Texas Audit Reports

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Date Issued: September 30, 2009
Audit Report No.: 2009-FW-1016
File Size: 1.27MB

Title: The Texas Department of Housing and Community Affair's Disaster Recovery Action Plan Needs Improvement

The U. S. Department of Housing and Urban Development's Office of Inspector General (HUD OIG) audited the Housing and Urban Development (HUD) Community Development Block Grant (CDBG), Supplemental I and II Disaster Recovery program funds, administered by the Texas Department of Housing and Community Affairs (TDHCA). Specifically, we wanted to determine whether TDHCA administered the floodplain management program as required by federal, state, and local policies and whether it protected HUD's CDBG investments in properties reconstructed or rehabilitated with Disaster Recovery program funds against future potential losses.

TDHCA generally administered the program funds in accordance with applicable federal, state, and local floodplain regulations and policies. However, its action plan did not require homeowner's insurance on properties reconstructed or rehabilitated with Supplemental I funds, and its grants required only 3 years of homeowner's insurance for homes reconstructed or rehabilitated with Supplemental II funds. Due to the lack of or limited insurance, HUD's CDBG Disaster Recovery funds invested in the homes provided to the disaster victims are at risk of loss. Of a sample of 59 Supplemental I funded homes tested, 38 were later damaged by another hurricane or storm. Of the 38 homes, 23 did not have insurance. Based on a projection of the sample results, at least 133 of 453 reconstructed or rehabilitated homes, or homes awaiting reconstruction, lacked insurance and were damaged or are at risk of being damaged by another storm. If TDHCA changes and improves its action plan and policies, an estimated $ 60.2 million of program funds could be saved.

We recommend that HUD's Director of Disaster Recovery Assistance & Special Issues Division request TDHCA to modify its action plan to provide homeowner's insurance for a period equitable to the amount of funds invested, request the homeowner to obtain homeowner's insurance as a prerequisite to obtaining assistance for a period equitable to the amount of funds invested, or prohibit the homeowner from receiving future Disaster Recovery assistance if an insurance policy is not maintained on a newly reconstructed or rehabilitated home.

Date Issued: August 31, 2009
Audit Memorandum No.: 2009-FW-1802
Size: 559.73KB

Title: The City of Fort Worth, Texas, Needs to Strengthen Its Capacity to Adequately Administer Recovery Funding

The City of Fort Worth (City) is scheduled to receive $10.85 million in Recovery Act funding. The Department of Housing and Urban Development (HUD) Office of Inspector General (OIG) issued a memorandum on the City's capacity to administer these funds. We reported the City had a history of failing to meet regulatory requirements in an efficient or timely manner. The City needs to strengthen its capacity to adequately administer recovery funding to include improving its procurement activities and undertaking only prudent projects. We recommend HUD place special conditions on the City's grants, requiring the correction of past deficiencies and including plans to monitor the additional funding, thereby ensuring better use of more than $4.5 million.

Date Issued August 25, 2009
Audit Memorandum No.: 2009-FW-1801
File Size: 97.39KB

Title: Travis County Housing Authority, Austin, Texas, Lacks Capacity to Administer American Recovery and Reinvestment Act of 2009 Public Housing Capital Funds

The memorandum reports that the Authority lacks capacity to administer ARRA public housing capital funds. The OIG recommended that HUD increase monitoring and oversight of the Authority's financial and program activities, and either recover ARRA funding from the Authority or place the Authority's ARRA funding on a cost reimbursement basis.

Date Issued: August 17, 2009
Audit Report No.: 2009-FW-1015
File Size: 5.98MB

Title: The Housing Authority of Travis County, Austin, Texas, Could Not Adequately Account For or Support Its Use of Federal Program Funds

We audited the Housing Authority of Travis County (Authority) due to several problem indicators including the U. S. Department of Housing and Urban Development's (HUD) rejecting the Authority's 2005 and 2006 audited financial statements and noting that the Authority's 2007 financial statements contained $4.1 million in interprogram transfers and a negative $579,783 administrative fee reserve. Our objectives were to determine (1) whether the Authority and/or its related entities followed HUD procurement regulations for nonprofit development or procurement activities, if required, and (2) whether the Authority used federal funds only for eligible program activities.

In violation of its annual contributions contract and federal regulations, the Authority could not adequately account for its use of federal program funds or support that it used program funds only for eligible program activities. Specifically, the Authority haphazardly transferred more than $2.5 million between its federal and nonfederal programs and activities without proper support or justification. Further, its books and records were not auditable, and it did not properly allocate costs. Limited testing also showed that it could not support more than $600,000 in costs charged to federal programs, spent more than $3,000 on ineligible costs, and did not always follow procurement requirements. These violations occurred because the Authority disregarded HUD requirements in order to keep its programs functioning and lacked financial controls.

We recommended that the Authority (1) correct its books and records; (2) hire an outside accounting firm to perform a comprehensive review of the $2.5 million in transfers; (3) provide support for expenditures or repay $600,000; (4) repay $3,084 in ineligible costs; and (5) develop policies, procedures, and controls to ensure that federal funds are only used for eligible program activities and that interprogram balances are reconciled and paid in a timely manner. We also recommend that the Acting Director, Departmental Enforcement Center, take appropriate administrative actions against Authority officials, as applicable.

Date Issued: July 14, 2009
Audit Report No.: 2009-FW-1012
File Size: 301.02KB

Title: The City of Houston, Texas, Did Not Adequately Monitor Its HOPWA Project Sponsors

We conducted an audit of the City of Houston's (City) Housing Opportunities for Persons with AIDS (HOPWA) program, which is managed by its Housing and Community Development Department (Department), as part of our strategic plan and regional goals. Our objective was to determine whether the City and its project sponsors complied with U. S. Department of Housing and Urban Development (HUD) HOPWA regulations, requirements and its grant agreements. Specifically, we determined whether (1) expenditures and reimbursements paid by and submitted to the Department were eligible and supported, (2) project sponsors maintained adequate client file documentation to support eligibility, (3) project sponsors' sites complied with HOPWA housing quality standards, and (4) the Department adequately monitored project sponsors.

The City's Department and its project sponsors generally complied with its HOPWA grant requirements and HUD regulations as testing on expenditures, reimbursement requests, client file documentation, and site conditions did not disclose any eligibility or compliance issues. However, in violation of its HOPWA grant agreement, the City did not consistently monitor 15 of 18 project sponsors. Monitoring did not occur because the City's Department did not have the necessary personnel with the experience needed to conduct the required monitoring. The City's failure to monitor the project sponsors put $7.5 million in HUD funds at risk.

We recommend that the Director of HUD's Houston Office of Community Planning and Development require the City to (1) consistently monitor its project sponsors in compliance with its grant agreements and (2) ensure that project sponsors submit the required monthly and quarterly reports in a timely manner or enforce its grant agreements, including declaring breach and withholding funding, if the project sponsors fail to submit them.

Issue Date: June 9, 20009
Audit Report No.: 2009-FW-1009
File Size: 749.38KB

Title: Tarrant County Generally Administered Its Home Investment Partnerships Program Grants in Accordance with Requirements, Fort Worth, Texas

We selected the Tarrant County Community Development Division (Tarrant County) HOME Investment Partnerships Program (HOME) and Neighborhood Stabilization Program (NSP) for review because the U. S. Department of Housing and Urban Development's management expressed concerns about Tarrant County's HOME program. The objectives were to determine Tarrant County's (1) compliance with HOME regulatory requirements, (2) eligibility of HOME activities and administrative costs, (3) oversight and performance of subrecipients and community housing development organizations (CHDO), and the NSP plan's feasibility.

Tarrant County generally administered its HOME grants in accordance with applicable program requirements. However, a Tarrant County CHDO, Development Corporation of Tarrant County (Corporation), lacked capacity. Also, Tarrant County did not monitor its CHDOs in 2008 and expended $2,041 in HOME funds on ineligible and unsupported costs.

We recommended that the Director, Community Planning and Development, Fort Worth Office (1) deny awarding additional grants to the Corporation for single-family purchase and rehabilitation activities until it demonstrates capacity to properly administer the activities, (2) reiterate to Tarrant County its responsibilities regarding monitoring all of its subrecipients, and (3) require Tarrant County to reimburse its HOME program $2,041 from nonfederal funds for ineligible and unsupported HOME funds expended.

Issue Date: May 20, 2009
Audit Report No.: 2009-FW-1008
File Size: 549.36KB

Title: Housing Authority of the City of El Paso, El Paso, TX, Administered its Housing Choice Voucher Program in Accordance with Requirements

As part of our strategic plan objective to assist the U. S. Department of Housing and Urban Development's (HUD) efforts to reduce rental assistance overpayments, we audited the Housing Authority of the City of El Paso's (Authority) Housing Choice Voucher program (program). The purpose of our audit was to determine whether the Authority properly administered its overall program. Specifically, we wanted to determine whether the Authority properly verified and calculated tenant income and eligibility. We found that the Authority properly administered its program and adequately verified tenant income and eligibility. In most instances, the Authority used HUD's Enterprise Income Verification (EIV) system to determine income. However, in 3 of 22 randomly selected files the Authority did not use EIV, resulting in less than $6,000 in potential overpayments. We recommended that the Director of the Fort Worth Office of Public and Indian Housing require the Authority to repay $2,841 for the overpayment for two tenants and obtain support or repay $3,147 for the potential overpayment for one tenant.

Issue Date: March 25, 2009
Audit Report No.: 2009-FW-1007
File Size:3.38MB

Title: The Owners of Stonebrook Apartments Phase I and Phase II, Baytown, Texas, Violated Their Regulatory Agreements with HUD

We audited Stonebrook Apartments Phase I and Phase II (projects) to determine whether the projects' owners complied with the regulatory agreements and U. S. Department of Housing and Urban Development (HUD) regulations. Specifically, we wanted to determine whether the owners (1) made unauthorized distributions of project funds when the projects were in a non-surplus-cash position, (2) fully funded the tenant security deposit accounts, and (3) supported disbursements with invoices or other supporting documentation. We selected the projects for review in accordance with our strategic plan and regional goals. In addition, the audited financial statements of the projects indicated potential unauthorized distributions and transfers.

The owners and/or their management agents did not comply with the regulatory agreements and HUD regulations. Specifically, the owners and/or their management agents paid more than $187,500 in questioned costs. The questioned costs included unauthorized distributions ($81,035) from the projects' operating and tenant security deposit accounts when the projects were in a non-surplus-cash position, underfunded tenant security deposit accounts ($27,514), ineligible ($20,644) and unsupported ($16,945) disbursements, duplicate payments ($7,235), excessive management fees ($26,134), and unreasonable and unnecessary bonuses ($8,000). Further, audit testing disclosed that they did not maintain accurate financial information, did not submit annual audited financial statements in a timely manner, and transferred the management of the projects without HUD's approval.

We recommend that the Director, Houston Multifamily Program Center, require the owners to (1) repay the projects $81,035 for unauthorized distributions, (2) fully fund the tenant security deposit accounts, (3) repay the projects $62,013 for ineligible or unnecessary disbursements and either furnish supporting documentation or repay the projects $16,945 for unsupported expenses, and (4) correct and maintain the projects' accounting records in compliance with the regulatory agreements. We also recommend that HUD's Acting Director of the Departmental Enforcement Center seek civil money penalties and administrative sanctions, as appropriate, against the owners for violating the projects' regulatory agreements.

Issue Date: February 18, 2009
Audit Report No.: 2009-FW-1006
File Size: 1.89MB

Title: Enterprise Home Ownership Partners–Dallas, Inc., Dallas, Texas, Achieved Program Objectives but Did Not Fully Comply with Certain Requirements

As part of a nationwide internal audit of U. S. Dept. of Housing and Urban Development's (HUD) asset control area program, we performed an external audit of Enterprise Home Ownership Partners-Dallas, Inc. (EHOP-Dallas). Our objective was to determine whether EHOP-Dallas administered the asset control area program in compliance with the agreement and the program objective to promote the revitalization, through expanded homeownership opportunities, of revitalization areas.

We found that EHOP-Dallas administered its asset control area program in an effective manner, increasing homeownership in revitalization areas and contributing to reducing blight in some neighborhoods. However, it did not comply with requirements when it (1) provided home buyers excess equity in the homes it resold, (2) did not resell all homes within the time limits established under the agreement, and (3) included ineligible expenses associated with theft and vandalism in net development costs.

We recommended that HUD's Assistant Secretary for Housing-Federal Housing Commissioner require EHOP-Dallas to calculate home-buyer enforcement notes as defined in the agreement and to exclude expenses associated with casualty losses in its calculations of net development costs. In addition, we recommended revising the agreement to address disposition of properties the purchaser cannot sell within 18 months because of market conditions or other factors beyond its control.

Issue Date: February 10, 2009
Audit Report No.: 2009-FW-1005
File Size: 1.14MB

Title: Allied Home Mortgage Capital Corporation, Houston, Texas, Did Not Fully Follow HUD’s Branch Office Requirements

We reviewed Allied Home Mortgage Capital Corporation (Allied), a nonsupervised loan correspondent. The objective of the review was to determine the validity of a hotline complaint that Allied operated its branches in violation of U. S. Department of Housing and Urban Development (HUD) requirements.

The complaint was partially valid as Allied did not fully follow HUD's branch office requirements. Allied required branch managers to personally enter into certain contractual agreements, such as office space leases, equipment contracts, and utility arrangements, at all five branches reviewed. Also, Allied did not consistently pay rental, utility, and telephone expenses at all five branches. Further in one instance, Allied requested that a former employee use personal funds to cover branch operating losses. The allegation that Allied required its employees to indemnify it for loan losses was not valid. In addition, although not alleged in the complaint, testing disclosed that Allied hired an ineligible employee to originate Federal Housing Administration insured single family mortgages.

We recommend HUD's Assistant Secretary for Single Family Housing require Allied to immediately discontinue its current practices related to leases/agreements for all branch offices; adopt new practices and controls that require it to directly enter into leases and/or agreements; and implement the necessary policies, systems, and controls to ensure that it pays all required branch operating costs. Further, the Assistant Secretary for Single Family Housing should require the Quality Assurance Division to confirm that all Allied branch offices have appropriate agreements and take appropriate actions if compliance does not occur; and request the Mortgagee Review Board pursue civil money penalties and/or administrative sanctions as appropriate against Allied Home Mortgage Capital Corporation for the violations cited in this report. We also recommend that the Acting Director of the Departmental Enforcement Center pursue civil money penalties or take administrative action, as appropriate, against the responsible parties for the violations cited in this report.

Issue Date: January 14, 2009
Audit Report No.: 2009-FW-1004
File Size: 438KB

Title:The Texas Department of Housing and Community Affairs Properly Administered Supplemental I Disaster Recovery Program Funds

We audited the U. S. Department of Housing and Urban Development's (HUD) Community Development Block Grant (CDBG), Supplemental I Disaster Recovery program, administered by the Texas Department of Housing and Community Affairs (Department). We performed the audit as part of the Office of Inspector General's commitment to HUD to implement oversight of the Disaster Recovery funds to prevent fraud, waste, and abuse and duplication of benefits. Our objective was to determine whether the Department administered Supplemental I Disaster Recovery funds (funds) in compliance with the supplemental appropriation's Federal Register requirements, HUD's policies, and the State of Texas' (State) Disaster Recovery action plan.

The Department administered the funds in compliance with requirements. The funds were accounted for and were used for eligible program applicants and projects that met national program objectives.

This report does not contain any recommendations as it contains no findings.

Issue Date: December 24, 2008
Audit Report No.: 2009-FW-1003
File Size: 3.23MB

Title: Housing Authority of the City of El Paso, El Paso, Texas, Did Not Follow Procurement and Other Requirements

Based on a congressional request, we performed an audit of the Housing Authority City of El Paso's (Authority) procurement process and board of commissioners (board) activities. Our objectives were to determine whether the Authority properly followed procurement requirements and whether the executive director was selected in accordance with applicable procedures.

The Authority did not follow its procurement policies or the U. S. Department of Housing and Urban Development's (HUD) procurement requirements. Specifically, it inappropriately paid more than $700,000 because it did not properly administer its procurements. Also, a former board member and a former employee created conflicts of interest. Further, the Authority did not establish written procedures for the selection of its executive director, and its board members did not always file ethics questionnaires in a timely manner.

We recommended that the Authority repay from nonfederal funds $661,580 to its restricted operating reserve for locally owned properties account, $12,697 to HUD, and $31,640 to its capital fund account; implement procedures to ensure that it complies with its procurement policies and HUD regulations and requirements; and ensure that its executive director and its contracting department employees attend HUD-approved procurement training. Further, we recommended that the Director, Office of Public and Indian Housing, Fort Worth, take administrative or other actions regarding the conflicts of interest created by a former board vice-chair and a former employee.

Issue Date: November 25, 2008
Audit Report No.: 2009-FW-1002
Files Size: 593.73KB

Title: The Owner of Ebony Lake Healthcare Center, Brownsville, Texas, Violated Its Regulatory Agreement with HUD

As part of the Office of Inspector General's (OIG) annual audit plan and because of significant regulatory violations identified at another property owned by an entity related to Century Ebony Lake - GEAC, LLC (owner), we audited Ebony Lake Healthcare Center (project). Our objectives were to determine whether the project's owner (1) transferred funds from the project in violation of its regulatory agreement with the U. S. Department of Housing and Urban Development (HUD) and HUD directives and (2) expended property funds for only reasonable and necessary project expenses in accordance with the regulatory agreement.

We found that the owner violated the regulatory agreement when its managers ignored HUD directives by making 96 transfers from the project, totaling more than $4 million from January through December 31, 2007 of which $497,000 had not been repaid to the project. In addition, the managers did not follow the regulatory agreement and instructions from HUD's Departmental Enforcement Center (DEC), which caused ineligible and unsupported costs of $340,549 to be charged to the project. Additionally, the managers' unauthorized transfers during June 2007 prevented $167,026 from being deposited into the project's residual receipts account. Further, the owner did not implement the required financial and accounting controls.

