninhabitable units or whether to terminate the grant.

Date Issued: January 21, 1999
Audit Related Memorandum No: 99-BO-219-1802
File Size: 35KB

Title: Review of Service Coordinator Grants Davenport Associates Ltd. Providence, Rhode Island

We performed a limited review of the Service Coordinator Grants awarded to Davenport Associates, Ltd. Our objective was to determine whether funds were properly drawn down by Davenport Associates, Ltd. (the Owner) under its Service Coordinator Contracts with HUD and whether the funds were properly expended in accordance with HUD requirements. This report contains a finding indicating the need for you to: (1) recover excess funds of $48,161 requisitioned by Davenport Associates, Ltd.; and (2) assure all Service Coordinator recipients are aware of HUD financial requirements for the draw-down of these funds.

Issue Date: April 24, 1998
Audit Report No: 98-BO-209-1003
File Size: 95KB

Title: City of Woonsocket HA, Woonsocket, RI

We determined that the PHA needs to improve administration of the Program and reimburse the Program for $74,455 of ineligible costs.

Issue Date: October 26, 1995
Audit Report Number 96-BO-214-1001
File Size: 21KB

Title: National Investments, Ltd., Johnston, RI

Due to a shortage of available funds, the projects need more than $3.5 million in substantial repairs. Rents at both projects are well under the Fair Market Rent for existing housing and market rents in the locality. The Rhode Island State Office is currently processing project rent increases and Section 241(a) loans to address the physical and economic health of these projects. Such approach will protect HUD's interests, while aiding in the restoration and maintenance of the physical condition of the projects. Based on your office's actions, no recommendations are needed at this time.