Semiannual Report to Congress U.S. Department of Housing and Urban Development Office of Inspector General

Semiannual Report to Congress October 1, 2004 through March 31, 2005 Office of Inspector General Profile of Performance Profile of Performance For the Period, October 1, 2004, through March 31, 2005

Audit and Investigation Results Audit Investigation Hotline Combined

Recommendations That Funds Be Put to Better Use $940,871,236 $1,824,881 $942,696,117 Management Decisions on Audits with Recommendations $1,207,899,773 $1,207,899,773 That Funds Be Put to Better Use Questioned Costs $89,988,861 $89,988,861 Management Decisions on Audits with Questioned Costs $119,366,523 $119,366,523 Indictments/Informations 888 888 Convictions/Pleas/Pretrial Diversions 455 455 Civil Actions 32 32 Recoveries/Receivables $498,294,949 $498,294,949 Funds Put to Better Use $40,844,193 $117,226 $40,961,419 Collections from Audits $7,761,521 $7,761,521 Administrative Sanctions 8 1,142 1,150 Personnel Actions 34 34 Arrests 1,786 1,786 Search Warrants 35 35 Weapons Seized 5 5 Subpoenas Issued 27 379 406 Inspector General’s Message

On behalf of the U.S. Department of Housing and Urban Development’s Office of the Inspector General, I hereby proudly present the Semiannual Report on our activities for the half fiscal year beginning on October 1, 2004.

Before highlighting HUD OIG’s recent activities, I note first that it is my continuing honor to serve with the many talented auditors, investigators and support personnel who strive unceasingly to further HUD OIG’s mission. Their efforts have helped ensure that HUD programs are administered properly, that HUD personnel continue to fulfill their legislatively-directed objectives, and that sums of wasted or stolen program funds are recovered for the benefit of HUD’s Message General’s Inspector target constituents. During the last six months, HUD OIG’s audits and investigations have achieved a return on investment of 28 to 1, a remarkable achievement and a proper service to the American taxpayer. HUD OIG shall set the bar ever higher in the months ahead.

HUD OIG has also established vital relationships with professional organizations working on housing issues, a practice essential both to industry oversight specifically and more generally to our mission to deter fraud, waste, and abuse involving HUD programs. These organizations include the Public Housing Authorities Directors Association, the National Association of Housing and Redevelopment Officials, and the Mortgage Bankers Association. We continue to work closely with these organizations on areas of mutual interest.

I note lastly and with great satisfaction that HUD OIG’s peers within the federal Inspector General community have recognized our accomplishments, and look to us for leadership. To this end, I was appointed recently to serve as Chairman of the Investigations Committee for the President’s Council on Integrity and Efficiency (PCIE). This committee establishes policies and procedures for the federal Inspector General community. Since I assumed the Chairmanship, the committee has undertaken several significant steps, including codification and implementation of a “best practices” program, an increased focus on excellence in training, and better outreach to state authorities, fellow Inspectors General and international organizations. I look forward to the many challenges ahead, and to the myriad opportunities my leadership may present to serve HUD OIG’s mission.

Here are several of the key areas discussed herein.

We are continuing our efforts on problems plaguing single-family housing. During the six-month reporting period, audit reports related to the single Family Housing Program area questioned millions of dollars in costs and made recommendations as to how millions of dollars in funds could be put to better use.

Inspector General’s Message iii Similarly, we have had outstanding results investigating single-family mortgage fraud, tailoring our forensic audit and investigative activities to complement this need, support HUD management, and provide deterrence to potential criminal activity.

The rental housing program has been enhanced by the collaboration of the Department with OIG and State and local law enforcement to locate and stop Section 8 rental subsidy fraud. Our investigative and audit focus is concentrating on fraudulent practices and the lack of compliance with Section 8 program requirements. We are conducting 20 external audits of the Section 8 Housing Choice Voucher program during this fiscal year.

OIG auditors continue to monitor the Disaster Recovery Assistance funds provided to the City of New York in the wake of the 9-11 attacks. Specifically, we audited the Lower Manhattan Development Corporation and found that it has generally disbursed the Disaster Recovery Assistance funds as directed by the Congress.

In closing, I have already stated how proud I am of the men and women of HUD-OIG and their excellent work. I also want to commend those OIG personnel who are activated reservists, serving our country in the armed forces in Afghanistan, Iraq, the Middle East, and elsewhere. They are our strength and our future. I am extremely grateful that America has such fine individuals dedicated to the service of our citizenry.

Thank you,

Kenneth M. Donohue, Sr. Inspector General

Inspector General’s Message Inspector General’s Message iv Information About the HUD Office of Inspector General

eginning with fiscal year (FY) 2004, the Office of Inspector General (OIG) instituted a return-on-investment (ROI) computation as one method to measureBB its contribution to the Department’s mission. This measure takes the total dollars of recommended “funds to be put to better use1” and “questioned costs,2” together with “receivables and recoveries 3” from Investigations and Hotline, and divides that total by OIG’s operating costs, including salaries, for the period. The resulting ratio represents the potential amounts that could be realized or better used per dollar of OIG expenditures either during current or future periods. Many factors affect when and how much is actually returned so OIG uses recommended amounts in our ROI calculation, rather than management decisions, to better relate results to the work that was actually done during the period. Much of this period’s ROI results from the annual financial audit finding regarding the need to deobligate $708 million in HUD funds. The majority of contributing factors to the ROI are the results from reviews of external parties who administer or benefit from U.S. Department of Housing and Urban Development (HUD)-funded programs. HUD refers many matters such as these to OIG for audit or investigation, as appropriate.

Our target ROI ratio for FY 2005 is set at 8-to-1. This means that for every dollar

Congress appropriated to OIG, we should uncover $8 that should be returned or put to Us Information About better use. The budget for FY 2005 is $103,168,000. The ROI in dollars computed on an 8-to-1 ratio would be approximately $825 million. We are pleased to report that for the period of October 1, 2004, to March 31, 2005, our ROI is 28 to 1 – far exceeding a goal of 8-to-1.