Our recommendations include requiring the owner to ensure that unauthorized transfers of funds do not resume, deposit $657,449 into the project's residual receipts account, provide support for $180,000 in accrued legal fees, or make the necessary adjustments to the financial records, implement financial and accounting controls, and correct and maintain accounting records in compliance with the regulatory agreement. We also recommend that HUD's Acting Director of the DEC seek civil money penalties and administrative sanctions, as appropriate, against the responsible parties.

Issue Date: September 25, 2008
Audit Report No.: 2008-FW-1013
File Size: 611.55KB

Title: Wells Fargo Mortgage, San Antonio, Texas, Loans Generally Complied with Reverse Mortgage Requirements

We audited Wells Fargo Mortgage (Wells Fargo) as part of our annual audit plan objective of improving the integrity of single family insurance programs. Our objective was to determine whether Wells Fargo complied with U. S. Department of Housing and Urban Development (HUD) origination requirements for the Home Equity Conversion Mortgage program, commonly known as a reverse mortgage.

Wells Fargo generally complied with HUD's reverse mortgage requirements. However, 3 (6.3 percent) of the 47 loans reviewed did not meet HUD's requirements. Wells Fargo originated: one ineligible loan totaling $86,250 for a home that was not the borrower's primary residence, one loan for $148,500 for a home that the borrower no longer occupied, and one loan for which the list of required repairs was not detailed enough to determine requirements. In addition, for the loan to the borrower who no longer occupied the home, the borrower did not complete repairs in an acceptable manner.

We recommend that the Assistant Secretary for Housing-Federal Housing Commissioner cancel the mortgage insurance on one loan, require Wells Fargo to complete foreclosure proceedings for one loan, and ensure that inspectors list repairs in sufficient detail to determine what repairs were required and ensure that the repairs are satisfactorily completed.

Issue Date: July 31, 2008
Audit Report No.: 2008-FW-1011
File Size: 2.79MB

Title: The Dallas Housing Authority, Dallas, Texas, Mismanaged Its Housing Choice Voucher Program

As part of our strategic plan objective to assist the U. S. Department of Housing and Urban Development's (HUD) efforts to reduce rental assistance overpayments, we audited the Dallas Housing Authority's (Authority) Housing Choice Voucher program (voucher program). Our objective was to determine whether the Authority properly administered its overall voucher program.

The Authority acknowledged its longstanding weaknesses, as previously reported by the Office of Inspector General (OIG), HUD, and prior independent public accountants, and made a commitment to improve its operations. Although the Authority reorganized its leased housing department and made other changes, it failed to correct systemic weaknesses and continued to mismanage its voucher program. Further, analysis of Authority data disclosed that it spent almost $20 million in questionable costs in 2006 and 2007. This amount included payments for clients that it did not report to HUD; payments for clients after they left its voucher program; duplicate payments to landlords; and payments for clients who, based on their reported Social Security numbers, were deceased. In addition, the Authority's data showed that it backdated 22 and 45 percent of the examinations it reported to HUD in 2006 and 2007, respectively.

We recommended that the Director of HUD's Recovery and Prevention Corps (Director) require the Authority to establish and implement: policies and procedures to address its systemic weaknesses, an effective quality control process, and an effective accountability process. We also recommend that the Director require the Authority to support or repay nearly $20 million. In addition, we recommend that the Director incorporate the recommendations in this report with the management decision and corrective actions for recommendation 1D of OIG audit report 2008-FW-1006.

Issued Date: July 14, 2008
Audit Report No.: 2008-FW-1010
File Size: 452.71KB

Title: Senior Reverse Mortgage Services, Bedford, Texas, Generally Complied with HUD Regulations but Could Improve

We reviewed Senior Reverse Mortgage Services, Incorporated (originator), a home equity conversion mortgage (HECM) originator. The originator originated loans for one of the largest lenders in Texas, Financial Freedom Senior Funding Corporation.

Our objective was to determine whether the originator complied with U.S. Department of Housing and Urban Development (HUD) regulations and adequately counseled borrowers and disclosed costs.

Generally, the originator complied with HUD regulations when it originated HECM loans. However, the originator could have improved its service by consistently following requirements to (1) adequately disclose the financial aspects of the loans to borrowers, (2) counsel the borrowers on other available financing options, and (3) complete documents. Because the originator did not consistently follow these procedures, borrowers may not be fully aware of the financial implications of the loans.

We recommended that the Assistant Secretary for Housing-Federal Housing Commissioner require the originator to implement procedures that ensure that it (1) provides at least two assumptions for at least two loan terms and two appreciation rates to borrowers; (2) provides a list of eligible counselors to the borrowers so that they can select their counselor; and (3) completes all loan documents.

Issue Date: March 21, 2008
Audit Report No.: 2008-FW-1008
File Size: 1.93MB

Title: The Owner of Century Mission Oaks, San Antonio, Texas, Violated Its Regulatory Agreement with HUD

As part of the Office of Inspector General's (OIG) annual audit plan, we audited Century Mission Oaks (project). Our objectives were to determine whether the project's owner-manager, Century Mission Oaks GEAC, LLC (owner), complied with the regulatory agreement with the U. S. Department of Housing and Urban Development (HUD) during fiscal years 2005 and 2006. Specifically, we wanted to determine whether the owner (1) adequately supported and documented that project expenditures were reasonable and necessary, (2) obtained HUD approval for any distributed funds, and (3) maintained the books and records to properly account for revenues and expenses.

The owner did not support and document that project expenditures were reasonable and necessary because it ignored HUD requirements, lacked the expertise and knowledge to operate a HUD-insured project, and displayed poor cash management skills. As a result, the owner could not support more than $2.9 million in expenses, incurred $65,524 in ineligible expenses, and improperly transferred $197,000 in project funds to an affiliate. As a result, fewer project funds were available for mortgage payments, and the risk to the Federal Housing Administration insurance fund was unnecessarily increased.

Further, the owner did not ensure that the project's books and records were properly maintained. Financial records were missing; general ledger entries were incomplete, misclassified, and/or unsupported with revenues and payroll expenses overstated; and there were conflicting records. As a result, HUD and other stakeholders could not accurately assess the financial condition of the project.

We recommend that the Director, San Antonio Multifamily Program Center, require the owner to (1) provide support for or make necessary adjustments to its financial records to remove $2.7 million in unsupported expenses and expense accruals recorded in its books, (2) provide support for or reimburse $272,753 in unsupported costs, (3) deposit $262,524 for the ineligible disbursements and unauthorized transfers, into the project's reserve for replacement account (4) correct and accurately maintain its accounting records, and (5) implement procedures and controls to ensure that future disbursements for project expenses comply with requirements. We also recommend that HUD's Regional Counsel in coordination with the Director of the San Antonio Multifamily Program Center and the OIG pursue double damages remedies against the responsible parties for the ineligible disbursements and unauthorized transfers. Further, the Acting Director of HUD's Departmental Enforcement Center should pursue civil money penalties and administrative sanctions, as appropriate, against the owner for its part in the regulatory violations cited in this report.

Issue Date: March 20, 2008
Audit Report No.: 2008-FW-1007
File Size: 1.13MB

Title: City of Dallas, Dallas, Texas, Incurred Ineligible and Unsupported Expenses for Its Housing Opportunity for Persons with AIDS Grant

We conducted a review of the City of Dallas' (City) Housing Opportunities for Persons with AIDS (HOPWA) grant. Our objectives were to determine whether the City and its program sponsors provided rent, mortgage, and utility assistance to persons who met program criteria and whether the 2005 and 2006 competitive grants provided transitional and replacement housing.

Generally, the City complied with program requirements to ensure that it and its program sponsors provided assistance to eligible persons. However, in violation of the HOPWA grant agreement, two program sponsors charged $24,521 in ineligible expenses, and one program sponsor did not support $138,979 in expenses. Further, the City provided $1,738 in excess short-term rental, mortgage, and utility assistance, and several client files lacked adequate supporting documentation.

We recommended that the Director of HUD's Fort Worth Office of Community Planning and Development require the City to (1) repay $26,259 to its HOPWA formula grant; (2) provide supporting documentation or reimburse its formula grant $138,979; (3) discontinue cable television payments, which will result in $16,235 in formula grant funds put to better use; and (3) strengthen controls to better comply with requirements.

Issue Date: March 20, 2008
Audit Report No.: 2008-FW-1006
File Size: 1.21MB

Title: Dallas Housing Authority, Dallas, Texas, Management Failed to Implement Internal Controls over Its Housing Choice Voucher Program

As part of our strategic plan objective to assist the U. S. Department of Housing and Urban Development's (HUD) efforts to reduce rental assistance overpayments, we audited the Dallas Housing Authority's (Authority) financial management of its Housing Choice Voucher program (voucher program). Our objective was to determine whether the Authority had the necessary financial controls in place to operate its voucher program in an efficient, effective, and economical manner.

Contrary to requirements, Authority management failed to implement internal controls over the financial management of its voucher program and did not exercise sound management practices. Although this has been an ongoing weakness, Authority management did not take substantive measures to ensure that basic controls were established. As a result, the Authority's financial data were unreliable, its fund balances were incorrect, and it could not assure HUD that it spent program funds in accordance with its annual contributions contract or federal regulations. Further, the Authority certified to HUD that it expended about $32.4 million less in program funds than it received in 2005 and 2006.

We recommended that the Director of the Fort Worth Office of Public and Indian Housing require the Authority to support or repay more than $32.4 million, void and properly reclassify $648,530 in outstanding checks, and implement effective internal controls over the financial operations of its voucher program. In addition, we recommend that the Assistant Secretary for Public and Indian Housing take appropriate administrative sanctions, up to and including issuing a notice of default in accordance with section 15 of the annual contributions contract for the Rental Certificate and Rental Voucher Programs to ensure that the Authority complies with requirements

Issue Date: January 7, 2008
Audit Report No.: 2008-FW-1005
File Size: 296.16KB

Title: Housing Authority of McKinney, McKinney, Texas, Inappropriately Advanced Funds and Transferred Real Estate to Its Not-for-Profit Affiliate

Based on a hotline complaint, we audited the Housing Authority of the City of McKinney (Authority). Our objective was to determine whether the Authority's transactions with its affiliated nonprofit, the McKinney Housing Opportunity Corporation (Corporation), complied with U.S. Department of Housing and Urban Development (HUD) requirements.

In violation of its annual contributions contract, the Authority inappropriately provided $915,487 in funds and real estate to its not-for-profit affiliate. Further, the Authority did not follow requirements when it made $79,059 in housing assistance payments to the Corporation between January 1, 2005, and June 15, 2007. Specifically, the Authority did not obtain independent determinations of fair market rents or compliance with housing quality standards for properties owned by the Corporation.

We recommended that HUD require the Authority to (1) repay $915,487 to its low-income accounts, (2) support $79,059 in housing assistance payments to the Corporation in the amount of $79,059 by obtaining independent determinations of fair market rents and compliance with housing quality standards, and (3) implement policies and procedures to ensure that it complies with HUD requirements.

Issue Date: December 18, 2007
Audit Report No.: 2008-FW-1004
File Size:451.07KB

Title: Community Development Corporation of Brownsville, Brownsville, Texas, Did Not Use Its Housing Counseling Grants for the Intended Purpose

We audited the Community Development Corporation of Brownsville, Inc. (Corporation), at the request of the U. S. Department of Housing and Urban Development's (HUD) San Antonio Director of Community Planning and Development. Our objective was to determine whether the Corporation correctly charged administrative costs to its various federal funding sources. We expanded our objective to also determine whether the Corporation used housing counseling grant funds to qualify mortgage applicants instead of counseling potential homebuyers.

We found that the Corporation incorrectly used part of its housing counseling grant funds for qualifying mortgage applicants. This occurred because the Corporation has a prohibited conflict of interest as it provided housing counseling, mortgage qualifying, and underwriting services. As a result, it charged $177,139 in ineligible salaries and $80,647 in unsupported fringe benefits to its grants. In addition, the Corporation did not allocate general administrative costs in proportion to the relative benefits received by the various funding sources or awards, which resulted in unsupported costs of $391,313. Further, it could not support a $472,069 increase in its building acquisition cost or the $66,000 value assigned to the land because it did not follow federal requirements and generally accepted accounting principles. As a result, it may have overcharged its federal funding sources or awards by as much as $67,210 for depreciation.

Our recommendations include requiring the Corporation to resolve its conflict of interest, repay to HUD $177,139 in ineligible salaries and support or repay $80,647 in fringe benefits; develop a cost allocation plan for HUD approval that allocates general administrative expenses relative to the benefits received by its funding sources or awards; reallocate $391,313 in general administrative expenses in accordance with the cost allocation plan; obtain an appraisal that values the building and land separately as of the date it purchased the building; and reallocate the correct depreciation.

Issue Date: December 5, 2007
Audit Report No.: 2008-FW-1003
File Size: 2.18MB

Title: The Dallas Housing Authority, Dallas, Texas, Mismanaged its Portable Vouchers

As part of our strategic plan objective to assist the U. S. Department of Housing and Urban Development's (HUD) efforts to reduce rental assistance overpayments, we audited the portability features of the Dallas Housing Authority's (Authority) Housing Choice Voucher program. Our objective was to determine whether the Authority administered portability in accordance with HUD requirements.

The Authority mismanaged its portable vouchers and failed to administer portability in accordance with HUD requirements. The Authority could not identify its portable families and attempted to collect portability payments from other housing authorities based on unreliable billing information. It did not timely or accurately bill other housing authorities or reconcile its accounts. Further, the Authority violated portability requirements by denying and discouraging families from porting into its Housing Choice Voucher program. This occurred because the Authority's management did not establish and implement the necessary controls, systems, and procedures needed to ensure accurate and responsible operation of its program.

We recommended that HUD require the Authority to (1) reconcile its portability accounts; (2) establish and implement necessary controls to ensure its program is operating in compliance with HUD requirements; (3) establish and implement controls to ensure that employees cannot manipulate accounting data; (4) repay administrative fees collected on its port Housing Choice Voucher program since it did not properly administer its program; and (5) repay $3.7 million that it inappropriately requested from HUD.

Title: Fallbrook Apartments’, Houston, Texas, Owner and/or Management Agent Made Unauthorized Distributions of the Project’s Funds

We audited Fallbrook Apartments' owner and previous management agent to determine whether they complied with the project's regulatory agreement and U.S. Department of Housing and Urban Development (HUD) regulations. Specifically, we wanted to determine whether the owner and/or previous management agent (1) improperly advanced and distributed the project's funds when the project was in a non-surplus-cash position, (2) supported disbursements with invoices or other supporting documentation, (3) submitted the 2005 and 2006 annual audited financial statements as required, and (4) fully funded tenant security deposits. We selected Fallbrook Apartments for review in accordance with our strategic plan and regional goals. In addition, the 2004 audited financial statements of the project indicated potential unauthorized distributions.

The owner and/or previous management agent made unauthorized distributions of the project's funds, totaling $367,205, when the project was in a non-surplus-cash position and could not adequately support six disbursements totaling $31,625. However, the previous management agent did not fully pay itself $67,943 in management fees, and the owner repaid a total of $150,000 to the project's operating bank account while we were conducting the audit, which reduced the amount of funds owed to the project. Also, the owner did not submit the 2005 and 2006 annual audited financial statements as required. The owner fully funded the tenant security deposit account in March 2006 when the current management agent took over.

We recommend the director of HUD's Multifamily Housing Program Center require the owner to (1) repay the project $149,262 for unauthorized distributions and put the $149,262 and the $150,000 in repaid funds in a restricted escrow account to ensure the owner uses these funds only for eligible project expenses, (2) provide support for $31,625 in unsupported costs or repay the project, and (3) submit the 2005 and 2006 annual audited financial statements. The acting associate general counsel for enforcement of HUD's Office of Counsel should pursue double damages remedies against the responsible parties. Further, the acting director of HUD's Departmental Enforcement Center should take administrative sanctions and pursue civil money penalties against the owner for repeatedly violating the project's regulatory agreement.

Issue Date: June 8, 2007
Audit Report No.: 2007-FW-1010
File Size: 2.39MB

Title: Alethes Mortgage, LLC, and Its Dallas, Texas, Branch, Waters Edge Mortgage, LLC, Did Not Comply with All HUD Underwriting Requirements

We reviewed the operations at an Alethes Mortgage, LLC (Alethes); branch located at 12160 North Abrams, Dallas, Texas. The branch operated under the name Waters Edge Mortgage, LLC (Waters Edge). We selected Alethes' Waters Edge branch for review due to its high default rate.

Alethes did not comply with all HUD requirements. Specifically, it did not notify HUD about one loan that contained an irregularity, conducted incomplete quality control reviews, and closed loans with underwriting deficiencies. By not alerting HUD to potential fraud or serious violations, Alethes increased the FHA insurance fund's risk.

We recommended that HUD's assistant secretary for housing-federal housing commissioner and chairman of the Mortgagee Review Board require Alethes to indemnify one loan and ensure that it complies with HUD's underwriting requirements.

Issue Date: May 10, 2007
Audit Report No.: 2007-FW-1009
File Size: 460.96KB

Title: Countrywide Home Loans, Inc., Houston, Texas, Generally Complied with HUD Requirements in Originating FHA-Insured Single-Family Mortgages

We reviewed branch number 358 of Countrywide Home Loans, Inc. (branch), a direct endorsement lender. The objective of the review was to determine whether the branch complied with U. S. Department of Housing and Urban Development (HUD) regulations, procedures, and instructions in the origination of Federal Housing Administration (FHA)-insured single-family mortgages.

The branch generally complied with HUD regulations, procedures, and instructions in the origination of FHA-insured single-family mortgages. Nine of the ten loan files reviewed contained minor deficiencies; however, one of the files contained significant deficiencies, which placed the FHA insurance fund at unnecessary risk.

We recommend the assistant secretary for single family housing require the branch to indemnify HUD for one loan with an original mortgage amount of $112,237 that contained significant deficiencies. We also recommend the assistant secretary require the branch to improve its policies, procedures, and controls to ensure that FHA-insured loans are originated, processed, and underwritten according to HUD requirements.

Issue Date: April 19, 2007
Audit Report No.: 2007-FW-1008
File Size: 1.81MB

Title: The San Antonio Housing Authority, San Antonio, Texas, Overhoused Tenants and Paid Excessive Housing Assistance Payments in its Section 8 Housing Choice Voucher Program

As part of the Office of Inspector General's (OIG's) annual audit plan, we audited the San Antonio Housing Authority's (Authority) Section 8 Housing Choice Voucher program to determine whether the Authority overhoused residents and whether it computed rent correctly for tenants identified as potentially overhoused.

In most cases, the Authority applied the correct voucher size. However, our review of 213 (out of 428) files identified 32 tenants who lived in units larger than the Authority's policies allowed, causing the Authority to pay excessive Housing Assistance Payments totaling $46,304. This problem occurred because the Authority had inadequate internal controls. Further, it may have overhoused 215 other tenants whose files we did not review. Additionally, some of the overpayments cause HUD to overfund the Authority's 2005 and 2006 Section 8 budgets by a total of $10,848 and may cause HUD to overfund the 2007 budget.

The Authority also applied the incorrect payment standard in 108 of the 213 cases reviewed because it misinterpreted HUD's requirements. As a result, the Authority and/or the tenants overpaid their share of the rent by $29,019. Further, the Authority may have misapplied its payment standards throughout its Section 8 program.

We recommend that you require the Authority to repay HUD and tenants for excessive or incorrect assistance payments and for the related budget overfunding. We further recommend that you require the Authority to implement policies and procedures that will ensure compliance with its subsidy standards and help prevent future overhousing, and recalculate assistance for the audit period on all annual recertifications performed over the next 12 months. Finally, we recommend you reduce the Authority's 2007 budget for overfunding, and impose sanctions against the Authority for its failure to comply with program requirements regarding payment standards.

Issue Date: February 22, 2007
Audit Report No.: 2007-FW-1005
File Size: 733KB

Title: The Housing Authority of Bexar County, Texas, Overhoused Tenants and Paid Excessive Housing Assistance Payments in the Section 8 Housing Choice Voucher Program

As part of the Office of Inspector General's annual audit plan, we audited the Housing Authority of Bexar County's (Authority's) Section 8 Housing Choice Voucher Program (Program). The audit objective was to determine if the Authority accurately calculated assistance payments and applied subsidy standards in accordance with its administrative plan as required by the U.S. Department of Housing and Urban Development (HUD) regulations.

The Authority accurately calculated assistance and correctly applied its subsidy standards in 151 of 224 (67 percent) vouchers we reviewed. However, the Authority paid excessive assistance of $107,658 on 61 vouchers because they did not implement adequate file review procedures to ensure compliance with subsidy standards. For the remaining 12 vouchers, the Authority incorrectly applied its subsidy standards but did not pay excessive assistance because the contract rent was below the payment standard applied. We estimate the Authority could avoid additional overpayments of up to $132,778 during the next 3.7 years by implementing file review procedures to ensure compliance with subsidy standards. In addition, due to excessive assistance payments during three months in 2004 that were used as the baseline for calculating the 2006 budget and maximum funding, HUD over-funded the Authority's fiscal year 2006 Program budget by $34,050.

We recommend you require the Authority to correct voucher sizes and/or payment standards on the 61 vouchers with excessive assistance and repay HUD for the excessive assistance of $107,658 paid through June 30, 2006. We also recommend you require the Authority to implement procedures to ensure it correctly assigns voucher sizes and calculates assistance using the correct payment standards on future vouchers. Finally, we recommend you reduce the Authority's 2006 budget by $34,050 due to the excessive payments during the months in 2004 used as the baseline in the formula for calculating its budget and funding.

Issue Date: November 28, 2006
Audit Report No.: 2007-FW-1003
File Size: 284.46KB

Title: The Lubbock Housing Authority’s, Lubbock, Texas, Lack of Management Controls Resulted in Overhoused Tenants and Miscalculated Assistance Payments

We completed a limited review of the Lubbock Housing Authority's (Authority's) Section 8 housing assistance payments as part of our strategic plan. Our objective was to determine whether the Authority operated its Section 8 Housing Choice Voucher program in accordance with its annual contributions contract (contract) and the U.S. Department of Housing and Urban Development's (HUD) requirements. We wanted to determine whether the Authority correctly calculated housing assistance payments and properly applied subsidy standards by ensuring tenants were not housed in units larger than its standards allowed.

The Authority did not comply with its contract and HUD's requirements. It overhoused tenants and miscalculated Section 8 housing assistance payments. Our review of the files of 20 potentially overhoused tenants showed that the Authority overhoused 13 tenants and made various calculation errors for 16 tenants, 13 of which resulted in erroneous payments. Due to the errors, the Authority overpaid $15,096 in assistance and overcharged tenants $2,479. The Authority overhoused tenants and miscalculated assistance because its Section 8 program lacked effective policies and controls, including inadequate written policies and procedures, no quality control system to ensure compliance with HUD's requirements and the Section 8 Management Assessment Program (SEMAP), and adverse staffing issues.

We recommend that HUD require the Authority to ensure the errors in the tenant files are corrected and reimburse HUD $15,096 and the tenants $2,479 for the identified errors that affected the assistance payments. Further, we recommend HUD require the Authority's management to implement procedures and controls over its administration of the Section 8 housing program to ensure it is in accordance with its contract and HUD's requirements.

Issue Date: November 28, 2006
Audit Report No.: 2007-FW-1002
File Size: 590.43KB

Title: The Lubbock Housing Authority, Lubbock, Texas, Inappropriately Advanced Federal Funds to Support Its Nonprofit Entities

We audited the Lubbock Housing Authority's (Authority) financial relationship with its nonprofits because we found problem indicators when reviewing the Authority's overall operations. Our audit objective was to determine whether the Authority was operating its nonprofits in accordance with U.S. Department of Housing and Urban Development (HUD) requirements and if not, to determine the extent, cause, and impact of any violations.

The Authority made $672,395 in inappropriate advances from its low-rent fund to its two nonprofits because management did not follow HUD's requirements and written instructions. One nonprofit has no assets to repay the $367,907 advanced to it. The second nonprofit still owes $304,488 to the Authority's low-rent program fund and reportedly lacks the resources to repay the amount.

We recommend that HUD require the Authority to either repay the $367,907 that it advanced to the first nonprofit or seek forgiveness for it. We further recommend that HUD require the Authority to repay its low-rent fund for the $304,488 balance due from the second nonprofit. Finally, we recommend that HUD take applicable administrative actions against the appropriate parties.

Issue Date: November 6, 2006
Audit Report No: 2007-KC-1003
File Size:3.37MB

Title: PlainsCapital McAfee Mortgage, Lubbock, Texas, Did Not Follow HUD Underwriting Requirements and Originated Loans from Unregistered Branch Offices

HUD-OIG audited PlainsCapital McAfee Mortgage (McAfee Mortgage) because its two-year default rate for loans with amortization dates between December 2003 and November 2005 exceeded HUD's national average by 44 percent. In addition, the percentage of current defaults and claims was 88 percent higher than HUD's national average.

McAfee Mortgage did not follow HUD regulations when underwriting 11 of the 35 loans reviewed. As a result, HUD insured 11 loans with original mortgage amounts of more than $1 million, placing the Federal Housing Administration insurance fund at unnecessary risk.

McAfee Mortgage submitted 821 loans from unregistered branch offices, circumventing HUD's oversight controls and placing the Federal Housing Administration insurance fund at unnecessary risk for nearly $75 million in loans.

We recommended that the assistant secretary for housing - federal housing commissioner require McAfee Mortgage to indemnify HUD for the 11 improperly underwritten loans and seek civil money penalties for all loans originated from unregistered branches from December 1, 2004, to the present.

Issue Date: October 16, 2006
Audit Report No: 2007-FW-1001
File Size: 504.62

Title: Lubbock Housing Authority’s, Lubbock, Texas, Lack of Management Controls Resulted in Section 8 Units Not Meeting Housing Quality Standards

We audited the Lubbock Housing Authority's (Authority) Section 8 Housing Choice Voucher program as part of our strategic plan. Our objective was to determine whether the Authority's Section 8 units met housing quality standards and if not, determine the extent, cause, and impact of the housing quality standards unit failures on the Authority's Section 8 Housing Choice Voucher program.

Of the 61 units we inspected, 47 (77 percent) failed inspections, and 30 (49 percent) were materially noncompliant with housing quality standards. The failures occurred because the Authority's Section 8 program lacked effective management and controls over the inspection process; specifically, the program had inadequate written policies and procedures, poor inspections, no quality control system, and negative staffing issues. As a result, the Authority housed families in units that did not meet the U.S. Department of Housing and Urban Development's (HUD) standards of decent, safe, and sanitary housing. If the Authority does not implement effective management and controls, we estimate it will spend more than $1.2 million in the next 12 months on the estimated 266 units expected to be materially noncompliant with HUD's housing quality standards.

We recommend that HUD require the Authority to ensure that all 47 units that failed the Office of Inspector General's (OIG) inspections meet housing quality standards. Further, we recommend that HUD require the Authority's management to implement procedures and controls over its Section 8 inspection process to ensure that all of its units meet housing quality standards.

Issue Date: September 1, 2006
Audit Report No.: 2006-FW-1015
File Size: 534.97KB

Title: The Housing Authority of the City of Austin, Texas, Overhoused Tenants and Paid excessive Housing Assistance Payments in the Section 8 Housing Choice Voucher Program

As part of the U. S. Department of Housing and Urban Development (HUD), Office of Inspector General's (OIG) annual audit plan, we audited the Housing Authority of the City of Austin's (Authority) Section 8 Housing Choice Voucher program to determine whether the Authority overhoused tenants and computed housing assistance payments correctly. We selected the Authority based on a computer analysis of data from HUD's Public and Indian Housing Information Center, which identified 662 tenants whose voucher size appeared to exceed the needs of the members of the households. We limited our review to the 662 vouchers.

In 482 of the 662 vouchers reviewed, the Authority applied the correct voucher size and correctly computed housing assistance payments. However, it overhoused 180 tenants because it did not have effective controls in place to ensure that staff assigned the correct voucher size. Staff used their own discretion and sometimes misapplied the policies for approving larger bedroom sizes because of the age/gender or live-in aides. Authority supervisors did not adequately review the assignment of voucher sizes to detect these staff errors. From April 1, 2003, through January 31, 2006, the Authority paid $588,130 in excess housing assistance payments. We estimate the Authority could avoid future losses of up to $768,000 by improving its controls over voucher size assignments. In addition, HUD overfunded the Authority's fiscal year 2006 Section 8 Housing Choice Voucher program budget by $189,245 because it used costs incurred during three months in 2004 that contained overpayments of $48,603 in the formula for calculating the budget and maximum funding.

We recommend the Director of Public Housing require the Authority to correct the voucher size for overhoused tenants and repay HUD for the housing assistance overpayments of $588,130 that occurred from April 1, 2003, through January 31, 2006. In addition, we recommend that the Director require the Authority to repay any overpayments for the tenants that the Authority incurred after January 31, 2006. We also recommend the Director to ensure that the Authority improves and corrects its procedures to assign the correct subsidy size for all tenants to avoid future losses of up to $768,000. Further, we recommend that you take the necessary action to reduce the Authority's fiscal year 2006 Section 8 budget by $189,245 due to the use of 2004 overpayments in the formula for calculating the budget and funding.

Issue Date: August 16, 2006
Audit Report No.: 2006-FW-1014
File Size: 139.39KB

Title: The City of Fort Worth, Texas, Has Made Significant Improvements in Procedures for Drawing Down Community Development Block Grant Funds

Based on a request from the Fort Worth U.S. Department of Housing and Urban Development (HUD) Office of Community Planning and Development, we performed a survey of the City of Fort Worth's (City) Community Development Block Grant (Block Grant) program. In 2003, HUD performed a financial monitoring review of the City's Block Grant program and found material weaknesses in the City's administration of this program.

Based on HUD's request and monitoring review findings, we focused our review on funding drawdowns made by the City from January 1 through December 31, 2005. Our objective was to determine whether the City was including only eligible and supported costs in its drawdowns. We also wanted to determine whether the City had implemented sufficient internal controls over the draw process.

The City has made significant improvement in drawing down grant funds since HUD's monitoring report of 2003, and has reorganized and implemented new procedures to address its lack of controls over its draw process. The City is now substantially following HUD requirements in drawing down funds for its Block Grant program.

Because the City is substantially complying with HUD requirements, we did not recommend corrective action.

Issue Date July 26, 2006
Audit Report No.: 2006-FW-1013
File Size: 304.23KB

Title: The Housing Authority of the City of Denton, Texas, Made Subsidy Calculation Errors and Overhoused Tenants

We audited the Section 8 program administered by the Housing Authority of the City of Denton (Authority) to determine whether the Authority followed U.S. Department of Housing and Urban Development (HUD) regulations when calculating subsidy amounts and the extent to which the Authority overhoused tenants and made ineligible subsidy overpayments. The Authority did not follow HUD regulations when calculating subsidy amounts because it applied its decreased payment standards without granting the required grace period. Further, the Authority did not grant disability allowances for six eligible tenants in determining adjusted income. As a result, the Authority underpaid an estimated $126,180 in subsidy for 447 tenants. The Authority did not overhouse the majority of its tenants. However, 29 tenants were overhoused because the Authority assigned a voucher size that exceeded its subsidy size standards with either no explanation or questionable justification. The Authority paid $50,917 in ineligible or unsupported subsidy payments for these tenants.

We recommend HUD require the Authority to (1) repay tenants for subsidy underpayments caused by decreasing payment standards too early and not granting disability allowances, (2) repay its Section 8 account for overpayments from overhousing tenants, (3) strengthen its quality control process, and (4) develop and implement controls to ensure the procedural errors identified during the audit are corrected and avoided in the future.

Issue Date: June 23, 2006
Audit Report No.: 2006-AO-1001
File Size: 715.28KB

Title: Southwest Alliance of Asset Managers, LLC, Addison, Texas; Did Not Effectively Enforce The Lease Terms Over Payment of Property Utilities

The U.S. Department of Housing and Urban Development's Office of Inspector General audited Southwest Alliance of Asset Managers, LLC (Southwest Alliance), a management and marketing contractor for the United States Department of Housing and Urban Development’s (HUD) real estate-owned properties held off market for disaster victims.

The audit was initiated in conjunction with the President’s Council on Integrity and Efficiency, as part of its examination of relief efforts provided by the Federal government in the aftermath of hurricanes Katrina and Rita. Our objective was to determine whether Southwest Alliance complied with HUD’s regulations, procedures, and instructions in the management of HUD’s real estate-owned properties held off market for disaster victims. Southwest Alliance generally complied with the terms of its Management and Marketing contract, with one exception. It did not effectively ensure that the disaster victims transferred the billing of property utility services into their names within seven days of occupancy, as required by the lease agreements. As a result, after occupancy by tenants, HUD paid $79,306 in utility costs for 636 leased properties during the period, from September 2, 2005 through April 25, 2006.

We recommend that the Director of HUD’s Denver Office of Single Family Homeownership Center instruct Southwest Alliance of Asset Managers, LLC to take appropriate action against the tenants who do not comply with the lease requirements over utility payments, and require Southwest Alliance to initiate collection actions against tenants to recover the $79,306 HUD paid for utility costs.

Issue Date: June 16, 2006
Audit Report No.: 2006-FW-1011
File Size: 5.26MB

Title: Premier Mortgage Funding, Inc., Austin, Texas, and Its Sponsor, JPMorgan Chase, Did Not Comply With HUD Underwriting Requirements and Did Not Meet All Quality Control Requirements

We selected Premier Mortgage Funding, Inc. (Premier), a nonsupervised loan correspondent, for audit because it’s default rate was 378 percent of the average of all lenders in the San Antonio, Texas, U.S. Department of Housing and Urban Development (HUD) jurisdiction. We focused on Premier’s Austin branch because it originated 36 of 41 loans that defaulted within the first year of origination. Our audit objectives were to determine whether Premier and its sponsors acted in a prudent manner and complied with HUD requirements in the origination of the Federal Housing Administration-insured single-family mortgages selected for review and whether their quality control plans, as implemented, met HUD requirements.

Premier and its sponsor, JPMorgan Chase Bank NA (JPMorgan Chase), did not meet HUD underwriting or quality control requirements. As a result, HUD insured 11 loans totaling $1,169,226 that the sponsor approved with inaccurate credit information. This occurred mainly because Premier and its sponsor did not ensure the accuracy of the borrower’s credit information. Further, Premier and its sponsors charged borrowers $163 in ineligible closing costs and approved 31 loans with appraisals that did not meet HUD requirements. These deficiencies increased the Federal Housing Administration insurance fund’s risk of loss. As of April 28, 2006, HUD has lost $394,110 on these loans, according to HUD’s Neighborhood Watch system.

We recommend that the assistant secretary for housing – federal housing commissioner and chairman of the Mortgagee Review Board require JPMorgan Chase to reimburse HUD $394,110 for losses incurred on six loans, indemnify HUD for six loans totaling $647,061, and buy down loans or repay HUD for other deficiencies. We further recommend that the assistant secretary require Premier and JPMorgan Chase to take action to correct quality control deficiencies and require JPMorgan Chase to ensure that appraisals meet HUD requirements. Finally, we recommend that the assistant secretary take appropriate administrative sanctions against Premier and JPMorgan Chase for entering incorrect data into the automated underwriting system and certifying its integrity.