1 “Funds to be put to better use” is an item required by Congress and is defined in the Inspector General Act as “ a recommendation by the Office that funds could be used more efficiently if management of an establishment took actions to implement and complete the recommendation, including (1) reductions in outlays; (2) deobligations of funds from programs or operations; (3) withdrawal of interest subsidy costs on loans or loan guarantees, insurance, or bonds; (4) costs not incurred by implementing recommended improvements related to the operations of the establishment, a contractor, or grantee; (5) avoidance of unnecessary expenditures noted in preaward reviews of contractor grant agreements; or (6) any other savings which are specifically identified.”

2 “Questioned costs” are “a cost that is questioned by the Office because of (1) an alleged violation or provision of law, regulation, contract, grant, or cooperative agreement, or other agreement or document governing the expenditure of funds; (2) a finding that at the time of the audit, such cost is not supported by adequate documentation; or (3) a finding that the expenditure of funds for the intended purpose is unnecessary or unreasonable.”

3 “Receivables and recoveries” are based on the total dollar value of (1) criminal cases—the amount of restitution, criminal fines, and/or special assessments based on a criminal judgment or established through a pretrial diversion agreement; (2) civil cases—the amount of damages, penalties, and/or forfeitures resulting from judgments issued by any court (Federal, State, local, military, or foreign government) in favor of the U.S. Government or the amount of funds to be repaid to the U.S. Government based on any negotiated settlements by a prosecuting authority or the amount of any assessments and/or penalties imposed, based on actions brought under the Program Fraud Civil Remedies Act, civil money penalties, or other agency-specific civil litigation authority, or settlement agreements negotiated by the agency while proceeding under any of these authorities; (3) voluntary repayments—the amount of funds repaid on a voluntary basis or funds repaid based on an agency’s administrative processes by a subject of an OIG investigation or the value of official property recovered by an OIG during an investigation before prosecutive action is taken, any of which result from a case in which an OIG has an active investigative role; and (4) “ administrative receivables and recoveries” based on Hotline referrals to HUD program staff.

Information About the HUD Office of Inspector General v OIG Cost of Operations for the Period October 1, 2004, to March 31, 2005

Centrally Managed/ Administration & Operations Funded Services $3,347,692 = 6% $15,900,767 = 29%

Personnel Services $36,135,086 = 65%

OIG Results FY 2004 $1.57 Billion Captured

Receivables/Recoveries Questioned Costs $500,119,830 = 32% $89,988,861 = 6%

Funds Put to Better Use $981,832,655 = 62%

OIG Charts OIG Charts vi Audit Reports Issued by Program

Community Planning & Other Development 15% 6%

Single Family 29%

Public & Indian Housing 34%

Multifamily 16%

Monetary Benefits Identified by Program

Single Family Multifamily 4% 3%

Public & Indian Housing 23%

Other 70% Community Planning & Development 0% Audit Charts Monetary Benefits Identified in Millions of Dollars

800 $708.0 700 600 500 400 300 $241.1 200 100 $40.8 $34.3 $2.1 0 Single Multi- PIH CPD Other Family family

Audit Charts vii Investigation Cases Opened by Program (Total: 638)

Multifamily 12% Community Planning (78) & Development Public & Indian 4% Housing (25) 61% (389) Other/GNMA 2% (13)

Single Family 21% (133)

Investigation Recoveries by Program (Total: $498,294,949)

Multifamily Community Planning 0% Public & Indian & Development ($2,439,543) Housing 1% 16% ($7,137,802) ($79,673,692)

Other/GNMA 0% ($185,618)

Single Family 83% ($408,807,294)

Investigation Funds Put to Better Use (Total: $40,844,193)

Community Planning & Development 3% ($1,309,036) Other/GNMA 0% Multifamily ($0) 6% ($2,293,596)

Single Family 41% Public & Indian ($16,562,279) Housing 50% ($20,679,282)

Investigation Charts Investigation Charts viii Acronyms List ASAC Assistant Special Agent in Charge BCI Bureau of Criminal Investigation CDBG Community Development Block Grant CID Criminal Investigation Division CJIS Criminal Justice Information Services Division CPD Office of Community Planning and Development DOC Department of Commerce ED Executive Director FBI Federal Bureau of Investigation FFMIA Federal Financial Management Improvement Act of 1996 FHA Federal Housing Administration FHASL Federal Housing Administration Subsidiary Ledger FHEO Office of Fair Housing and Equal Opportunity FISMA Federal Information Security Management Act of 2002 FY fiscal year GAO Government Accountability Office GNMA Government National Mortgage Association (aka Ginnie Mae) HAP housing assistance payment HHS Department of Health and Human Services HOME Home Investment Partnership HQS housing quality standards HUD U.S. Department of Housing and Urban Development

IG Inspector General List Acronym IRS Internal Revenue Service LLG Liability for Loan Guarantee LLR Loan Loss Reserve NAHRO National Association of Housing and Redevelopment Officials NIST National Institute of Standards and Technology NOFA notice of funding availability OGC Office of General Counsel OIG Office of Inspector General OMB Office of Management and Budget OND Officer Next Door OPM Office of Personnel Management

Acronym List ix PFCRA Program Fraud Civil Remedies Act PHA public housing authority PIC Public and Indian Housing Information Center PID Program Integrity Division PIH Office of Public and Indian Housing PMA President’s Management Agenda PRWORA Personal Responsibility and Work Opportunity Reconciliation Act of 1996 REAC Real Estate Assessment Center REAP Resource Estimation and Allocation Process REO real estate owned RESPA Real Estate Settlement and Procedures Act RHIIP Rental Housing Integrity Improvement Project RIGA Regional Inspector General for Audit SA Special Agent SAC Special Agent In Charge SBA Small Business Administration SID Special Investigations Division SEMAP Section 8 Management Assistance Program SSA Social Security Administration SSN Social Security number TEAM Total Estimation and Allocation Mechanism TND Teacher Next Door UDAG Urban Development Action Grant UIV Upfront Income Verification USDA U.S. Department of Agriculture USPS U.S. Postal Service

Acronym List Acronym List x Table of Contents

Chapter 1 - HUD’s Management and Performance Challenges 1 The HUD Office of Inspector General 2 Major Issues Facing HUD 2 Chapter 2 - HUD’s Single Family Housing Programs 9 Audits 10 Investigations 21 Chapter 3 - HUD’s Public and Indian Housing Programs 43 Audits 44 Investigations 55 Fugitive Felon Initiative 68 Chapter 4 - HUD’s Multifamily Housing Programs 71 Audits 72 Investigations 76 Chapter 5 - HUD’s Community Planning and Development Programs 83 Audits 84 Investigations 86 Chapter 6 - Other Significant Audits and Investigations/OIG Hotline 95 Audits 96 Investigations 101 OIG Hotline 104 Chapter 7 - Outreach Efforts 107 Table of Contents Table of Chapter 8 - Review of Policy Directives 115 Proposed Rules 116 Mortgagee Letter 120 Chapter 9 - Audit Resolution 123 Delayed Actions 124 Significant Revised Management Actions 125 Significant Management Decisions with Which OIG Disagrees 128 Federal Financial Management Improvement Act of 1996 130 Appendix 1 - Audit Reports Issued 131 Appendix 2 - Tables 137 Table A - Audit Reports Issued Prior to Start Period with No Management Decision at 03/31/2005 138 Table B - Significant Audit Reports Described in Previous Semiannual Reports Where Final Action Had Not Been Completed as of 03/31/2005 139 Table C - Inspector General Issued Reports with Questioned and Unsupported Costs at 03/31/2005 149 Table D - Inspector General Issued Reports with Recommendations that Funds Be Put to Better Use at 03/31/2005 150

Table of Contents xi Reporting Requirements

The specific reporting requirements as prescribed by the Inspector General Act of 1978, as amended by the Inspector General Act of 1988, are listed below: Source/Requirement Pages Section 4(a)(2)-review of existing and proposed legislation and regulations. 115-122 Section 5(a)(1)-description of significant problems, abuses, and 1-105, 123-130 deficiencies relating to the administration of programs and operations of the Department. Section 5(a)(2)-description of recommendations for corrective action with 9-105 respect to significant problems, abuses, and deficiencies. Section 5(a)(3)-identification of each significant recommendation Appendix 2, Table B described in previous semiannual report on which corrective action has not been completed. Section 5(a)(4)-summary of matters referred to prosecutive authorities 9-105 and the prosecutions and convictions that have resulted. Section 5(a)(5)-summary of reports made on instances where information No Instances or assistance was unreasonably refused or not provided, as required by Section 6(b)(2) of the Act. Section 5(a)(6)-listing of each audit report completed during the Appendix 1 reporting period, and for each report, where applicable, the total dollar value of questioned and unsupported costs and the dollar value of recommendations that funds be put to better use. Section 5(a)(7)-summary of each particularly significant report. 9-105 reports and the total dollar value of questioned and unsupported costs. Section 5(a)(8)-statistical tables showing the total number of Appendix 2, Table C audit reports and the total dollar value of questioned and unsupported costs. Section 5(a)(9)-statistical tables showing the total number of audit Appendix 2, Table D reports and the dollar value of recommendations that funds be put to better use by management. Section 5(a)(10)-summary of each audit report issued before the Appendix 2, Table A commencement of the reporting period for which no management decision had been made by the end of the period. Section 5(a)(11)-a description and explanation of the reasons for 125-128 any significant revised management decisions made during the reporting period. Section 5(a)(12)-information concerning any significant management 128-130 decision with which the Inspector General is in disagreement. Section 5(a)(13)-the information described under section 05(b) of the 130 Federal Financial Management Improvement Act of 1996.

Reporting Requirements Reporting Requirements xii Chapter 1

HUD’s Management and Performance Challenges The HUD Office of Major Issues Facing HUD Inspector General The Department’s primary mission is to expand housing opportunities for he U.S. Department of American families seeking to better their Housing and Urban Develop- quality of life. HUD seeks to accomplish this ment (HUD) Inspector General is one of TT through a wide variety of housing and the original 12 Inspectors General community development grant, subsidy, authorized under the Inspector General and loan programs. HUD’s budget Act of 1978. Over the years, we have forged approximates $31 billion annually. a strong alliance with HUD personnel Additionally, HUD assists families in in recommending ways to improve obtaining housing by providing Federal departmental operations and in Housing Administration (FHA) mortgage prosecuting program abuses. We strive insurance for single-family and to make a difference in HUD’s performance multifamily properties. At the end of fiscal and accountability. We are committed to our year (FY) 2004, FHA’s outstanding statutory mission of detecting and mortgage insurance portfolio was about preventing fraud, waste, and abuse and $469 billion. Ginnie Mae, through its promoting the effectiveness and efficiency mortgage-backed securities program, gives of government operations. While issuers access to capital markets through organizationally we are located within the the pooling of federally insured loans. Department, we operate independently with separate budgetary authority. This With about 9,100 staff nationwide, independence allows for clear and HUD relies upon numerous partners for the objective reporting to the Secretary and the performance and integrity of a large Congress. Our activities seek to number of diverse programs. Among these partners are hundreds of cities that Promote efficiency and effectiveness in manage HUD’s Community Development programs and operations; Block Grant (CDBG) funds, hundreds of public housing authorities that manage Detect and deter fraud and abuse; assisted housing funds, thousands of HUD- approved lenders that originate and Investigate allegations of misconduct service FHA-insured loans, and hundreds by HUD employees; and of Ginnie Mae mortgage-backed securities issuers that provide mortgage capital. Review and make recommendations regarding existing and proposed legis- Achieving HUD’s mission continues to lation and regulations affecting HUD. be an ambitious challenge for its limited The Executive Office and the Offices staff, given the agency’s many distinct of Audit, Investigation, Counsel, and programs. HUD’s management problems Management and Policy are located in have for years kept it on the Government Headquarters. Also, the Offices of Audit Accountability Office’s (GAO) list of and Investigation have staff located in eight agencies with high-risk programs. HUD’s regions and numerous field offices. management team, GAO, and the Office of Inspector General (OIG) share the view

Management & Performance Challenges & Performance Management HUD’s Management and Performance Challnges 2 that improvements in human capital, attain green progress scores for all eight acquisitions, and information systems are initiatives, and improve goal scores for essential in removing HUD from its seven of the eight initiatives. high-risk designation. More specifically, HUD must focus these improvements on Each year in accordance with the rental housing assistance programs and Reports Consolidation Act of 2000, HUD- single-family housing mortgage insurance OIG is required to submit a statement to programs, two areas where financial and the Secretary with a summary assessment programmatic exposure is the greatest. of the most serious challenges facing the Management & Performance Challenges That HUD’s reported management Department. We submitted our latest challenges are included as part of the assessment on October 19, 2004. These President’s Management Agenda (PMA) reported challenges are the continued focus is indicative of HUD’s important role in of our audit and investigative effort. HUD the Federal sector. HUD’s current is working to address these challenges and Administration places a high priority on in some instances, has made progress in correcting those weaknesses that put two correcting them. The Department’s HUD program areas on GAO’s high-risk management challenges and current efforts list. to address these challenges are as follows.