Issue Date: May 11, 2006
Audit Report No.: 2006-FW-1010
File Size: 423.35KB

Title: Deer Creek Apartments’, Houston, Texas, Previous Management Agent Paid Itself Unsupported Fees

We conducted a review of Deer Creek Apartments (project), a Section 221(d)(4)-insured multifamily housing project, to determine whether the project's owner complied with the regulatory agreement and U.S. Department of Housing and Urban Development (HUD) regulations. The project's owner generally complied with the regulatory agreement and HUD regulations; however, the previous management agent paid itself $24,312 for unsupported expenses due to weak procurement procedures. We recommend that the director of HUD's Multifamily Housing Program Center require the owner or its prior management agent to either provide documentation to show the charges were for actual work performed and that the fees charged were reasonable and necessary or repay the expenses to Deer Creek Apartments. We further recommend that HUD determine whether the prior management agent charged other HUD-insured projects for these unsupported fees and if so, require that the same documentation be provided or the fees be repaid for these projects as well.

Issue Date: May 9, 2006
Audit Report No.: 2006-FW-1009
File Size: 582.10KB

Title: Dallas County Housing Agency, Dallas, Texas, Overhoused Tenants

We audited the Dallas County Housing Agency's (Agency) Section 8 program to determine whether it overhoused tenants, computed housing assistance payments correctly, and complied with housing quality standards. We concluded that the Agency operated its Section 8 program in compliance with HUD requirements. It computed housing assistance payments correctly and had effective controls in place to ensure that it met housing quality standards. However, it overhoused 34 tenants by granting unjustified subsidy size exceptions and unnecessarily paid $63,311 in housing assistance payments for 23 of these tenants. The Agency could avoid future losses of up to $298,013 by improving its controls over voucher assignments.

We recommended that HUD require the Agency to (1) repay ineligible housing assistance overpayments of $63,311 and (2) improve its procedures to ensure it assigns the correct subsidy size for all tenants.

Issue Date: May 8, 2006
Audit Report No.: 2006-FW-1008
File Size: 237.36KB

Title: Brazos Valley Council of Governments, Bryan, Texas, Issued Vouchers Larger Than Its Policy Allowed

We reviewed Brazos Valley Council of Governments' (Council's) Section 8 Housing Choice Voucher program to determine whether the Council properly applied the subsidy size standards in its administrative plan. We selected the Council for review based on a risk assessment and because reducing erroneous payments in rental programs is part of our strategic audit plan.

Of the 20 tenant files reviewed, the Council assigned a larger voucher size than its subsidy size standards required to 11 tenants. However, it improperly paid $552 in assistance for only two of the overhoused tenants. The Council's assignment of an improper voucher size for another nine tenants did not result in a material financial impact.

We recommend that HUD's Program Center Coordinator, Office of Public Housing, require the Council to (1) repay the ineligible housing assistance overpayment of $552, (2) develop and implement procedures to ensure it assigns the correct subsidy size for all tenants, and (3) correct the voucher size of the nine tenants identified and other incorrectly assigned vouchers to avoid future overpayments and ensure the tenants are housed in accordance with the Council's subsidy size standards.

Issue Date: March 31, 2006
Audit Report No.: 2006-FW-1007
File Size: 12.08MB

Title: BSM Financial LP Originated Loans on Overvalued Properties to Less Than Creditworthy Borrowers, Putting Borrowers and HUD at Risk

We audited BSM Financial LP (lender) because of an unusually high ratio of defaults compared to the average default rate of lenders in the U.S. Department of Housing and Urban Development’s (HUD) San Antonio, Texas, office jurisdiction. Forty-seven percent of the defaults involved one lender related seller, who owned 50 percent of the lender. We reviewed all of the defaulted loans (51 of 109) that involved this seller in the San Antonio area that closed between February 1, 2003, and January 31, 2005, and in the Austin, Texas, area that closed between January 2, 2002, and June 30, 2004. Our objective was to determine whether BSM followed HUD loan origination requirements for the 51 loans selected for review.

The lender approved mortgages on overvalued properties for borrowers that were less than creditworthy. This occurred because the lender allowed an identity-of-interest seller to add ineligible and unsupported costs to the home construction costs, and inadequately reviewed the appraisals. Also, the lender did not adequately document analyses of borrowers’ credit. Further, the lender’s processing had technical deficiencies such as not ensuring the borrowers signed off on construction draws and permitted the seller to process employment, bank, and credit verification documents. Lender officials told us they were unfamiliar with Federal Housing Administration requirements for manufactured housing loans when they first started originating such loans. Consequently, HUD and the borrowers unnecessarily incurred increased risks through higher insurance exposure and higher mortgage payments. The unqualified borrowers defaulted on their mortgage obligations.

We recommend that the Assistant Secretary for Housing – FHA Commissioner require the lender to reimburse the insurance fund $1,989,588 for foreclosure losses incurred on 19 loans, buy down 28 loans by $319,267 for the amounts added to the loans, and after the buy down, re-amortize and indemnify HUD for the $2,765,619 remaining balance on these 28 loans. In addition, we recommend that you ensure the lender implements adequate procedures to originate construction-permanent loans in accordance with HUD requirements.

Issue Date: January 26, 2006
Audit Report No.: 2006-FW-1004
File Size: 3.92MB

Title: K Hovnanian American Mortgage, LLC, Plano, Texas, Violated Underwriting Requirements and Did Not Meet All Quality Control or Branch Requirements

We audited the Plano, Texas, branch office of K Hovnanian American Mortgage Company, LLC (K Hov), part of Hovnanian Enterprises, Inc. We selected K Hov because of its high defaults, specifically defaults involving loans with one underwriter and one appraiser. K Hov is a nonsupervised mortgage company. Our audit objectives were to determine whether K Hov: (1) followed U.S. Department of Housing and Urban Development (HUD) origination requirements; (2) complied with HUD branch requirements in its Plano office; and (3) implemented a quality control plan according to HUD requirements.

K Hov violated HUD underwriting, quality control, and branch requirements. As a result, K Hov increased the risk to the insurance fund by more than $1.3 million and overcharged borrowers $31,711. This occurred because K Hov ignored or misunderstood HUD regulations including meeting all quality control and branch requirements.

We recommended that HUD's assistant secretary for housing - federal housing commissioner and chairman of the Mortgagee Review Board require K Hov to: (1) indemnify the five loans that had significant underwriting deficiencies; (2) reimburse HUD for the four loans with significant underwriting deficiencies that HUD paid off due to default; (3) reimburse borrowers or HUD, as appropriate, for unallowable closing costs; and (4) meet HUD's quality control and branch requirements.

Issue Date: December 22, 2005
Audit Report No.: 2006-FW-1003
File Size: 332.78KB

Title: The Palacios Housing Authority, Palacios, Texas, Did Not Fully Comply with HUD's Standards

We conducted a review of the Palacios Housing Authority’s (Authority) low-rent and Section 8 programs to determine whether the Authority operates the programs in accordance with U.S. Department of Housing and Urban Development (HUD) requirements. The Authority did not comply with HUD regulations because it could not fully support fund transfers between its Section 8 and its low-rent housing programs, made minor errors in its tenant files, and needed to improve its inspection process. However, the Authority’s lack of compliance did not materially affect the Authority’s housing programs, and it can easily correct its lack of compliance. We recommend HUD require the Authority to implement a budget-based approach in its operations, including using an approved documented cost allocation plan, which will result in the Authority supporting an estimated $44,657 in future fund transfers. Further, HUD should require the Authority to implement a quality control program to review all new tenant rent calculations, obtain additional inspection training, and include an exterior conditions assessment when it conducts unit inspections.

Issue Date: December 13, 2005
Audit Report No.: 2006-FW-1002
File Size: 548.59

Title: Baytown Housing Authority, Baytown, TX, Improperly Advanced, Transferred and Encumbered Its Public Housing Funds

We audited Baytown Housing Authority (Authority) due to concerns expressed by the Houston Office of Public Housing. Our objectives were to determine whether the Authority (1) advanced, transferred, or encumbered resources subject to the annual contributions contract (contract) to the benefit of other entities without U.S. Department of Housing and Urban Development (HUD) approval and (2) equitably distributed salary costs between the Authority's HUD and non-HUD activities in accordance with federal requirements.

The Authority violated its contract with HUD by inappropriately advancing, transferring, and encumbering public housing funds to support its nonprofit and related entities. For some of the transfers, the Authority's executive director knowingly altered transfer documentation. As of March 31, 2005, the Authority owed the low-rent and Section 8 programs $792,360, and it could not support an additional $134,831 in transfers and encumbrances. The improper conveyances occurred because the Authority ignored its contract requirements and its board of Commissioners did not establish sufficient controls. Further, the Authority cannot demonstrate that it equitably distributed salary costs between its HUD and non-HUD activities because it did not support salary payments with required activity reports or equivalent documentation. The Authority lacked support because its management was not aware of the federal requirements. As a result, the Authority cannot support $1.1 million in salary costs allocated to its HUD programs from April 2002 to March 2005.

We recommend that the program center coordinator, Houston Office of Public Housing (HUD), require the Authority to (1) repay its HUD programs at least $792,360 for improper advances, transfers, and encumbrances; (2) repay or provide support for $134,831 in transfers and encumbrances; (3) repay or provide documentation to support $1.1 million in salary costs allocated to its HUD programs from April 2002 to March 2005; and (4) implement procedures and controls to correct the weaknesses cited in this report. Proper procedures and controls should help ensure that the Authority puts to better use the $5,956,761 in HUD funding it will receive next year.

Issue Date: October 21, 2005
Audit Report No.: 2006-FW-1001
File Size: 1032KB

Title: Fort Worth Housing Authority, Fort Worth, TX, Did Not Properly Apply Its Section 8 Subsidy Size Standards for Existing Tenants

We audited the Fort Worth Housing Authority's (Authority) Section 8 program to determine whether the Authority properly applied the subsidy size standards in its administrative plan. We concluded the Authority had sound policies regarding assignment of tenant subsidy size. However, the Authority did not follow its policy when it neglected to change voucher sizes for as many as 382 tenants between January 2003 and March 2005. This resulted in $180,618 in ineligible and unsupported payments and potential overpayments of $521,744 over the next 3.7 years. Further, the Authority's Section 8 department enacted policy changes without approval from its board of commissioners. The Authority could better use its Section 8 funding and avoid future overpayments by strictly applying the subsidy size standards in its administrative plan, as required by U.S. Department of Housing and Urban Development (HUD) regulations.

We recommended that HUD require the Authority to repay ineligible and unsupported housing assistance overpayments of $180,618, develop and implement procedures to ensure it assigns the correct subsidy size for all tenants to better use $521,744 in Section 8 funding, and institute controls to ensure that the board of commissioners approves any program changes before being implemented.

Issue Date: September 27, 2005
Audit Report No.: 2005-FW-1018
File Size: 1.27MB

Title: Housing Authority of the City of Houston, Housing Choice Voucher Tenants and Units, Houston, TX

As part of our strategic audit plan, we audited the Section 8 Housing Choice Voucher program administered by the Housing Authority of the City of Houston (Authority). We performed the audit to determine whether the Authority complied with U.S. Department of Housing and Urban Development (HUD) regulations concerning the overhousing of tenants, correctly calculating housing assistance payments, and ensuring that tenants resided in decent, safe, and sanitary housing.

The Authority did not comply with HUD regulations because it did not effectively monitor the contractor it hired to manage its Section 8 programs. The Authority overhoused tenants, incorrectly calculated housing assistance payments, and paid assistance for tenants to reside in units that did not meet minimal decent, safe, and sanitary standards for at least one year.

The Authority terminated its contract with the contractor in October 2004 and resumed operating its Section 8 programs. It took some steps to correct weaknesses in its inspections and assistance calculation processes. However, it must implement effective controls and a monitoring system to ensure that it complies with HUD's regulations.

We recommend that HUD require the Authority to repay $7.44 million, including $2.4 million that it retained from its administrative fees and $5.04 million that it paid to the contractor for which it did not receive adequate service. We also recommend HUD require the Authority to implement internal controls and establish monitoring systems to ensure compliance with its contributions contract, which will result in more than $7.9 million in funds being put to better use.

Issue Date: September 22, 2005
Audit Report No.: 2005-FW-1017
File Size: 1.67MB

Title: Allied Home Mortgage Corporation, Houston, TX

We reviewed Federal Housing Administration loans sponsored by Allied Home Mortgage Corporation (Allied) of Houston, Texas. During an audit of a Federal Housing Administration-approved loan correspondent, we identified four loans sponsored by Allied that did not appear to be properly originated according to U.S. Department of Housing and Urban Development (HUD) regulations. Because the sponsor of the loans is ultimately responsible for loan processing deficiencies, we addressed these deficiencies to Allied to determine whether it complied with HUD requirements. Allied did not comply with HUD regulations, procedures, and instructions in the processing of four Federal Housing Administration-insured single-family mortgages.

Allied overstated the borrower's income for two loans and understated the borrower's liabilities for one loan. For all four loans, Allied did not ensure that the appraisal met HUD requirements. In addition, Allied allowed the loan correspondent to charge three borrowers a total of $1,919 in loan discount points without reducing their interest rates. As a result, the risk to the insurance fund was increased, and three borrowers incurred excessive costs for their loans.

We recommend that the Assistant Secretary for Housing - Federal Housing Commissioner take appropriate administrative action against Allied for not complying with HUD requirements. At a minimum, this should include indemnifying HUD $123,028 for one of the loans and reimbursement of the $1,919 in unearned fees. We further recommend that Allied be required to take action to improve the quality of its appraisals.

Issue Date: September 16, 2005
Audit Report No.: 2005-FW-1016
File Size: 952.03KB

We reviewed a Federal Housing Administration loan sponsored by Aegis Wholesale Corporation (Aegis) of Houston, Texas. During an audit of a Federal Housing Administration-approved loan correspondent, we identified a loan sponsored by Aegis that was not properly originated according to U.S. Department of Housing and Urban Development (HUD) regulations. Because the sponsor of the loan is ultimately responsible for loan processing deficiencies, we addressed these deficiencies to Aegis to determine whether it complied with HUD requirements.

Aegis did not comply with HUD regulations, procedures, and instructions in the processing of a Federal Housing Administration-insured single-family mortgage. The lender did not adequately support the borrower's income, the borrower's creditworthiness or the legitimacy of the appraised value of the property. The lender also charged the borrower $581 in loan discount points without reducing the borrower's interest rate. As a result, HUD insured a loan that placed the insurance fund at risk for $58,088 and the borrower incurred excessive costs for the loan.

We recommend that the Assistant Secretary for Housing - Federal Housing Commissioner take appropriate administrative action against Aegis. This action, at a minimum, should include requiring indemnification for the $58,088 loan and reimbursement of the $581 in unearned fees to the appropriate parties.

Issue Date: July 20, 2005
Audit Report No.: 2005-FW-1012
File Size: 1.02MB

Title: Housing Authority of the City of Houston Section 8 Abatement and Termination Policies and Procedures

Because the results of our housing quality standards audit of the Housing Authority of the City of Houston (Authority) indicated the Authority's Contractor may not have been following its abatement and termination policy, we initiated an additional audit. Our objective was to determine whether the Authority enforced its policy to deduct (abate) rental payments to owners and/or terminate tenants whose Section 8-assisted units repeatedly failed HQS inspections.

Neither the Housing Authority of the City of Houston, (Authority) nor its Contractor ensured that staff followed its abatement and termination policies and procedures in eight of the ten cases reviewed. Although the Authority terminated the Contractor in October 2004, similar problems could continue to occur since the Contractor's staff are now employees of the Authority. If the Authority does not improve its abatement and termination policies, procedures and practices, we estimate it will expend $1 million to $6.9 million in inappropriate Section 8 assistance. In addition, the Authority needs to revise some of its abatement and termination policies and procedures to address ambiguous and contradictory provisions, or a lack of policies and procedures.

We recommend that the program center coordinator of the Houston Office of Public and Indian Housing require the Authority to ensure that its employees follow its abatement and termination policies and procedures and impose penalties on employees if they do not. In addition, the Authority should be required to revise its abatement policies and procedures to address deficiencies.

Issue Date: May 26, 2005
Audit Report No.: 2005-FW-1010
File Size: 7.48MB

Title: Broad Street Mortgage Company, A Subsidiary of Fieldstone Mortgage Company San Antonio, TX

We audited Broad Street Mortgage Company's (Broad Street) San Antonio, Texas, branch office because of an unusually high loan default rate and as part of our 2004 Annual Audit Plan. Our objective was to determine whether Broad Street followed U.S. Department of Housing and Urban Development (HUD) loan origination requirements for the 30 loans selected for review.

Broad Street did not follow HUD loan origination requirements for minimum investment in approving 24 of the 26 loans that involved nonprofit gifts. The lender and the sellers used a gift program to circumvent the minimum investment requirements. The sellers marked up the sales prices of the homes and increased the sales contracts to cover their contribution to nonprofit downpayment assistance programs. Broad Street then approved the mortgages based on the marked up prices and questionable appraised values. This increased the borrowers' homeownership costs and risk of default, as well as HUD's risk of insurance loss.

Broad Street's quality control plan needed improvement and was not fully implemented. Broad Street stated it was behind in completing quality control reviews of delinquent loans because staff was auditing other loans in addition to those that defaulted in the first 6 months of the loan term.

We recommended that the General Deputy Assistant Secretary for Housing require Broad Street to indemnify HUD for 24 loans, reimburse the insurance fund for any of the loans reviewed that have been foreclosed, and amend and fully implement its quality control plan. Broad Street generally disagreed with our findings and said HUD approved of its practice.