As of the end of the second quarter of Departmentwide Organizational 2005, HUD’s PMA scoring status showed Changes. For more than a decade, the that the eight initiatives applicable to HUD Department has struggled with remained unchanged with a total of three organizational and management changes “yellow” and five “red” baseline goal in an effort to streamline its operations. scores. Based upon a comprehensive set of These changes were necessary as HUD tried standards, an agency is “green” if it meets to manage more programs and larger all of the standards for success, “yellow” budgets with fewer staff. The former HUD if it has achieved some but not all of the Administration realigned the Department criteria, and “red” if it has even one of the along functional lines, separating outreach number of serious flaws. The five red from program administration. Also, it baseline scores reported are Competitive placed greater reliance on automated tools, Sourcing, Improved Financial Performance, processing centers, contracted services, and E-Government, Budget and Performance HUD partners to administer its programs. Integration, and HUD Management and As HUD implemented these realignments, Performance. HUD’s baseline score for many employees were assigned new Improved Financial Performance remains duties and responsibilities, and many new at red because of material weaknesses and employees were hired. The disruptions a disclaimer of opinion received on HUD’s caused by these sweeping changes FY 2004 consolidated financial statements. compounded problems in effectively managing HUD operations. Although HUD’s baseline scores remained unchanged for the second The current Administration has made quarter, actions completed during the several changes to reduce organizational quarter resulted in improved progress layers and improve operations. The scores. HUD’s third quarter 2005 goal is to Departmental Enforcement Center was complete all planned quarterly actions, placed under the direction of the General

HUD’s Management and Performance Challnges 3 Counsel to consolidate legal resources in Financial Management Systems. support of a strong program enforcement HUD’s inventory of automated systems lists effort. The Real Estate Assessment Center 45 information systems as “official (REAC) was placed under the direction of financial systems.” Another 44 information the Assistant Secretary for Public and systems are listed as “other systems Indian Housing to improve REAC’s performing financial functions.” These working relationships with program staff systems, some of which are very old, are and program partners. In addition, the not all operated on the same platform. Since return to the former regional and field FY 1991, we have annually reported that office structure was implemented to give the lack of an integrated financial system HUD’s field operations greater operational in compliance with all Federal Financial control over the administrative budget Management System (FFMS) requirements resources they need to pursue their is a material weakness in internal controls. operating and program goals and to While some progress has been made, a strengthen the local focus on workload number of long-standing deficiencies management to meet national performance remain. goals. For the past several years, our Improving the efficiency and financial audits also reported weaknesses effectiveness of HUD’s programs through in internal controls and security over reorganization efforts requires the HUD’s general data processing operations Department, in part, to sustain operational and specific applications. The effect of these consistency in completed reforms. To weaknesses is that HUD cannot be better ensure operational consistency, it is reasonably assured that system information essential that HUD execute its Strategic will remain confidential, protected from Five-Year Human Capital Management loss, and available to those who need it Plan. The first goal in HUD’s Plan, without interruption. developed in 2003, is to make HUD a mission-focused agency. Getting the right The weaknesses noted in our FY 2004 number of employees in the right location Consolidated Financial Audit relate to the with the right skill mix will improve the need to quality of HUD programs and services by addressing management challenges, Comply with FFMS requirements, reducing program risks, and improving including the need to enhance FHA’s program performance. The relationship information technology systems to between office functions and more effectively support its business departmentwide goals is also reinforced and budget processes; through the Plan’s implementation. HUD’s Plan recognizes that human resources Strengthen controls over HUD’s activities must be aligned with agency goals computing environment; to clearly, efficiently, and effectively support and enable HUD to achieve its Improve personnel security practices mission. for access to the Department’s critical financial systems; and

Management & Performance Challenges & Performance Management HUD’s Management and Performance Challnges 4 Improve the systems and processes by HUD’s resource management for reviewing obligation balances to shortcomings. Accordingly, we consider it ensure that unneeded amounts are critical for the Department to address these deobligated in a timely manner. shortcomings through the successful completion of ongoing plans. To operate HUD’s most significant system effectively and hold individuals responsible deficiencies have existed in FHA, which for performance, HUD needs to know that continues to conduct some day-to-day it has the right number of staff with the business operations with legacy-based proper skills in the right positions. Management & Performance Challenges systems, limiting its ability to integrate its financial processing environment. During To address its human capital needs FY 2003, FHA implemented the Federal and respond to the PMA, HUD developed Housing Administration Subsidiary Ledger a comprehensive Five-Year Strategic (FHASL) financial system. This system Human Capital Management Plan that automated many previously manual identifies three strategic goals for human processes used to (1) consolidate the capital: accounting data received from the various FHA operational legacy systems and (2) Mission-focused agency to align prepare summary entries for posting to employees and work to support the FHASL. FHA continues to make HUD’s mission; progress in its overall compliance with FFMS requirements. In FY 2004, FHA High quality workforce which completed the implementation of its core recruits, develops, manages, and financial system implementation with the retains a diverse workforce; and addition of cash management, funds control, and contract modules. By FY 2007, Effective succession planning to FHA plans to fully integrate program ensure retirees over the next 5 years operations with its core financial system, are succeeded by qualified employees eliminating some legacy systems and reengineering others to implement The human capital management budgetary controls at the source, further plan is the Department’s primary tool reducing the need for manual processing, for advancing its human capital and improving financial operations. transformation. The plan is reviewed annually, and updates or revisions Human Capital Management. For are issued as needed to support many years, one of the Department’s implementation activities. In line with its major challenges has been to effectively strategic plan, HUD has increased its manage its limited staff resources to focus on human capital management accomplish its primary mission. In recent through a variety of initiatives. years, the Department has contracted out numerous functions essential to the To address staffing imbalances and accomplishment of its overall mission, in other human capital challenges, the part due to staffing issues. Many of the Department uses the Resource Estimation weaknesses facing HUD, particularly and Allocation Process (REAP) and the those concerning HUD’s oversight of Total Estimation and Allocation program recipients, are exacerbated Mechanism (TEAM). REAP and TEAM are

HUD’s Management and Performance Challnges 5 HUD’s resource management tools by represents a continuing challenge for which the Department identifies, justifies, the Department. The PMA has analyzes, and makes a recommendation committed HUD to tackling long-standing regarding the optimal level of resources management problems that expose FHA necessary for effective and efficient homebuyers to fraudulent practices. While program administration and management. GAO and the Inspector General have REAP obtains crucial time and workload reported improved monitoring of lender un- data necessary for viable budget estimation derwriting, default tracking, and and execution and to meet the expanded loss mitigation to help reduce Department’s Government Performance mortgage foreclosures, HUD needs to and Results Act requirements. further strengthen lender accountability through policy revisions and take strong In June 2003, HUD awarded a enforcement actions against program abus- contract to conduct a workforce analysis ers that victimize first-time and for the Department. The purposes of the minority homebuyers. workforce analysis studies was to establish future workforce needs, compare them In support of HUD and the PMA, with current capabilities, determine skill OIG’s Strategic Plan for FY 2005 gives gaps, and develop human capital priority to detecting and preventing fraud strategies and actions to close the gaps. In in FHA mortgage lending through targeted September 2004, the contractor completed audits and investigations. Our audits the analysis of HUD’s workforce and target lenders with high default rates. Our provided HUD a consolidated report with detailed testing focuses on mortgage loans 5-year work force projections for planning that have defaulted and resulted in FHA purposes. The contractor’s analysis and insurance losses. Results from these audits report focused on the Department’s core have noted significant lender underwriting business functions, beginning with the deficiencies, prohibited late endorsed Office of Public and Indian Housing (PIH), loans, inadequate quality control, and and then the Office of Community other operational irregularities. Our Planning and Development (CPD), the recommendations have sought monetary Office of Housing, and the Office of Fair recoveries through loan indemnifications Housing and Equal Opportunity (FHEO). exceeding $38 million, loss reimbursements of $2.4 million, and appropriate civil HUD is currently in the process of remedies. During the current semi annual integrating REAP and workforce analysis reporting period, we completed 19 so that they complement one another and external audits of FHA-approved mortgage provide strategic workforce planning lenders as well as one internal audit of direction with the objective of comparing single-family program activities. We also priority needs and making workforce started 31 additional audits of FHA management decisions that best serve the lenders during the period. Additionally, our Department’s mission. investigative workload in single-family fraud prevention continues to grow FHA Single-Family Origination. HUD dramatically. During the current manages about $400 billion in single- semiannual period, OIG opened 133 family insured mortgages. Effective investigation cases and closed 208 cases in management of this high-risk portfolio the single-family housing program area,

Management & Performance Challenges & Performance Management HUD’s Management and Performance Challnges 6 resulting in 214 indictments, 213 arrests, Material weaknesses in the and 108 convictions/pleas/pretrial monitoring of housing agencies and diversions. The audit of FHA’s FY 2004 assisted multifamily projects continue to financial statements also reported a need present obstacles in achieving the intended to place more emphasis on monitoring statutory purposes. These weaknesses have lender underwriting and continuing to been reported for a number of years in our improve single-family early warning and annual audits of HUD’s financial loss prevention. OIG has tailored its statements. audit and investigation techniques to Management & Performance Challenges complement this need, support HUD A material weakness reported in FY management improvements, and provide 2004 concerns a long-standing concern an added deterrence to mortgage fraud. about the calculation of housing assistance We developed a comprehensive training to families. A 2000 HUD study concluded course on auditing single-family lenders that 60 percent of all rent and subsidy and conducting single-family fraud calculations performed by intermediaries investigations. To date, 127 auditors have contained overpayment or underpayment completed the single-family lender errors totaling more than $3.2 billion. In training course. 2003, an update to this study estimated a gross error payment of $1.6 billion. Public and Assisted Housing Program Although still a large amount, this Administration. HUD provides housing represents a 50-percent reduction from the assistance funds under various grant and error estimate completed in 2000. The subsidy programs to public housing reduction is attributed to enhanced agencies and multifamily project owners. program guidance, training, oversight, and These intermediaries, in turn, provide enforcement, as well as improved income housing assistance to benefit primarily low- verification efforts, voluntary compliance income households. PIH and the Office of by tenants due to promotion of the issue, Housing monitor these intermediaries’ an improved computer matching process, administration of the assisted housing and an improved methodology for programs. reviewing income discrepancies. HUD is also validating tenant-reported income Accurate and timely information against other Federal sources and about households participating in HUD considering program simplification options. housing programs is necessary to allow In addition to these efforts, HUD needs HUD to monitor the effectiveness of the to enforce the requirement that program, assess agency compliance with intermediaries report data elements in the regulations, and analyze the impacts of management information system. proposed program changes. The level of Sanctions need to be applied if reporting by agencies is a criterion in both intermediaries do not comply with this the Public Housing Assessment System and requirement. the Section 8 Management Assistance Program (SEMAP) assessment systems for Paralleling HUD efforts, our housing agencies. HUD’s goal is to obtain investigative and audit focus is 100 percent reporting of tenant data into concentrating on fraudulent practices and the system. the lack of compliance with the Section 8

HUD’s Management and Performance Challnges 7 program statute and requirements. To agencies are correctly calculating subsidy comply with the request from Congress, amounts, correctly determining family OIG plans to conduct 20 external audits of income, complying with housing quality the Section 8 Housing Choice Voucher standards, fully using authorized vouchers, program during FY 2005 and has hired an and implementing controls to prevent additional appraiser to assist in evaluating duplicative and fraudulent housing housing quality. In total, these external assistance payments. audits will address whether the housing

Management & Performance Challenges & Performance Management HUD’s Management and Performance Challnges 8 Chapter 2