Issue Date: May 24, 2005
Audit Report No.: 2005-FW-1009
File Size: 1.59MB

Title: Allied's Quality Control Process Did Not Comply with HUD Requirements, Houston, TX

We audited Allied Home Mortgage Capital Corporation (Allied), a nonsupervised loan correspondent, because of its high loan default rate. Our audit objectives were to determine whether Allied: (1) implemented a quality control plan according to HUD requirements and (2) complied with HUD regulations, procedures, and instructions in the origination of Federal Housing Administration insured single family mortgages.

Although Allied had a quality control plan that complied with HUD requirements, it did not fully implement the plan. Allied did not always review early payment defaults, perform reviews of its offices, or complete its monthly quality control reviews in a timely manner. In addition, Allied's monthly quality reviews were vague and failed to adequately address corrective actions. This occurred because Allied did not dedicate the resources necessary to operate an effective quality control program. As a result, Allied was unable to ensure the accuracy, validity, and completeness of its loan origination process.

We also found Allied did not follow HUD requirements when originating the 20 Federal Housing Administration mortgages reviewed. Because Allied's Federal Housing Administration sponsors are ultimately responsible to HUD for these deficiencies, we will address them to the appropriate sponsors in separate reports. We recommended that HUD's general deputy assistant secretary for housing ensures that Allied fully implements its quality control program and takes appropriate administrative actions to include civil money penalties.

Issue Date: March 29, 2005
Audit Report No.: 2005-FW-1007
File Size: 1.42MB

Title: Housing Authority of the City of Houston’s Contractor, Houston, TX, Did Not Ensure Section 8 Assisted Units were Decent, Safe, and Sanitary

As part of the Office of Inspector General's (OIG) Annual Audit Plan focus on Section 8 Rental Assistance Programs, we audited the Housing Authority of the City of Houston (Authority's) Section 8 Housing Choice Voucher Program. Our audit objective was to determine whether the Authority's Contractor was performing inspections to ensure Section 8 Housing Choice Voucher assisted units were decent, safe, and sanitary before tenants moved in and annually thereafter as U.S. Department of Housing and Urban Development (HUD) and Authority policies required.

In most cases, the Authority's Contractor performed annual and initial inspections as required. However, since a majority, 88 out of 118 units, failed our Housing Quality Standards inspections, the Contractor's inspections did not ensure the units were decent, safe, and sanitary. The significant failure rate occurred because the Contractor appeared to be more focused on performing a large quantity of inspections than on the quality of those inspections.

Projecting the results of the statistical sample to the population indicates at least 9,088 of the Authority's 13,524 units do not meet standards. In addition, our inspections showed that 39 of the 88 units had either uncorrected items from previous inspections or conditions that had existed for more than a year. Thus, our results indicate the Authority expended $26.1 million on 3,503 units, which have failed items that have existed for a year or more. Further, since the Authority's Contractor did not ensure the units met standards, its tenants lived in units that were not decent, safe, or sanitary.

We recommend that the Program Center Coordinator, Houston Office of Public Housing (HUD) require the Authority to ensure all 88 failed units we identified meet standards. Further, the Authority needs to inspect all of its remaining units within the next 12 months to ensure those units also meet standards since our results indicated at least 67 percent will not. If the units cannot be made decent, safe, and sanitary, the Authority should either abate the rent or terminate the tenant's voucher. If the Authority corrects its inspection program, it will avoid paying an estimated $26.1 million on indecent, unsafe, and unsanitary units in the next year.

Issue Date: March 29, 2005
Audit Report No.: 2005-CH-1007
File Size: 635.06KB

Title: RBC Mortgage Company, Non-supervised Mortgagee; Houston, TX; Improper Submission of Late Requests for Endorsement Increased the Risk to Insurance Fund

The U.S. Department Housing and Urban Development's (HUD) Office of Inspector General audited RBC Mortgage Company (also known as Prism Mortgage), a non-supervised mortgagee 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 2004 Annual Audit Plan. We selected RBC Mortgage Company for audit because of its high late endorsement rate. Our audit objective was to determine whether RBC Mortgage Company complied with HUD’s regulations, procedures, and instructions in the submission of insurance endorsement requests.

RBC Mortgage Company did not always comply with HUD’s requirements on late requests for insurance endorsement. RBC Mortgage Company and its contractor submitted 170 late requests for insurance endorsement out of 5,123 loans tested. The loans were either delinquent or otherwise did not meet HUD’s timely payment requirements. RBC Mortgage Company and/or its contractor also incorrectly certified that mortgage and/or escrow accounts were current. RBC Mortgage Company lacked adequate procedures and controls to ensure that it and the contractor’s employees followed HUD’s requirements regarding late requests for insurance endorsement. These improperly submitted loans increased the risk to the Federal Housing Administration insurance fund.

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

• Require RBC Mortgage Company to indemnify HUD for any future losses on 138 loans with a total mortgage value of $16,282,212 and take other appropriate administrative actions up to and including civil money penalties.

We recommend that HUD’s Director of Departmental Enforcement Center, in consultation with the Assistant Secretary for Housing-Federal Housing Commissioner and Chairman of the Mortgagee Review Board, take appropriate administrative action against the principals of RBC Mortgage Company based on the information in this report.

We recommend that HUD’s Associate General Counsel for Program Enforcement determine legal sufficiency, and, if legally sufficient, pursue remedies under the Program Fraud Civil Remedies Act against RBC Mortgage Company’s employees and/or its contractor (Financial Dimensions, Incorporated), and/or their principals for incorrectly certifying that the mortgage accounts for 2 loans were current and no late charges were assessed, and the escrow accounts for taxes, hazard insurance premiums, and mortgage insurance premiums were current for 37 loans submitted for Federal Housing Administration insurance endorsement when, in fact, the mortgage and escrow accounts were not current at submission.

Issue Date: March 25, 2005
Audit Report No.: 2005-FW-1006
File Size: 992.57KB

Title: Housing Authority of the City of Houston Section 8 Housing Assistance Payments Houston, TX

As part of our Strategic Audit Plan, we audited the Section 8 Housing Choice Voucher Program, administered by the Housing Authority of the City of Houston (Authority). We designed the audit to determine whether the Authority's Contractor correctly calculated housing assistance payments and to determine the effect if the Contractor calculated the payments incorrectly.

The Authority's Contractor did not correctly calculate or support its calculations of Section 8 housing assistance payments. Our projection of the results of a statistical sample showed the Authority's Contractor made errors in at least 7,168 of its 13,732 Housing Choice Voucher files over a 13-month period. Due to the Contractor's errors, the Authority overpaid at least $1.1 million and underpaid at least $115,000 in Section 8 assistance. The Authority did not detect or prevent the errors because it did not properly monitor its Contractor and relied on the Contractor to police itself. The Authority terminated its contract with the Contractor in October 2004. However, if the Authority does not implement controls and procedures to prevent similar errors, it will overpay and underpay at least an additional $1 million in incorrectly calculated housing assistance payments over the next 12 months.

We recommend that the U.S. Department of Housing and Urban Development (HUD) require the Authority to review all of its Section 8 Housing Choice Voucher files and correct any errors that have occurred. HUD should require the Authority to repay the $13,227 that we identified as ineligible payments and pay the tenants the $1,680 that we identified as underpaid assistance based on our sample file reviews. Also, HUD should require the Authority, based on its file reviews, to either support the projected $1,140,915 that we identified as unsupported payments or repay those Section 8 funds to HUD and support the projected $113,680 that we identified as assistance underpayments or pay those Section 8 funds to the tenants. Finally, HUD should require the Authority to implement controls to prevent future housing assistance payment errors, which we project to be at least $1 million per year.

Issue Date: January 28, 2005
Audit Report No.: 2005-FW-1004
File Size: 1.65MB

Title: American Property Financial, Nonsupervised Loan Correspondent,
San Antonio, TX

We audited American Property Financial (American), a nonsupervised loan correspondent approved to originate Federal Housing Administration mortgage loans under the U.S. Department of Housing and Urban Development's (HUD) Single Family Direct Endorsement Program. American originated 83 Federal Housing Administration loans between February 1, 2002, and January 31, 2004. As of February 23, 2004, 14 of the 83 loans were in default status. Synergy Mortgage, Inc. had underwritten the 14 loans. We reviewed 39 loans originated by American and underwritten by Synergy Mortgage, Inc. Our audit objectives were to determine whether American: (1) complied with HUD's regulations, procedures, and instructions in the origination of Federal Housing Administration-insured mortgages and (2) implemented a quality control plan according to HUD's requirements.

American failed to originate Federal Housing Administration-insured loans in accordance with HUD requirements. American used gift funds to pay delinquent debts, rolled delinquent debts into mortgage loans, and submitted loans for unqualified applicants. American used inflated or poor appraisals to increase the sales price to accommodate the incentives to purchase. As of February 23, 2004, 14 of the loans totaling $1,368,257 were in default status. The deficiencies resulted from American's failure to follow HUD's requirements, its failure to implement an adequate quality control plan, and its lack of supervision over its loan officers. These deficiencies contributed to the high default rate, putting at risk 34 loans totaling more than $3.3 million in insured loans.

We recommended HUD's Assistant Secretary for Housing-Federal Housing Commissioner and Chairman of the Mortgagee Review Board require Synergy Mortgage, Inc., American's sponsor on the loans, to indemnify HUD against losses on the 34 loans and reduce the loans that received incentives to buy disguised as gift funds. American needs to establish controls to ensure that personnel are knowledgeable of HUD procedures and supervision is adequate to maintain an effective operation. Additionally, HUD should take appropriate administrative action(s) against parties involved.

Issue Date: November 19, 2004
Audit Report No.: 2005-FW-1002
File Size: 1.17MB

Title: Domicile Property Management, Inc. Multifamily Management Agent
San Antonio, TX

In violation of the properties' regulatory agreements, Domicile diverted property income totaling $771,103 to pay its own expenses and paid $1,469,926 from property accounts without documentation to show the payments were for necessary and reasonable operating costs. Further, Domicile did not abide by the 1995 settlement agreement for a previous HUD claim, involving project overcharges during 1992 and 1993. Under that agreement, Domicile paid $272,113 but did not report and pay an additional $49,262 for self-funded health insurance. Because of Domicile's current diversions and failure to pay the previous settlement obligation, they deprived the properties of operating funds reducing HUD's security interests and increasing HUD's risks.

Issue Date: November 2, 2004
Audit Report Memorandum:2005-FW-1801
File Size: 228.3KB

Title: Audit of Highland Meadows Apartments, Federal Housing Administration 112-11106
Dallas, TX

We performed an audit survey at Highland Meadows Apartments, a HUD insured multifamily complex. Based upon the results of the survey, we determined there was not a need to perform further audit work. HUD's Departmental Enforcement Center recommended the audit due to the problems with another HUD insured multifamily owned by this owner.

Our audit survey objectives were to determine the owner's performance relating to (1) Appropriate use of project funds and (2) Maintaining the property in a satisfactory physical condition in accordance with the Department of Housing and Urban Development's (HUD) Uniform Physical Condition Standards. We did not complete all audit procedures associated with the objectives.

We concluded the following reportable conditions. The owner (1) paid $68,000 to an unapproved identity-of-interest management company; (2) took $45,000 in distributions when the property was not in good repair and in a non-surplus cash position; (3) paid $10,556 to other identity-of-interest entities; (4) paid $870 in ineligible expenses; and (5) maintained the property in poor condition.

We recommended HUD's Director, Multifamily Program Center in Fort Worth seek reimbursement from the owner for the $124,426 in ineligible disbursements and payments. Also, we recommended HUD's Director of Departmental Enforcement Center impose sanctions against the owner as appropriate, including debarment and civil and/or criminal money penalties.

Issue Date: September 29, 2004
Audit Report No.: 2004-FW-1010
File Size: 1.97MB

Title: Housing Choice Voucher Subsidy Standards, Housing Authority of the City of Houston, Houston, TX

The Housing Authority of the City of Houston (the Authority) paid Section 8 Housing Choice Voucher funds for tenants to live in larger units than the Authority's policy allowed. Testing showed the Authority overpaid at least $797,280 to improperly house at least 352 Section 8 tenants between January 2002 and May 2004. Statistical testing identified $172,193 in actual ineligible overpayments and a minimum of $625,087 in projected overpayments. In addition, the Authority could overpay more than $3.2 million over the next 3.7 years if it does not implement controls to stop the overpayments. The Authority made the overpayments because its Contractor chose not to follow the Authority's policies to avoid increasing its already backlogged workload. The Authority's monitoring, which should have detected and prevented the improper payments, was not sufficient to do so.

We recommend that HUD require the Authority to comply with the unit size limitations in its Administrative Plan. We also recommend that HUD require the Authority to:

• Repay $172,193 in identified Section 8 overpayments;
• Review other identified tenants potentially living in units larger than the Authority's policy allows and repay any ineligible Section 8 assistance, which we project to be at least $625,087; and
• Implement controls to avoid future estimated overpayments of $3.2 million over the next 3.7 years.

Issue Date: June 4, 2004
Audit Memorandum No. 2004-FW-1802
File Size: 404KB

Title: San Antonio Housing Authorithy
HOPE VI Program
San Antonio, Texas

In response to a Congressional request to review allegations concerning the Mirasol and Springview HOPE VI projects, we conducted a review to determine: (1) whether inferior workmanship and substandard materials were used in construction of Mirasol single family homes; (2) whether the land on which Mirasol is built contains pollutants and caused residents' illnesses; (3) how the Authority awarded the single family contract for Mirasol; and (4) whether the Authority properly accounted for Mirasol and Springview expenditures.

We found that although some construction methods sounded substandard, they met San Antonio building codes and were consistent with acceptable industry practice in the area. We also found the Authority had planned to build on a former landfill but after testing the site the Authority officials decided to change the plans. The Authority has entered into a cleanup agreement with the State of Texas. The Texas Commission on Environmental Quality (Commission) has investigated the site, and based on tests to date, the residents of the project are not threatened as long as they use City water and do not use ground water. Our audit did disclose that Authority limited competition when awarding the contract for the Mirasol development. Further, the Authority inappropriately incurred $1,861,852 in HOPE VI funds to design part of the Mirasol development on land that had previously been used as a public landfill; cannot support $2,022,977 in payroll expenses; and overpaid the Joint Venture $10,612 in overhead and profit on change orders.

Issue Date: March 26, 2004
Audit Report No.: 2004-FW-1004
File Size: 2.26MB

Title: Financial Management of HUD Programs, Housing Authority of the City
of Corpus Christi
Corpus Christi, Texas

At the request of the Director of Public Housing, we conducted an audit of the Housing Authority of Corpus Christi, Texas (the Authority). The objectives of the audit were to determine whether the Authority used funds in accordance with HUD requirements under the Low Rent, Section 8, Drug Elimination, and Resident Opportunity and Self Sufficiency (ROSS) Programs. In addition, our objectives were to determine if the Authority allocated common costs equitably among its federal and non-federal programs and if they complied with its new procurement policy adopted in February 2003. The Authority had implemented and complied with its new procurement policy and HUD procurement requirements. However, the Authority violated HUD program requirements by spending $4,052,302 in HUD funds for ineligible and questionable purposes. The Authority management used $1,031,872 in HUD program funds for unauthorized purposes and cannot support $3,020,430 in arbitrary payroll allocations and other program costs. The unauthorized and unsupported costs charged to HUD programs included costs to develop a housing project of an affiliated nonprofit entity and arbitrary allocations of administrative costs.

During the audit, the Authority officials indicated they took action to address our concerns by implementing cost allocation plans and timekeeping procedures to properly allocate salaries and benefits. In addition, the Authority paid back to HUD programs or recorded interfund payables for $488,810 of the unallowable costs we identified for nonprofit activities and common cost allocations. The Authority still needs to repay HUD programs any remaining ineligible costs and provide satisfactory support to HUD for all questioned costs.

Issue Date: February 26, 2004
Audit Report No.: 2004-FW-1002
File Size: 976.2

Title: Jester Trails Apartments
Project Number FW 03 0014
Houston, Texas

We completed an audit of Jester Trails Apartments, a Section 221(d)(4) insured multifamily housing project. The objective of our audit was to review the operations of the owner-managed project and determine whether the project’s owner complied with the Regulatory Agreement and HUD regulations.

Although the owner maintained the property in satisfactory condition, it did not comply with several provisions of the Regulatory Agreement and other HUD regulations. Specifically, the owner failed to maintain the books and records of the project. Thus, the owner cannot show it deposited rental receipts intact. In addition, the owner paid $55,475 for ineligible and unsupported personal expenses with the project’s operating funds. The owner also improperly obtained and used project funds to pay $42,431 for a personal promissory note. Further, the owner received $32,254 in excess of the allowed management fee. Finally, the owner misused $24,127 in tenant security deposit funds. All of these violations occurred because the owner disregarded HUD’s requirements.

The owner’s payments of ineligible and unsupported expenses depleted the project’s operating funds. Currently, the project is in default. However, the lender has indicated it wishes to prepay the mortgage to avoid a claim.

We recommend HUD allow the lender to prepay the mortgage freeing the $2.13 million loan balance for better use. Further, HUD should require the owner to reimburse the project for the ineligible use of project funds totaling $140,073. HUD should also obtain documentation for the unsupported expenses of $14,214 and recover from the owner for the project any costs determined to be unallowable. If the owner does not repay the project for improper diversions of property funds, HUD should take civil action and other prescribed remedies. In addition, HUD should take administrative action against the owner and its members to prevent them from managing this or another HUD property.