HUD’s Single-Family Housing Programs he Federal Housing Mortgagees and Loan Administration’s (FHA) single-familyT programs provide mortgage Correspondents insurance to mortgage lenders that, in turn, provide financing to enable individuals The U.S. Department of Housing and and families to purchase new or existing Urban Development (HUD)-OIG audited homes or to rehabilitate existing homes. RBC Mortgage Company, also known as Prism Mortgage, Houston, TX, a mortgagee approved to originate, underwrite, and Audits submit insurance endorsement requests through HUD’s single-family direct During this reporting period, the endorsement process. We selected RBC for Office of Inspector General (OIG) issued 20 audit because of its high late endorsement reports, 1 internal audit and 19 external rate. Our audit objective was to audits, in the single-family housing determine whether RBC complied with program area. These reports disclosed HUD’s regulations, procedures, and more than $2.8 million in questioned instructions in the submission of insurance costs and about $37.9 million in endorsement requests. recommendations that funds be put to better use. We reviewed 18 FHA single- RBC and its contractor submitted 170 family mortgage lenders. late requests for insurance endorsement out of 5,123 loans tested. The loans were either Chart 2.1: Single Family Housing delinquent or otherwise did not meet Reports Issued HUD’s timely payment requirements. RBC and/or its contractor also incorrectly 1 certified that mortgage and escrow accounts were current. RBC lacked adequate procedures and controls to ensure that it and the contractor’s employees followed HUD’s requirements regarding 19 late requests for insurance endorsement. Internal Reports External Reports The improperly submitted loans increased the risk to the FHA insurance fund. Chart 2.2: Single Family Housing Dollars We recommended that RBC indemnify 40,000,000 HUD for any future losses on 138 loans with 30,000,000 a total value of more than $16.2 million. 20,000,000 We also recommended that RBC reimburse HUD approximately $26,000 for the actual 10,000,000 0 loss on a case in which the associated 0 Internal Reports External Reports property was already sold and reimburse Questioned Costs Funds Put to Better Use HUD for any future losses from a claim of more than $24,000 paid on one insured

The chart cost figures in this chapter represent the actual monetary benefits for all reports issued during this semiannual period. The monetary benefits shown in the Profile of Performance represent only those reports with management decisions reached during this semiannual period. Because there is a time lag between report issuance and management decisions, the two totals will not agree.

Single-Family HousingSingle-Family Programs HUD’s Single-Family Housing Programs 10 loan with a total mortgage value of deficiencies resulted from American’s approximately $229,000 once the failure to follow HUD’s requirements, its associated property is sold. We failure to implement an adequate quality recommended that RBC establish and control plan, and its lack of supervision implement an adequate quality control over its loan officers. These deficiencies plan. Further, we recommended that HUD contributed to the high default rate, putting take appropriate administrative action at risk 34 loans totaling more than $3.3 against the employees, contractors, and million in insured loans. principals of RBC, including remedies under the Program Fraud Civil Remedies We recommended that Synergy Act (PFCRA). (Audit Report: 2005-CH- Mortgage, Inc., American’s sponsor on the 1007) loans, indemnify/reimburse HUD against losses on the 34 loans valued at more than We audited American Property $3.3 million and reduce 20 mortgage Programs Single-Family Housing Financial (American), a loan correspondent balances approximately $165,000 for approved to originate FHA mortgage loans incentives to buy disguised as gift funds. through HUD’s single-family direct Additionally, we recommended that endorsement process in San Antonio, TX. American establish controls to ensure that American originated 83 FHA loans personnel are knowledgeable of HUD between February 1, 2002, and January 31, procedures and supervision is adequate to 2004. As of February 23, 2004, 14 of the 83 maintain an effective operation and that loans were in default status. The 14 loans appropriate administrative action is taken. were all underwritten by Synergy (Audit Report: 2005-FW-1004) Mortgage, a loan sponsor for American. Our audit objectives were to determine We completed an audit of First United whether American (1) complied with Mortgage Company, Inc., a mortgagee HUD’s regulations, procedures, and located in Cranford, NJ. The objectives of instructions in the origination of mortgages the audit were to determine whether First and (2) implemented a quality control plan United (1) originated and underwrote according to HUD’s requirements. FHA-insured loans in accordance with HUD’s requirements and (2) designed and American failed to originate loans in implemented a quality control plan. The accordance with HUD requirements. review generally covered the period American used gift funds to pay delinquent between February 1, 2002, and January 31, debts, rolled delinquent debts into 2004, and involved a review of 25 loans mortgage loans, and submitted loans for with mortgage amounts totaling more than unqualified applicants. American used $3 million. inflated appraisals to increase the sales price to accommodate incentives to We found 23 of the 25 loans had at purchase. All 39 loans reviewed involved least one underwriting deficiency, and First the same underwriter, and 35 of the 39 United charged borrowers ineligible involved the same loan officer. American and/or unsupported fees in 24 cases. received more than $185,000 from In addition, we concluded that First originating the 39 loans. As of February 23, United had not implemented its quality 2004, 14 of the loans totaling almost $1.4 control plan in accordance with HUD million were in default status. The requirements.

HUD’s Single-Family Housing Programs 11 We recommended that HUD request originate FHA single-family mortgage First United to (1) indemnify 20 of the 25 loans, because it had a high default rate. loans valued at more than $2.4 million with Our objectives were to determine whether significant underwriting deficiencies, (2) Peoples complied with HUD’s regulations, reimburse borrowers for ineligible and procedures, and instructions in the unsupported fees totaling more than origination of FHA loans and whether $6,000, and (3) provide HUD a corrective Peoples’ quality control plan met HUD action plan containing assurances that all requirements. guidelines pertaining to underwriting and quality controls will be followed. (Audit Peoples’ did not originate all FHA Report: 2005-NY-1002) loans in accordance with HUD’s loan origination requirements. Of the 26 loans We completed a limited review of we selected for review, Peoples did not fully Wachovia Mortgage Corporation comply with FHA requirements for 14 of (Wachovia), a direct endorsement the loans valued at more than $2.4 million. mortgagee. The review was performed on Peoples did not exercise due diligence in one of the mortgagee’s branch offices in the review of assets and gifts or resolve Scottsdale, AZ. We selected this branch signature, Social Security number (SSN), office for review based on the results of a and employment inconsistencies. These previous OIG audit that identified the use deficiencies were caused by a lack of of false credit and employment documents management oversight and contributed to an increased risk to the FHA insurance by a loan correspondent of Wachovia. The fund. Further, Peoples’ quality control plan review objective was to determine whether and the corresponding contract for quality there were fraud indicators in a sample of control reviews did not contain 27 mortgage loan files underwritten by requirements to identify patterns of early Wachovia and if so, whether these defaults or to perform onsite reviews at indicators were identified and resolved branch locations. After these matters were during Wachovia’s underwriting process. brought to its attention, Peoples corrected its loan origination process and its quality We found Wachovia failed to identify assurance plan. and/or follow up on indicators of false credit and/or employment documents We recommended that Peoples take during the underwriting process for all 27 immediate action to correct operational loans totaling approximately $2.9 million. deficiencies and indemnify HUD for 14 As a result, loans were approved based on FHA loans valued at more than $2.4 false information, causing the FHA million. (Audit Report: 2005-PH-1006) insurance fund to assume unnecessary risks. The report recommends that We audited Wells Fargo Bank NA’s Wachovia indemnify/reimburse HUD for Fife Branch Office, Fife, WA, because of any past or future losses on 25 of the 27 the high rate of claims on defaulting loans valued at more than $2.4 million. FHA-insured single-family loans approved (Audit Report: 2005-LA-1803) by this branch. Our audit objective was to determine whether Wells Fargo-Fife acted In Towson, MD, we audited the in a prudent manner and complied with Towson branch of Peoples Mortgage HUD regulations, procedures, and Corporation, a branch approved to instructions in its approval of the

Single-Family HousingSingle-Family Programs HUD’s Single-Family Housing Programs 12 FHA-insured single-family mortgages American did not establish and implement selected for review and whether the adequate controls to ensure its employees mortgagee’s quality control plan met HUD followed HUD requirements when requirements. processing and underwriting loans. In addition, Pan American did not implement Wells Fargo-Fife did not always procedures or controls to ensure all process and approve the defaulting FHA-insured loans that default within 6 FHA-insured loans in accordance with months of closing undergo a loan HUD regulations and guidance. Of the 20 origination quality control review. We loans reviewed, Wells Fargo-Fife approved attribute this deficiency to Pan American’s 13 loans totaling more than $1.7 million, disregard of HUD requirements and which did not meet HUD underwriting instructions. The deficiencies contributed requirements. The underwriting to Pan American’s high default rate and deficiencies included approving loans with increased the risk to the FHA insurance Programs Single-Family Housing unsupported income, unsupported assets, fund. HUD has no assurance of the underreported liabilities, unexplained accuracy, validity, and completeness of Pan derogatory credit information, inadequate American’s loan origination operations. qualifying ratios, and unclear and/or inadequate documentation of important We recommended that HUD require file discrepancies. We determined that Pan American to indemnify almost $1.4 Wells Fargo-Fife’s quality control plan million against future losses on nine loans complied with HUD requirements. and pay down the mortgages of the several overinsured loans by almost $210,000. We We recommended that HUD take further recommended that HUD take appropriate administrative action up to appropriate monitoring measures to ensure and including recovery of losses on more Pan American establishes and implements than $667,000 in paid claims and appropriate controls so that its employees indemnification against future losses on follow HUD requirements when processing loans totaling more than $882,000. (Audit and underwriting loans. Finally, HUD Report: 2005-SE-1004) should require Pan American to take the needed action to ensure the required quality We audited Pan American Financial control plan reviews are conducted. (Audit Corporation, a direct endorsement lender, Report: 2005-AT-1005) in Guaynabo, PR. We selected Pan American because of its high default rate. In Miami, FL, we audited Interstate Pan American did not follow HUD Financial Mortgage Group Corporation. requirements when originating and Interstate is a direct endorsement lender approving 17 FHA-insured loans totaling approved by HUD to originate and approve more than $2.7 million. In 10 loans, Pan FHA-insured mortgages. We selected American did not exercise the care Interstate for review because of risk factors expected of a prudent lender in the analysis associated with defaulted loans. Our audit of the borrower’s assets, earnings, and objectives were to determine whether debts. Pan American also approved seven Interstate (1) complied with HUD loans that did not comply with HUD’s regulations, procedures, and instructions self-sufficiency requirements and were in the origination and underwriting of overinsured by almost $210,000. The FHA-insured single-family mortgages and deficiencies occurred because Pan (2) implemented its quality control plan as

HUD’s Single-Family Housing Programs 13 required. We reviewed a sample of 18 loans to stop using independent loan officers to to accomplish our objectives. originate FHA loans and maintain documentation to justify interest rates, loan Interstate did not follow HUD discount points, or other fees charged. requirements when originating and Further, we recommended that HUD take approving 15 loans totaling more than appropriate measures to ensure Interstate $1.5 million. All 15 loans contained conducts required quality control reviews, underwriting deficiencies that, taken as corrective action is taken and documented a whole, should have led a prudent for all reported deficiencies, and the written person to not approve the loans. quality control plan complies with HUD Interstate approved the loans based on requirements. Finally, we recommended inaccurate employment income and gift that HUD take administrative action as documentation and other deficiencies. This appropriate, up to and including civil occurred because Interstate did not exercise monetary penalties. (Audit Report: 2005- due care in originating and underwriting AT-1007) loans, primarily by not clarifying inconsistencies in the loan files or OIG audited Trust America Mortgage, adequately following up to verify borrower Inc., in Cape Coral, FL. Trust America is income and employment histories. a direct endorsement lender approved Interstate also improperly allowed by HUD to originate and approve independent loan officers to originate FHA-insured single-family mortgages. loans and maintained no supporting We selected Trust America for review documentation to ensure HUD that because of risk factors associated with interest rates, loan discount points, and defaulted loans. other fees were appropriately charged. Further, Interstate did not fully implement The audit objectives were to determine its quality control plan, and the quality whether Trust America (1) complied with control plan was incomplete. We attribute HUD regulations, procedures, and all these deficiencies to Interstate’s instructions in the origination and disregard of HUD requirements and underwriting of FHA-insured single-family instructions. As a result, HUD has no mortgages and (2) implemented its quality assurance of the accuracy, validity, and control plan as required. We reviewed a completeness of Interstate’s loan sample of 17 FHA-insured loans. origination and underwriting operations, and there is increased risk to the FHA Trust America did not follow HUD insurance fund. requirements when originating and approving 16 loans totaling more than $1.9 We recommended that Interstate (1) million. All 16 loans had underwriting indemnify HUD against future losses on deficiencies that, taken as a whole, should 10 loans totaling more than $1 million, (2) have led a prudent lender to not approve reimburse HUD for a loss already incurred the loan. Trust America approved the loans of almost $37,000 on one property, and (3) based on inadequate asset and debt reimburse HUD for a loss, if applicable, on verification and other deficiencies. The another property for which HUD paid a deficiencies occurred because Trust claim of more than $110,000. We also America failed to exercise due care in recommended that HUD require Interstate originating and underwriting loans,