Issue Date: July 3, 2003
Audit Memorandum No.: 2003-FW-1806
File Size: 774KB

Title: Colonial Oaks
Project Number 114-11132
Houston, Texas

Based on a recommendation from Houston Multifamily staff, we conducted a review of Colonial Oaks Apartments (Colonial Oaks). The objective of the review was to determine whether Colonial Oaks' owners operated the project in accordance with HUD requirements. Specifically, we determined whether the owners (1) established and maintained adequate written policies, procedures, financial books and records; (2) used project funds appropriately; and (3) maintained the property in a satisfactory physical condition.

Issue Date: May 23, 2003
Audit Memorandum No.: 2003-FW-1804
File Size: 1.89MB

Title: Congressional Request Housing Authority of the City of San Angelo,
San Angelo, Texas

In response to a Congressional request, we performed a limited review of the Housing Authority of the City of San Angelo (Housing Authority). Specifically, our objectives were to determine: (1) whether a conflict of interest existed between the Housing Authority's rental of apartments to San Angelo Colt Baseball players; (2) whether the Assistant Executive Director had a conflict of interest with a vendor, Hard Drive Café; (3) whether the Housing Authority took appropriate steps to remediate mold at the Cedar Crest Knickerbocker (Knickerbocker) complex; and (4) the events surrounding the construction of elderly duplexes costing $500,000 that were appraised at $324,000. Because the findings affect both Public Housing and Community Planning and Development (CPD), we have addressed this memorandum to both program directors.

Issue Date: April 28, 2003
Audit Report No.: 2003-FW-1004
File Size: 1.75MB

Title: Spanish Village Community Development Corporation Upfront Grant and Home Loan, Houston, Texas

In response to a Citizen's complaint, we conducted an audit of the Upfront Grant and the Home Loan provided to the Spanish Village Community Development Corporation (SVCDC) in Houston Texas. The Complainant alleged wrongful expenditures of government funds, violations of the grant and loan agreements, failure by HUD and the City of Houston to follow Upfront Grant and HOME loan guidelines, and political influence that prevented HUD from declaring the SVCDC in default of the agreements. Our primary objective was to determine whether the allegations were valid. Specifically, our objectives were to determine whether: (1) there were wrongful expenditures of government funds by any party involved in the SVCDC renovation project; (2) the SVCDC's performance complied with its agreement; (3) HUD executed and monitored the sale and Upfront Grant properly and in accordance with guidelines, (4) the City of Houston complied with its obligations for monitoring the HOME loan, and (5) there was political influence or involvement that limited HUD's ability to ensure completion of the renovations.

Issue Date: March 17, 2003
Audit Report No.: 2003-FW-1003
File Size: 1.80MB

Title: City of Dallas' Mortgage Assistance Program HOME Investment Partnerships Program, Dallas, Texas

We audited the City of Dallas' Mortgage Assistance Program, which it operated using funds from the HOME Investment Partnerships Program (HOME). The City contracted with Enterprise, a nonprofit organization, to run the program. The purpose of our audit was to ensure the City used HOME funds for its Mortgage Assistance Program for only eligible homebuyers.

Overall, the City and Enterprise operated the Mortgage Assistance Program within HUD HOME requirements. However, Enterprise did not properly follow the more restrictive eligibility rules the City established for program participants. This occurred because Enterprise mistakenly relied on lenders to verify participant eligibility and did not verify information lenders provided. The City's monitoring did not identify this error. As a result, a significant number of participants received benefits in excess of what the City intended.

We recommend HUD require the City of Dallas to require Enterprise to revise its control procedures to scrutinize income and family size information and to repay its HOME account $34,890 unless it can provide documentation to support the eligibility for two homebuyers. We further recommend HUD require the City's Housing Department and Office of the City Auditor to revise their monitoring programs to include testing to ensure homebuyers' income and family size meet HOME regulations.

Issue Date: January 17, 2003
Audit Report No.: 2003-KS-1004
File Size: 969KB

Title: First Horizon Home Loans Non-Supervised Direct Endorsement Lender Irving, Texas

We have completed an audit of First Horizon Home Loans, a non-supervised direct endorsement lender approved to originate Federal Housing Administration insured loans. We selected First Horizon for audit because of its high number of late endorsements. Our audit objective was to determine if First Horizon requested late endorsements for loans that had late payments prior to submission.

First Horizon Home Loans improperly submitted 438 loans totaling over $48 million for endorsement more than 60 days after closing when the borrowers had delinquent payments prior to submission. Although First Horizon incorporated HUD's late submission requirements into its procedures, it did not ensure that its employees always followed them. Since these loans are insured by the Federal Housing Administration, they increase the risk to its insurance fund. As of September 30, 2002, HUD paid claims on 15 of the loans and has experienced a loss of $83,050 on the 3 properties that have been sold. We recommended that HUD seek indemnification for the 423 active and claim loans (15 had already been terminated).

Issue Date: January 9, 2003
Audit Memorandum No.: 2003-FW-1802
File Size: 141KB

Title: Sale of Hargest College
City of Houston CDBG, Houston, Texas

In response to an anonymous complaint, we reviewed the sale of Hargest College (College) in Houston, Texas. The complaint alleged the sale of the College by the City of Houston (City) to Midtown Redevelopment Authority (Midtown) was for substantially less than fair market value. It was also alleged the director of Midtown purchased the property for less than fair market value due to political contributions for, and jobs provided to family members of the Mayor of the City of Houston (Mayor). The complaint also alleged the City obtained a $1.1 million dollar HUD grant to renovate the College under false pretenses and the City actually spent the funds on other properties. Our objectives in performing the review were to determine: (1) if the property was sold at less than fair market value; (2) if the sales price was based on other than an arms length transaction; and (3) if the $1.1 million grant was obtained under false pretenses.

Issue Date: November 18, 2002
Audit Memorandum No.: 2003-FW-1801
File Size: 168KB

Title: Wood Hollow Place Apartments Project Number 114-11183 Texas City, Texas

We completed a review of Wood Hollow Place ApartmentS. The objective of our review was to determine whether expenditures and disbursements complied with the terms and conditions of the Regulatory Agreement and other HUD requirements. Because the project experienced cash flow problems, the management agent did not follow the Regulatory Agreement and other HUD regulations. As a result, the management agent: (1) improperly paid advances, loans and other fees totaling $223,373 and (2) paid $27,684 in ineligible and $7,500 in unsupported expenses. In addition, the management agent improperly used tenant security deposits funds to fund project operations. These improper payments weakened the project's financial condition and put the project at risk of default.

Issue Date: August 21, 2002
Audit Report No.: 2002-FW-1805
File Size: 320KB

Title: Texas Tenant's Union Incorporated Outreach and Training Assistance Grants and Public Entity Grant Dallas, Texas

We performed an audit of Texas Tenant's Union's two Outreach and Training Assistance Grants (OTAG) and a Public Entity Grant. Congress required our office to audit each provision of technical assistance obligated under the requirements of Section 514 of the Multifamily Assisted Housing Reform and Affordability Act of 1997 over the last 4 fiscal years. Under Section 514, HUD provided the funding for the Texas Tenant's Union grants that we audited.

Our objectives were to determine whether the Texas Tenant's Union used its grant funds for only eligible activities and to determine whether it expended the funds for any lobbying activities.

Overall, the Texas Tenant's Union used its grants for eligible activities. However, the Texas Tenant's Union supported the National Alliance of HUD Tenants by attending annual conferences. Although the National Alliance of HUD Tenants provided training opportunities it also performed lobbying activities. Also, the Texas Tenant's Union inadvertently claimed a minimal amount in ineligible and unsupported costs.

Issue Date: January 11, 2002
Audit Report No.: 2002-FW-1001
File Size: 1448KB

Title: Houston/Harris County/Coalition for the Homeless Continuum of Care Houston, Texas

We audited the Houston/Harris County Continuum of Care (Continuum) 1996 and 1997 grants. Our audit objectives were to determine whether the Continuum had adequate management controls to ensure that it: (1) developed a strategic plan that fairly represented the community's needs; (2) had a representative membership; (3) had a fair funding process; (4) held its members accountable for their performance; and (5) tracked participant progress.

Our audit concluded the Continuum had adequate management controls to ensure it: (1) developed a strategic plan that fairly represented the community's needs; (2) had a representative membership; and (3) had a fair funding process. However, the Continuum did not administer its Continuum of Care Programs according to the terms and conditions of its consolidated applications. Specifically, it did not have sufficient management controls to measure its members' performances and to gather, track, record, and report critical program data.

Issue Date: December 4, 2001
Audit Memorandum No.: 2002-FW-1801
File Size: 214KB

Title: Citizens’ Complaint Housing Authority of the City of Lockhart Lockhart, Texas

At the request of the Senior Community Builder of the HUD San Antonio Office, we completed a limited review of the Housing Authority of the City of Lockhart, Texas. The Senior Community Builder received a complaint from a former employee of the Housing Authority who alleged:

1.The Housing Authority wrongfully terminated the complainant and offered the equivalent of "hush money" to keep her from exposing wrongdoing at the Housing Authority.

2.A maintenance man owns a private business, which he operates on Housing Authority time.

3.Family members of Housing Authority employees are paid to perform "odd jobs" for the Housing Authority.

4.Family members of Housing Authority employees and Board Members have custody of Housing Authority cell phones.

5.Multifamily properties are purchasing supplies and billing them to the Housing Authority.

6.The Housing Authority used Housing Authority paint to paint a private property.

7.The Housing Authority purchased its vehicles from a company owned by the Chairman of the Board. We concluded that three of the seven allegations are valid. During our review, we also noted weaknesses that we believe warrant reporting. These weaknesses are disclosed in the finding in Attachment A. The following are the results of the review of each allegation.

Issue Date: September 21, 2001
Audit Report No.: 2001-FW-1006
File Size: 1,537KB

Title: Dallas Homeless Consortium Continuum of Care Dallas, Texas

As a part of a nationwide review of HUD’s Continuum of Care Program, we audited the Dallas Homeless Consortium. Our objectives were to determine whether the Consortium: (1) fairly represented the needs of the community; (2) achieved broad participation; (3) held members accountable for their performance; and (4) tracked the progress of programs and participants.

Our audit concluded the Consortium has a broad-based membership that provided fair representation of the community. However, the Continuum of Care applications filed by the Homeless Consortium contain inaccurate information and overstate its achievements. The peer review process, used to determine the priority order of the projects contained in the consolidated application, was ineffective and may have allowed unsuccessful programs to receive higher priority than was appropriate. In addition, the Consortium had no means of tracking or monitoring its participants or programs. We also have concerns that in its role as lead agency of the Consortium, the City of Dallas did not provide the organization with the leadership and guidance necessary for the Consortium to become successful.

Issue Date: August 21, 2001
Audit Memorandum No.: 2001-FW-1808
File Size: 167KB

Title: Citizen Complaint, HUD Takeover of the Beaumont Housing Authority, Beaumont, Texas

We were unable to substantiate the overall complaint that the Authority had been singled out and HUD’s takeover was politically motivated. HUD assumed control of the Authority in late 2000 after finding it in substantial default of its Annual Contributions Contract (ACC). Since the takeover occurred, HUD contracted with Price Waterhouse Coopers to conduct a comprehensive review. Price Waterhouse Coopers confirmed that substantial problems existed in the Authority’s Homeownership and Section 8 Programs. These two issues alone support HUD’s finding of substantial default. However, HUD’s lack of monitoring at the Authority contributed to or exacerbated some of the problems that existed. In HUD’s defense though, the Authority’s high Public Housing Management Assessment Program (PHMAP) scores placed the Authority low on HUD’s monitoring schedule. Further, once HUD became aware of problems at the Authority, HUD took action that ultimately resulted in HUD declaring the Authority in substantial default.

Our audit concluded the Consortium has a broad-based membership that provided fair representation of the community. However, the Continuum of Care applications filed by the Homeless Consortium contain inaccurate information and overstate its achievements. The peer review process, used to determine the priority order of the projects contained in the consolidated application, was ineffective and may have allowed unsuccessful programs to receive higher priority than was appropriate. In addition, the Consortium had no means of tracking or monitoring its participants or programs. We also have concerns that in its role as lead agency of the Consortium, the City of Dallas did not provide the organization with the leadership and guidance necessary for the Consortium to become successful.

Issue Date: August 17, 2001
Audit Memorandum No.: 2001-FW-1807
File Size: 323KB

Title: Community Housing Fund, Nonprofit Participation in FHA Single Family Insurance Program, Irving, Texas

As part of a nationwide audit of the Federal Housing Administration’s (FHA) Single Family Insurance Program, we audited Community Housing Fund’s purchase of Real Estate Owned (REO) properties. Our objectives were to determine whether Community Housing Fund was legitimate and independent (not under the influence, control, or direction) of other parties and passed on the benefits of discounts received on the purchase of HUD homes to low- and moderate-income homebuyers.

Our audit concluded Community Housing Fund did not meet HUD’s affordable housing program’s objectives and Community Housing Fund received excess profits from the resale of properties obtained under the affordable housing program.

Issue Date: June 29, 2001
Audit Memorandum No.: 2001-FW-1806
File Size: 70KB

Title: Citizens’ Complaint, Housing Authority of the City of Edinburg, Edinburg, Texas

We completed a limited review of the Housing Authority of the City of Edinburg (Authority) because of a request for audit assistance from our Office of Investigations who had received a complaint from concerned citizens. The complaint included allegations of missing assets and records and abusive management practices at the Authority. The allegations involved various HUD programs including: Low Rent, Comprehensive Grants, Public Housing Drug Elimination Grants, Section 8 Voucher, Section 8 Certificate, and Section 8 Moderate Rehabilitation Programs. The complaint alleged the Authority staff:

Used the Authority’s Tax Exempt Certificate to purchase personal vehicles;

Bypassed the Section 8 waiting list to provide housing for friends and relatives;

Housed friends in Low Rent units at zero or reduced rents;

Housed employees in Low Rent units at reduced rents;

Paid landlords, who are friends, higher than authorized rents for Section 8 Moderate Rehabilitation units;

Failed to maintain an inventory of equipment purchases in the Public Housing Drug Elimination Program;

Took equipment from the Public Housing Drug Elimination Program; and

Transferred money from the Public Housing Drug Elimination Program to a personal account.

We concluded that the allegations are not valid. Vehicle history records show that the Authority registered all the vehicles purchased with the Tax Exempt Certificate. The vehicles are included in the Authority’s vehicle inventory. Our review of the Low Rent and Section 8 Programs did not indicate that the Authority bypassed people on the waiting list or paid or charged inappropriate rents to friends, relatives, or employees. We were also able to account for the cash, equipment, and assets related to the Public Housing Drug Elimination Program. However, during the review, we found that the Authority did not maintain a control system to ensure adequate safeguards for equipment. The Authority has already taken steps to address our concerns. During our review, the Board of Commissioners adopted a policy to capitalize and inventory equipment. We are recommending HUD to follow-up on the policy implementation to ensure the adequacy of controls over equipment. We provided a draft and had an exit conference with the Authority on May 9, 2001. The Authority agreed with our finding.

Issue Date: May 25, 2001
Audit Report No.: 2001-FW-1004
File Size: 7,813KB

Title: Community Development Block Grant Section 108 Loan Program, City of San Antonio, San Antonio, Texas

We conducted an audit of the City of San Antonio’s Community Development Block Grant (CDBG) Section 108 Loan Program to determine whether the City and its subrecipient, the Greater Kelly Development Authority, expended CDBG Section 108 loan funds for eligible activities in accordance with HUD regulations. We found that responsible City staff seemed unfamiliar with CDBG regulations and had not taken adequate steps to ensure compliance with applicable low- and moderate-income benefit and procurement requirements.

Issue Date: April 27, 2001
Audit Memorandum No.: 2001-FW-1805
File Size: 653KB

Title: Harris County, Supportive Housing Grant – TX21B971306, Houston, Texas

Title IV of the Stewart B. McKinney Homeless Assistance Act authorized the Supportive Housing Program. HUD designed the program to promote the development of supportive housing and services, including innovative approaches to assist homeless persons in the transition from homelessness, and to promote the provision of supportive housing to homeless persons to enable them to live as independently as possible.

In November 1999, HUD contracted with ABT Associates Inc. (ABT) to provide on-site assessment of the operations and technical assistance needs of its homeless assistance projects. As part of this review, ABT visited the Campus on April 18 and 19, 2000. In its review, ABT touted the Campus’ success in accomplishing six of its seven performance goals. For example, ABT reported that 79 percent of the participants successfully completed the Program and secured permanent housing in less than 6 months. It also reported that 95 percent of Program graduates remained in permanent housing for at least 1 year after graduation. However, ABT based its conclusions on data from the Campus’ annual progress report and staff interviews. ABT did not substantiate the veracity of the annual progress report or interviews by alternative means. ABT identified weaknesses in participant rent charges, fair market rents, and lack of documentation for discharge plans and follow-up. Yet, ABT only recommended technical assistance in the area of determining appropriate rents and rent contributions. Therefore, ABT’s assessment that the Program exceeded its performance goals differs from our audit findings.

We recommend that HUD:

1A. Require the County to only count as successful graduates those participants that complete the Program.

1B. Require the County to ensure that employees capture required data when participants leave the Program and in follow-up contact with previous participants.

1C. Require the County and the Campus to bring the units into compliance with its habitability standards.

1D. Determine rents that are reasonable and require the County to reimburse the grant for any excess rent paid.

1E. Require the County to monitor the Campus to ensure proper administration of its Program.

1F. Require the County to follow rent income guidelines for participant rent payments.

1G. Require that the County timely reimburse the Campus for eligible expenditures. HUD should also deobligate any grant funds not expended as of September 30, 2001.

Issue Date: March 9, 2001
Audit Memorandum No.: 2001-FW-1803
File Size: 86KB

Title: AIDS Foundation Houston, Inc., Supportive Housing Grant TX21B97-1304, Houston, Texas

As part of a nationwide review of HUD’s Continuum of Care Program, we audited AIDS Foundation Houston, Inc.’s (Foundation) 1997 supportive housing program grant #TX21B97-1304. Our audit objectives were to determine whether the Foundation: (1) maintained adequate management controls; (2) implemented its grant in accordance with its application; (3) expended funds for eligible activities under federal regulations and applicable cost principles; (4) maintained evidence of measurable results; (5) leveraged HUD funds adequately; (6) expended funds timely; (7) expended funds for leasing in compliance with federal regulations; (8) met the federal requirements for supportive service costs; and (9) met the federal requirements for operating costs.

Our audit concluded that, while the Foundation and its Partners generally implemented grant activities consistent with its grant application, it expended funds for ineligible and unsupported activities and did not comply with federal cost requirements. The Foundation maintained evidence of measurable results, leveraged HUD funds adequately, expended funds timely, and met federal requirements related to leasing. Additionally, the Foundation provided sufficient technical assistance to its Partners and reviewed their single audit reports and monthly expense reports.

However, of the $397,395 grant funds audited, the Foundation expended $69,369 on ineligible or unsupported activities. The Foundation reimbursed Building Lives Offering Community Knowledge (the BLOCK), a Partner, $14,888 in ineligible payroll, office supplies, telephone costs, and mileage costs. The ineligible costs included $13,090 that the BLOCK charged to two grants. Additionally, the Foundation reimbursed the BLOCK $27,203 for unsupported payroll, office supplies, telephone, and mileage costs.

Issue Date: February 13, 2001
Audit Memorandum No.: 2001-FW-1802
File Size: 69KB

Title: Greater Dallas Council on Alcohol and Drug Abuse Supportive Housing Grant TX21B970908, Dallas, Texas

As part of a nationwide audit of HUD’s Continuum of Care Program, we reviewed the Supportive Housing grant awarded to the Greater Dallas Council on Alcohol and Drug Abuse (Council). Our objectives were to determine whether the Council:

1.Implemented the grant in accordance with federal regulations and its grant agreements;

2.Expended funds for eligible activities under federal regulations and applicable cost principles;

3.Maintained accurate and adequate evidence of measurable results;

4.Administered a sustainable program; and

5.Expended funds timely.

To accomplish our objectives, we interviewed HUD and Council officials; reviewed the grant application, grant agreement, technical submission, and Annual Progress Report. We also analyzed financial and participant records. We selected a judgmental sample of financial transactions and participants for our audit. The sample of financial transactions included all salary and benefit costs associated with the grant. We selected 16 of the 78 individuals assessed by the Council from October 1998 through April 2000.

Our review concluded the Council’s activities were consistent with its application. However, the Council included $28,892 in ineligible and/or unsupported costs in grant drawdowns. These costs included costs not directly associated with the provision of supportive services and a portion of a director’s salary. Due to the Council’s goals and lack of coordination of other members of the Homeless Consortium in Dallas (Consortium), the Council did not report on its goals. Furthermore, it has not expended its funds in a timely manner.

Since the inception of the grant, the Council has had a complete turnover of staff, and the new staff were not familiar with the program requirements. Furthermore, many of the Council’s goals address the long-term status of its participants. The Council’s program did not include housing assistance, and therefore, could not report on these goals without the coordination and cooperation of Consortium members.

We recommend HUD require the Council repay its grant or support the $28,892 in ineligible and unsupported salary costs charged to the grant. HUD and the Council should determine whether the Council should continue providing substance abuse treatment referrals. Also, HUD should ensure the coordination among Consortium members to meet the objectives of the Continuum of Care concept.

Recommendations

We recommend that HUD:

1A. Require the Council to reimburse its grant for the $7,536 spent on ineligible salary costs.

1B. Require the Council to either support the $18,274 of salary costs paid to the Utilization Review Manager or reimburse its grant.

1C. Require the Council to either support or reimburse its grants the $3,082 of salary benefits paid on the ineligible and unsupported salary.

1D. Work with the Council in order to determine the feasibility of the Council continuing to provide substance abuse referrals for the Dallas Consortium.

1E. Reimburse the Council for eligible substance abuse treatment provided to participants not drawn down from the supportive housing grant to date.

1F. Deobligate any funds not expended as of May 31, 2001.

Issue Date: December 18, 2000
Audit Report No.: 01-FW-203-1003
File Size: 920KB

Title: Housing Authority of the City of Uvalde Section 8 and Low Rent Programs

We have completed an audit of the Housing Authority of Uvalde, Texas. The objectives of the audit were to: (1) identify the purposes for which the Authority used unearned Section 8 administrative fees; (2) determine whether the Authority complied with its Annual Contribution Contracts (ACC) in the use of certain Section 8 and Low Rent funds; (3) determine whether the Authority used its Low Rent or Comprehensive Improvement Assistance Program (CIAP) funds for other purposes; and (4) determine whether the Authority duplicated payments of certain travel or other administrative expenses in the Section 8 or Low Rent Programs that may have been paid by the Authority’s affiliate, the Uvalde Housing Development Corporation. We found the Authority violated provisions of the ACCs by spending unearned Section 8 funds and Low Rent funds for other purposes.

The former Executive Director ignored HUD’s instructions and violated HUD requirements by using $563,702 in HUD Program funds to pay for excessive and questionable expenses. The Authority incurred $375,552 in excessive administrative costs in the Section 8 Program and $188,150 in questionable costs in the Low Rent Program. The excessive or questionable costs are: (1) $188,284 used to undertake various projects not related to the operation of these programs, including the construction of an affiliate’s apartment complex; (2) $85,012 paid in excessive salaries; (3) $167,960 in Low Rent funds transferred to Section 8; (4) $38,023 in unsupported costs; and (5) $84,423 in additional administrative expenses in excess of the amount earned.

The former Executive Director had an objective to develop properties not related to the Section 8 and Low Rent Programs. To do this, he manipulated the Section 8 requisition process. The former Executive Director was also the Secretary/Treasurer of the affiliate from which he arranged to receive a rent-free apartment. Therefore, a conflict of interest appears to be evident. However, the former Executive Director of the Authority, acting as the Executive Director of the Authority and the Secretary/Treasurer of the affiliate, severed the affiliate from the Authority in 1999. As a result, the Authority is currently in a severe financial condition. The Authority has reimbursed $224,194 to the Section 8 and Low Rent Programs, but the Authority still owes HUD $262,925 in unearned Section 8 funds and $76,583 to the Low Rent Program for the excessive administrative expenses and questionable costs.

We are making recommendations for corrective actions, including a recommendation for HUD to consider taking administrative sanctions against the former Executive Director.

We also looked for duplicative payments from the Section 8, Low Rent, HOME, and CIAPs that the Authority’s affiliate may have paid. Our review did not disclose such duplicative payments.

We provided a copy of this report to the interim Executive Director of the City of Uvalde Housing Authority on September 26, 2000, and they issued their response on October 13, 2000. We had an exit conference with current Authority Officials on October 19, 2000. We also requested a response to our preliminary findings from the former Executive Director, which we received on December 22, 1999, while he was still employed by the Authority. The responses generally agreed that the Authority used HUD program funds for other purposes. The former Executive Director attributed the Authority’s severe financial condition to an embezzlement that occurred prior to his employment. The Authority’s current management said they are taking action to improve the efficiency of the operations and to collect the funds owed to HUD programs. The complete responses are contained in Appendix B.

We recommend the Office of Public Housing:

1A. Require the Authority repay HUD $262,925 from nonfederal funds for the Section 8 funds they over-requisitioned and spent. Also, identify other additional funds "Due HUD" following HUD’s approval and revision of the Year End Settlement Statements for June 30, 2000;

1B. Require the Authority to recover $49,143 from UHDC for expenses paid on their behalf. The Authority should reimburse $44,441 to the Section 8 account and $4,702 to the Low Rent account (We consider the $44,441 that UHDC owes the Section 8 Programs as part of the $262,925 the Authority owes HUD and included under recommendation 1A.);

1C. Require the Authority to repay the Low Rent Program $58,799 from nonfederal funds for ineligible transfers that have not been reimbursed by the Section 8 Program. The Authority should also reimburse the Low Rent Program for any transfers that have occurred from April 2000 to the report date;

1D. Require the Authority to provide support for $13,082 in unsupported costs charged to the Low Rent Program for the audit period and any subsequent unsupported costs from the cut-off date in the audit report. For the amounts the Authority cannot support, those costs should be considered ineligible and be repaid from nonfederal funds;

1E. Require the Authority to follow its own travel policies;

1F. Monitor the administrative expense levels until satisfied that the Authority is complying with HUD budgets and program requirements by obtaining monthly income and expense reports for Section 8 and Low Rent Programs from the Board of Commissioners;

1G. Monitor the Section 8 estimates and requisitions until satisfied that the Authority is not over-requisitioning more annual contributions than is required by obtaining monthly reports on the amount of Section 8 Administrative Fees Earned and Expended and lease-up activity; and

1H. Consider taking appropriate administrative sanctions against the former Executive Director for violations of the Annual Contribution Contracts that have affected the integrity of the Section 8 and Low Rent Programs.

Issue Date: December 13, 2000
Audit Report No.: 01-FW-251-1002
File Size: 708KB

Title: City of Dallas Continuum of Care Program, Dallas, Texas

As a part of a nationwide review of HUD’s Continuum of Care Program, we audited the City of Dallas’ (City) 1996 Shelter Plus Care grant and its 1997 Supportive Housing grant. Our objectives were to determine whether the City: (1) implemented the grants in accordance with federal regulations and its grant agreements; (2) expended funds for eligible activities under federal regulations and applicable cost principles; (3) maintained accurate and adequate evidence of measurable results; (4) administered a sustainable program; and (5) expended funds timely.

Our audit concluded the City failed to implement its grants in compliance with its grant agreements and federal regulations. Specifically, the City did not: (1) provide and document the matching supportive services required by the Shelter Plus Care grant; (2) expend its funds timely; (3) file accurate and consistent Annual Progress Reports; (4) include only eligible and supported costs in its grant drawdowns; (5) monitor the participants and their supportive service needs sufficiently; and (6) perform yearly Housing Quality Standards inspections for apartments inhabited 1 year or more. Furthermore, the City received $53,977 and $2,261 for ineligible and unsupported activities, respectively. The $53,977 included $28,264 of duplicated expenses, $21,130 in expenses for ineligible participants, and $4,583 in expenses incurred prior to the grant start date.

Due to the seriousness of the problems, we recommend that HUD discontinue funding Continuum of Care grants to the City until the City can demonstrate that it can administer the funds appropriately. This includes providing HUD a comprehensive management plan and documentation detailing supportive services provided for all Shelter Plus Care grants. We also recommend that HUD require the City to repay $53,977 for ineligible costs and either support or repay $2,261 for unsupported costs.

We held an exit conference with the City on November 2, 2000, during which we presented our findings. The City provided its response to the audit report on November 3, 2000. We considered the responses in preparing our final report.

We recommend HUD to:

1A. Discontinue funding Continuum of Care grants for the City until such time as the City demonstrates its ability to administer the grants appropriately. This includes providing HUD a comprehensive management plan in the areas of: Supportive services; Personnel training; Oversight responsibility; Participant monitoring; Draw down procedures and review; Expenditures of grant funds along with projections; and Annual Progress Report preparation and review.

1B. Require the City to provide a report detailing documented supportive services provided for all Shelter Plus Care grants. The report should reflect: Supportive Service providers utilized; Types of services provided; Dollar value of those services; Steps taken to verify documentation; and How the supportive services address the particular needs of the Shelter Plus Care participants.

1C. Require the City to reimburse HUD for $53,977 for ineligible expenditures.

1D. Require the City to either support or reimburse HUD $2,261 in unsupported costs.

Issue Date: October 10, 2000
Audit Related Memorandum No.: 01-FW-201-1801
File Size: 69KB

Title: Congressional Inquiry, HOPE VI Roseland Homes Revitalization, Dallas Housing Authority, Dallas, Texas

Representative Sessions requested a review of the DHA’s HOPE VI application to determine if it contained fraudulent and misleading information. His office had received a complaint from a constituent alleging that the HOPE VI Revitalization application contained false information specifically involving the property purchased within the Fitzhugh Capital Neighborhood. The complaint alleged the DHA did not comply with applicable regulations.

The review determined that the HOPE VI Revitalization Application filed by the DHA did not contain fraudulent or misleading information. In reviewing the application, it is important to keep in mind that it is only a proposed plan. The applicant is not required to pinpoint property for off-site units. In fact, in the case of the HOPE VI Revitalization Application filed by the DHA, the properties contained in the application were not the same as the off-site units subsequently purchased.

Issue Date: September 27, 2000
Audit Related Memorandum No.: 00-FW-251-1806
File Size: 92KB

Title: Houston Regional HIV/AIDS Resource Group, Inc. Supportive Housing Grant TX21B96-0617, Houston, Texas

As part of a nationwide review of HUD’s Continuum of Care Program, we audited the 1996 Supportive Housing Grant awarded to the Houston Regional HIV/AIDS Resource Group, Inc. (Resource Group). The Resource Group implemented its grant activities through four subgrantees. During the audit period, Odyssey House did not perform any activities under the grant. During January 2000, the Resource Group requested and received HUD approval to replace two grantees.

To complete our audit, we performed audit work at the Resource Group and three subgrantees: Trinity Life; Covenant House; and DePelchin. The majority of the findings related to one subgrantee, Trinity Life. Based upon its own review, the Resource Group terminated its agreement with Trinity Life in August 1999. Nonetheless, HUD’s agreement was with the Resource Group and therefore, we recommend HUD take actions against the Resource Group.

Issue Date: September 5, 2000
Audit Related Memorandum No.: 00-FW-251-1805
File Size: 69KB

Title: Houston Regional HIV/AIDS Resource Group, Inc., Houston, Texas, HOPWA 94 and SHP-95 Grants, Improper Use of Grant Funds

During our audit of the Houston Regional HIV/AIDS Resource Group, Inc.’s (Resource Group) 1996 Supportive Housing Program Grant, we received a complaint that Trinity Life Center (Trinity Life), a subgrantee of the Resource Group, inappropriately used 1994 Housing Opportunities for People With Aids (HOPWA) and 1995 Supportive Housing Program (SHP) grant funds to pay unauthorized salaries. Due to Trinity Life being a subgrantee of the Resource Group, we direct our findings at the Resource Group. Our audit of the Resource Group’s HOPWA and SHP funds covered salaries paid from May 1, 1998, through February 15, 1999.

The Trinity Life staff responsible for billing the Resource Group did not allocate the salaries based upon the employees’ time sheets. Further, it appears that Trinity Life wanted to expend grant funds before grant termination. The grant agreements required the Resource Group to charge the grant for the actual activity of the employees. The Resource Group mistakenly relied upon Trinity Life’s allocations and its monitoring of Trinity Life did not detect the incorrect billings. As a result, Resource Group charged the grant for ineligible expenditures.

Issue Date: August 9, 2000
Audit Report No.: 00-FW-201-1004
File Size: 1,944KB

Title: Procurement Activities, Housing Authority of the City of San Antonio, San Antonio, Texas

We conducted an audit of the San Antonio Housing Authority to find the extent of procurement irregularities affecting HUD programs involving: (1) purchases from the Authority’s affiliated nonprofit corporations; (2) child-care services purchased from a former resident commissioner; (3) furniture purchased from a local nonprofit corporation; and (4) the Economic Development Program. We found the Authority violated federal conflict of interest, procurement, and cost requirements and used HUD program funds to pay about $865,409 in questionable costs.

Issue Date: May 24, 2000
Audit Report No.: 00-FW-222-1003
File Size: 579KB

Title: Pope and Booth Closing Agent Contract, Austin, Texas

We performed an audit of the law offices of Pope & Booth, P.C. (Pope & Booth), a closing agent for HUD, as part of a nationwide effort to review closing agents. Our audit objective was to determine whether management controls were adequate to ensure the prevention of fraud, waste, and abuse. To meet this objective, we performed audit steps to determine whether the closing agent complied with its contract terms and conditions. Overall, Pope & Booth’s controls were sufficient to ensure substantial compliance with its HUD contract. However, we also found that Pope & Booth split title insurance fees and overcharged HUD for wire transfer fees.

Issue Date: May 12, 2000
Audit Report No.: 00-FW-251-1804
File Size: 69KB

Title: Housing Crisis Center Supportive Housing Grants, TX21B960505; TX21B970903; TX21B970907; Dallas, Texas

As part of a nationwide audit of HUD’s Continuum of Care Program, we reviewed the Supportive Housing Grants awarded to the Housing Crisis Center (Center).

Our review results concluded that the Center’s activities were consistent with its application. The Center should reimburse its grant $48,720 for the ineligible participant expenditures. We recommend that the Center follows its policies to ensure that it allows only eligible participants into its programs. Also, the Center should develop and implement procedures and systems to collect relevant data and report on its performance. The Center also charged the grant $6,559 in ineligible allocations that should be reimbursed.

Issue Date: January 27, 2000
Audit Report No.: 00-FW-255-1002
File Size: 501KB

Title: HOME Investment Partnership Program Administrative Costs, Texas

Department of Housing and Community Affairs, Austin, Texas We have completed a limited review of the direct administrative costs of the HOME Investment Partnership Program (HOME Program) administered by the Texas Department of Housing and Community Affairs (TDHCA). We initiated the review after examining an anonymous complaint that we could not substantiate relating to the TDHCA. We identified problems with how the TDHCA supported the use of funds drawn down to cover HOME Program administrative costs. This report contains two findings.

Issue Date: January 18, 2000
Audit Related Memorandum No.: 00-251-FW-1801
File Size: 46KB

Title: Dallas Jewish Coalition for the Homeless, Supportive Housing Grant, TX21B960501, Dallas, Texas

As part of a nationwide review of HUD’s Continuum of Care Program, we audited the Supportive Housing Grant awarded to the Dallas Jewish Coalition for the Homeless (the Coalition). Our objectives were to determine whether the Coalition:

Implemented the grant in accordance with its application;

Expended funds for eligible activities under Federal regulations and applicable cost principles;

Maintained evidence of measurable results; and Expended funds timely.

As a result of our audit, we determined that the Coalition’s activities were consistent with its application and that it expended funds timely. However, the Coalition did not have sufficient documentation to determine whether it met the purpose of the grant. Further, the Coalition allocated $91,948 in ineligible expenses to the grant. We recommend that the Coalition develop measurable criteria so that it can measure grant activities. In addition, the Coalition should reimburse its grant for ineligible expenses totaling $91,948. Further, the Coalition should revise its cost allocation practices and procedures to prevent the allocation of ineligible expenses to the grant.

Issue Date: March 23, 1999
Audit Report No. 99-FW-255-1004
File Size: 118KB

Title:City of Houston, Texas Homebuyers Assistance Program (Funded by the HOME Program)

We performed an audit of the City of Houston's Homebuyers Assistance Program to determine if the City's Department of Housing and Community Development: (1) properly determined and documented the eligibility of participants and their properties; (2) had a system to recover assistance if the program participants sold the property before 5 years; (3) properly contracted with qualified subrecipients to carry out the program; and (4) adequately monitored administrative costs paid to subrecipients. We expanded the scope of our review to determine whether the City was providing unnecessary HOME assistance to home buyers with large amounts of cash savings.

We found the City has a good system for recovering assistance if program participants sell the property before 5 years. However, the audit found that the City and its subrecipients have not properly administered the Homebuyers Program, a conflict of interest existed between the City and one of its subrecipients, and the City is providing unnecessary assistance to home buyers who have sufficient funds to purchase their own homes.

Issue Date: March 19, 1999
Audit Report No.: 99-FW-206-1801
File Size: 48KB

Title: Hotline Complaint - HM00-20195 Victoria Housing Authority Victoria, TX

In response to a confidential complaint, we conducted a limited review at the Housing Authority of Victoria, Texas (Authority). Specifically, we reviewed the Authority's procurement of consultant and architectural services and controls for safeguarding the proceeds from scrapping of assets.

The Authority violated HUD regulations and its own requirements in procuring construction management and architectural services for its Comprehensive Grant Program. The Authority also did not properly account for and safeguard proceeds from sale of scrap metal and improperly used such funds for employee entertainment expenses.

Issue Date: January 29, 1999
Audit Report No.: 99-FW-201-1003
File Size: 82KB

Title: HA of the City of San Antonio, San Antonio, TX

As part of a nationwide audit of the HOPE VI Program, we performed an audit of the Housing Authority of San Antonio’s (Authority) HOPE VI grants to determine if the Authority: (1) properly procured contracts under its HOPE VI grants; (2) only expended amounts for eligible activities; (3) met the objectives of its Revitalization Plans; and (4) implemented its community and supportive services components effectively, efficiently, and in a manner that will allow the activities to be sustained beyond the grant term.

The audit disclosed serious concerns with the Authority’s procurement process. These concerns include the lack of a contract administration system and a comprehensive procurement policy and procedures. This resulted in ineligible and unsupported contract payments totaling $454,407. The audit also disclosed the Authority’s overall progress has been slow in implementing its HOPE VI grants. Also, the Authority has not done much in the area of community and supportive services.

Issue Date: October 9, 1998
Audit Report No. 99-FW-201-1001
File Size: 148KB

Title: HA of the City of Dallas, Dallas, TX

As part of a nationwide audit of the HOPE VI Program, we performed an audit of the Housing Authority of the City of Dallas' (Authority) HOPE VI grants to determine if the Authority: (1) effectively, efficiently, and economically used its HOPE VI funds; (2) properly procured contracts under its HOPE VI grants; (3) only expended amounts for eligible activities; (4) met the objectives of its Revitalization Plan; and (5) implemented its community and supportive services components in accordance with applicable rules and regulations, and in a manner that will allow the activities to be sustained beyond the grant term.

The Authority has made some progress on its revitalization, despite being seriously hampered by lawsuits. However, the audit disclosed significant concerns relating to Authority HOPE VI activities. These concerns include: (1) improper procurements and misallocated costs; (2) a questionable land purchase; and (3) the need for improved planning and management of its community and supportive services activities.

Issue Date: September 30, 1998
Audit Report No. 98-FW-202-1005
File Size: 136KB

Title: HA of the City of San Antonio, TX

We conducted an audit of the Public Housing Drug Elimination Grant Program administered by the Housing Authority of the City of San Antonio, Texas (Authority). Our review was to determine whether the Authority: (1) implemented its drug elimination program awards for Grant years 1994 through 1996, with satisfactory outcomes and benefits and (2) expended program funds for only eligible activities and in accordance with program requirements for Grant years 1994, 1995, and 1996.

The Authority did not maintain data or have a system to measure the satisfactory outcomes and benefits of its programs. Without this data, neither the Authority nor HUD can determine whether the Drug Elimination Grant Program has provided satisfactory outcomes and benefits.

The Authority spent about 83 percent of its Drug Elimination Program funds on eligible activities and costs. However, because the Authority management and staff either chose to ignore or did not understand Grant Program requirements, it spent $899,000 in ineligible or questionable costs (17 percent of the $5,249,000 expenditures for the 1994, 1995, and 1996 Grants) Also, the Authority received $28,000 in program income but did not reduce its Grant costs by that amount.

The Authority also did not have a system for coordinated and effective Grant administration. The Authority had not assigned responsibility to any specific staff member to supervise, monitor, and coordinate the overall activities. This led to lack of coordination among staff and untimely reporting of Grant activities to HUD.

We are recommending the Authority strengthen and improve its administration of the Grant; repay its Grant Program for ineligible costs; and either support the questioned costs or repay the Grant program.

Issue Date: April 24, 1998
Audit Report No. 98-FW-241-1810
File Size: 30KB

Title: City of Dallas Housing Department, Dallas, TX

We decided the matters do not warrant an in-depth audit of the Dallas CDBG and HOME Programs at this time.

Issue Date: March 6, 1998
Audit Report Number 98-FW-201-1003
File Size: 151KB

Title: HA of El Paso, TX

The audit disclosed serious concerns relating to major Authority procurements. These concerns include: (1) sole-source and non-competitive contracts; (2) apparent conflicts of interest and contractor influence in Authority procurements; (3) multiple contracts being awarded to a few contractors; and (4) poor contract documentation. In addition to procurement concerns, the audit found the Authority may not be able to sustain its community and supportive services. Due to the significance of the procurement problems, we are reporting the results of our review now rather than waiting until the completion of the nationwide audit.

Issue Date: January 29, 1998
Audit Report No. 98-FW-206-1807
File Size: 47KB

Title: HA of the City of Crystal City, TX

At your request, we conducted a review of the Housing Authority of the City of Crystal City , Texas, (Authority). Because of the deterioration in the Authority's financial condition, resulting from payment of a lawsuit, and poor contracting practices, we provided you with our preliminary findings and recommendations on November 14, 1996. This is a follow-up and final report on the results of the review.

Based on the concerns expressed by your staff, our review objectives primarily focused on whether the Authority: (1) has the financial resources to satisfy pending litigation with current and former employees; (2) procured goods and services in a manner providing free and open competition free of any conflicts of interest; (3) improperly paid Section 8 rental assistance to owners for vacant units, or to local officials having a conflict of interest, or to landlords that were selling the property to the recipient; (4) properly expended funds questioned by its independent public accountant's 1994 audit report.

The preliminary report noted the primary problem facing the Authority is its precarious financial position resulting from the Authority's entering into an agreed judgment and payment of $115,000 to its Executive Director. In addition, the Authority was involved in continuing litigation with several former employees alleging wrongful termination. The Authority's financial situation has not improved. Subsequently, the Authority settled two of the lawsuits but has a potential liability in excess of $100,000 on the third. Therefore, we are continuing to recommend close monitoring of the financial condition and litigation status, which may require your exercise of HUD's rights under the depository agreements with the Authority's banks.

The preliminary report also noted the Authority did not follow HUD and Federal procurement requirements. The Authority's procurement practices did not ensure the Authority was obtaining goods and services at the most reasonable price through open competition and use of cost and price analyses. Further, the Authority did not have or did not use appropriate written contracts or, when necessary, obtain HUD approval of the contracts. In accordance with our preliminary recommendations, you placed the Authority on a preaward review for all contracts in excess of $500. This final report is questioning $102,208 related to the procurement transactions conducted prior to the HUD preaward requirement. Although we determined the Authority did not violate HUD's former Annual Contributions Contract conflict-of-interest provisions in awarding two major construction contracts, any such future contracts will violate the current Annual Contributions Contract's conflict-of-interest provisions. We are continuing our recommendation to conduct preaward reviews because of the Authority's precarious financial position.

Our review did not disclose any violation of HUD's Section 8 Program requirements in the Authority's payment of assistance for eligible families and units. The payment of Section 8 assistance to former City officials did not violate HUD's Annual Contribution Contract conflict-of-interest provisions. Further, our review did not disclose any improper payment of Section 8 funds for vacant units.

The Authority's independent public accountant's report for the Authority's 1994 fiscal year questioned over $20,000 of disbursements. We reviewed these disbursements and determined that $3,141 represents ineligible costs and that the Authority cannot support the propriety of another $3,394. Both our review and subsequent independent accountant audits for fiscal years 1995 and 1996 did not identify any subsequent violations or failure to adequately document the propriety of expenditures.

Issue Date: January 2, 1998
Audit Case No. 98-FW-202-1806
File Size 62KB

Title: Housing Authority of the City of Brownsville, TX

During the period covered by our review, we noted the Authority was not in full compliance with HUD requirements for: (1) adequate safeguarding of its equipment and materials inventory; (2) proper accounting for use of Comprehensive Grant Program funds; (3) procurement of goods and services; and (4) allocation of costs attributable to more than one HUD-funded program. In addition, our review identified instances where Authority employees were used to conduct non-Authority business while being compensated with public funds.

Issue Date: October 24, 1997
Audit Case Number 98-FW-206-1001/1996-01376-01
File Size: 154KB

Title: Housing Authority of the City of Lubbock, Lubbock, TX

The Authority did not follow sound procurement practices; it used grant funds for unauthorized activities; and it did not report income it earned on properties it purchased from RTC, thus, HUD overpaid the annual operating subsidy.

Issue Date: October 14, 1997
Audit Report Number: 98-FW-202-1801
File Size: 56KB

Title: Housing Authority of the City of Corpus Christi, TX

We reviewed following areas: (1) existence of lead-based paint hazards in family dwelling units, environmental hazards involving chemical emissions, and location of D. N. Leathers buildings over discarded chemical drums; (2) natural gas lines not being repaired timely; (3) inadequate securing of vacant D. N. Leathers units; (4) sewage problems at D. N. Leathers when it floods; and (5) Executive Director exercising control over the D. N. Leathers Tenant Association bank account.

Issue Date: September 29, 1997
Audit Related Memorandum No. 97-FW-202-1808
File Size: 15KB

Title: Tenant Opportunities Program Grants, Galveston, TX

During the audit of Housing Authority of the City of Galveston, Texas the Authority's Board of Commissioners expressed concern over: (1) the progress of grant activity; (2) the propriety of grant expenditures; and (3) the appropriateness of the councils' contract with the Authority's finance director. In February 1997, the resident councils were in default because of lack of progress and any future grant activity was suspended until the councils addressed their performance problems. To resolve the remaining two issues, we reviewed the grant expenditures and the contract with the finance director to determine whether any irregularities were indeed present. Our review did disclose irregularities, primarily the failure of the resident councils to keep appropriate records. However, we did not note any expenditures that were ineligible and the contract with the finance director did not violate any HUD rule.

Issue Date: September 3, 1997
Audit Case Number 97-FW-204-1004
File Size: 154KB

Title: Housing Authority of the City of Galveston, TX

Our review covered the areas of: (1) supporting documentation for use of Low Rent Program funds; (2) procurement; (3) cash management; (4) use of Section 8 operating reserves to subsidize a non-HUD project; (5) Drug Elimination Grant activities; (6) administrative practices related to cost allocation, payroll, and travel; and (7) classification of employees under the Fair Labor Standards Act.

Issue Date: August 26, 1997
Audit Case Number 97-FW-211-1003
File Size: 104KB

Title: Medlock Southwest Management Corp., Lubbock, TX

In response to a complaint, we performed an audit of Medlock Southwest Management Corporation. The purpose of the audit was to determine the validity and materiality of problems identified with payments for employee injury insurance premiums, management agent reimbursement for payrolls, payments to owners for administrative management fees, and charges to projects by identity-of-interest companies.

Issue Date: July 7, 1997
Audit Case Number 97-FW-209-1002
File Size: 1,515KB

Title: Housing Authority of the City of Austin, TX

Our review covered the areas of: (1) selection and housing of tenants in the Section 8 Program; (2) maintenance of Low Rent units including turnaround of vacant units; (3) procurement of goods and professional services; and (4) administrative practices involving payroll, travel, and use of vehicles and telephones. Subsequent to our completion of field work, both the Executive Director and Deputy Executive Director have resigned. In February, the Board hired Mr. Jim Hargrove as the new Executive Director. Mr. Hargrove has inherited the problems identified in the findings of this report. The references within this report to executive management refers to Ms. Chargois and Mr. Papoola, who were Executive Director and Deputy Executive Director, respectively, during our audit of the Authority.

Issue Date: March 28, 1997
Audit Related Memorandum No. 97-FW-211-1805
File Size: 26KB

Title: LULAC East Park Place Apts., San Antonio, TX

We did not identify any indications of improper diversions of project funds or assets by the owner or agent other than: (1) the $24,000 in mortgagor entity legal fees previously identified by your staff and (2) a $563 purchase of supplies with project funds that were for another project owned by the agent. We also observed that the owner and management agent have sufficient documentation to show the expenditure of the Flexible Subsidy Loan was for rehabilitating the project and in accord with the HUD approved MIO Plan. Further, we noted: (1) the taxing districts reduction in the appraised value was based on value before the completion of the flexible subsidy funded rehabilitation work; (2) the owner has accounted for the 1993 receipt and disposition of funds from the frozen bank account; and (3) the independent auditor's 1994 report contains an explanation for the beginning cash balance. However, we did observe that the owner and management agent had not properly disclosed identity-of-interest relationships with contractors and suppliers. HUD does not prohibit such related party transactions but does require disclosure and prohibits prices paid being more than that available from arms-length companies. The owner and management agent obtained bids and/or proposals from unrelated contractors to support that prices paid were reasonable. Based on the survey, we do not believe a full audit is warranted. However, we are making some recommendations regarding the questioned cost and identity-of-interest disclosure issue.

Issue Date: February 14, 1997
Audit Case No. 97-FW-249-1001
File Size: 104KB

Title: CDBG Program, Houston, TX

We have performed a review of the City of Houston's use of Community Development Block Grant Program funds to rehabilitate two multifamily properties. During our audit of the HUD-funded HOME Program, it came to our attention that the City may not have followed proper procurement procedures in contracting for the use of grant funds to rehabilitate two multifamily properties the City acquired from the Resolution Trust Corporation.

Issue Date: October 16, 1996
Memorandum No. 97-FW-222-1802
File Size: 16KB

Tite: Hotline Complaint, Golden Feather Realty Services, Inc./REAM Inc. HUD Offices - Fort Worth, TX, San Antonio, TX, and Phoenix, AZ

The Office of Inspector General received a Hotline Complaint alleging that: (1) Golden Feather Realty Services, Inc., a San Antonio-based company, subcontracted work to a company that it owned and (2) a HUD employee provided contracting information to Golden Feather relative to their bid for the Fort Worth HUD Office Real Estate Asset Management (REAM) contract. The anonymous complainant also noted that Golden Feather currently had REAM contracts with HUD in the Fort Worth, San Antonio, Phoenix, and New Orleans Offices. HUD Property Disposition staff in New Orleans stated that neither company had REAM contracts for their area. Neither the HUD Property Disposition staff nor the third parties could provide any information that would substantiate the allegations. Therefore, we plan no further review of the allegations.

Issue Date: September 9, 1996
Audit Report Number 96-FW-212-1804
File Size: 10KB

Title: Nova Management, Houston, Texas

As a result of your efforts, based on the draft, a successful settlement agreement was reached with Nova Management. Your staff advised that Nova made the last payment under the settlement agreement on August 10, 1996. Also, the President of Nova Management has apparently taken a more active interest in the day-to-day operations to ensure that HUD requirements are being followed. Therefore, the combined efforts of the HUD Multifamily staff and the OIG Audit staff led to the successful completion of this Operation Safe Home effort.

Issue Date: August 19, 1996
Audit Report Number 96-FW-214-1002
File Size: 37KB

Title: Credit Finance Corp., Dallas, TX

The review found that CFC disbursed at least $87,700 in project funds for invalid boiler and machinery insurance. The "insurer" and CFC's president lacked legal authority to sell insurance to the projects. Consequently, nine HUD projects, including three projects in default, paid for services they never received. This occurred because CFC's president ignored or did not adequately consider applicable State insurance laws and the impact of HUD requirements.

Issue Date: October 16, 1995
Audit Case Number 96-FW-214-1001
File Size: 62KB

Title: Credit Finance Corp., Dallas, TX

Generally, CFC maintained good records and followed sound management practices. However, the audit found that CFC: (1) made unauthorized distributions and did not remit residual receipts to mortgagees; (2) disbursed project funds for ineligible and unsupported costs; (3) diverted operating funds from one project to the owner and overcharged the project for bookkeeping services; (4) improperly implemented the automated Tenant Rental Assistance Certification System (TRACS); and (5) did not properly compute excess rental income for Section 236 projects.