Single-Family HousingSingle-Family Programs HUD’s Single-Family Housing Programs 14 primarily by not clarifying inconsistencies determine whether it properly developed in the loan files. These deficiencies and implemented a quality control plan. increased the risk to the FHA insurance fund. Leader Mortgage did not follow HUD requirements when processing and Trust America did not fully implement submitting loans for FHA insurance its quality control plan. It did not endorsement. It improperly originated conduct the required number of quality seven of the 23 loans reviewed and charged control reviews, including reviews of unallowable costs. These seven loans early-defaulted loans and rejected loan contained deficiencies that affected the applications. Also, Trust America’s quality insurability of the loans, including control plan was incomplete. We attribute unsupported assets, underreported these deficiencies to Trust America’s liabilities, unsupported income, and disregard of HUD requirements and derogatory credit. As a result, the insurance Programs Single-Family Housing instructions and reliance on an fund was placed at risk for more than independent contractor to fulfill its $911,000. Further, Leader Mortgage’s responsibilities. As a result, HUD has quality control plan lacked many required limited assurance of the accuracy, validity, elements, and Leader did not ensure that and completeness of Trust America’s loan it obtained quality control reviews that met origination and underwriting operations. HUD requirements. Leader Mortgage also did not take prompt corrective action We recommended that Trust America when quality control reports identified (1) indemnify HUD against future losses material deficiencies. As a result, HUD on eight loans totaling more than $977,000, lacks assurance that Leader Mortgage is (2) reimburse HUD for a loss already able to ensure the accuracy, validity, and incurred of approximately $17,000 on one completeness of its loan origination property, and (3) reimburse HUD for a operations. loss, if applicable, on another property for which HUD paid a claim of $113,000. We We recommended that appropriate further recommended that HUD take administrative action be taken against appropriate measures to ensure Trust Leader Mortgage based on the information America conducts required quality control contained in our report. This action should, reviews and the written quality control at a minimum, include indemnification for plan complies with HUD requirements. the seven actively insured loans valued at Finally, we recommended that HUD take more than $911,000, reimbursement of administrative action as appropriate, up to appropriate parties for unallowable costs and including civil monetary penalties. charged to borrowers totaling more than (Audit Report: 2005-AT-1008) $3,000, and verification that Leader implements controls to ensure it follows OIG reviewed Leader Mortgage HUD’s quality control requirements. (Audit Company, a direct endorsement lender Report: 2005-KC-1003) located in Lenexa, KS, because its default rate has been significantly higher than In Philadelphia, PA, we audited the HUD’s Kansas City average over the past Philadelphia branch of Fleet National 3 years. Our audit objectives were to Bank, a direct endorsement lender determine whether Leader Mortgage approved to originate FHA single-family properly originated FHA loans and to mortgage loans. We selected Fleet for audit

HUD’s Single-Family Housing Programs 15 because it had a high default rate. Our OIG audited Washington Mutual objectives were to determine whether Fleet Bank, a direct endorsement mortgagee in complied with HUD regulations, Downers Grove, IL. The audit was procedures, and instructions in the conducted because we identified a high origination of FHA loans and whether number of loans with overinsured FHA Fleet’s quality control plan met HUD loan amounts and invalid borrowers’ SSNs. requirements. The audit objectives were to determine whether Washington Mutual (1) exercised Fleet’s Philadelphia branch office did due diligence in resolving or following up not originate all FHA loans in accordance on warnings regarding borrowers’ SSNs with HUD’s loan origination requirements. and (2) funded FHA-insured loans without Of 20 loans we selected for review, the exceeding HUD’s maximum insurable branch office violated HUD requirements limits. for five loans valued at more than $224,000. Fleet did not exercise due diligence in the Washington Mutual Bank did not review of assets and income, did not verify identify and follow up on or resolve rental history, and approved loans with warnings on borrowers’ SSNs for four of excessive debt to income ratios. Fleet also the 22 loans reviewed. We reviewed 22 submitted loans for late endorsement when of the 94 FHA-insured loans that the payment histories of the buyer were not Washington Mutual underwrote from current. We found that seven loans totaling October 2000 through September 2003. We more than $434,000 were from borrowers also found that Washington Mutual funded who had delinquent mortgage payments. 79 of the 94 loans above HUD’s maximum In addition, Fleet’s Philadelphia branch insurable limits. As a result, HUD’s FHA office, contrary to HUD requirements, did insurance fund incurred a loss of more than not provide an accessible business $62,000 on four loans, and the FHA environment for its clients during normal insurance fund remains at risk by more business hours and did not employ a than $393,000 for another 32 loans. branch manager to supervise operations. Finally, the quality control plan provided We recommended that Washington by Fleet did not meet all the requirements Mutual reimburse HUD almost $44,000 for of HUD. the actual loss on one terminated loan in which the borrower had more than one We recommended that HUD take SSN as shown on the borrower’s credit appropriate administrative action, request report, indemnify HUD more than indemnification from Fleet on loans valued $337,000 against future losses from a at more than $619,000 that were issued foreclosed property associated with one contrary to HUD’s loan origination loan and two defaulted loans in which the procedures, and require Fleet to repay more borrowers had invalid SSNs or an SSN than $39,000 on one loan that went into belonging to a deceased person, buy down default, causing HUD to pay a claim. more than $56,000 for the excessive FHA Further, since the Philadelphia branch insurance amounts for the 31 active loans office has been closed, we recommended and one loan with a claim paid, reimburse that HUD ensure the branch is removed HUD approximately $19,000 for the losses from its systems as an approved direct incurred on four loans with overinsured endorsement lender. (Audit Report: 2005- FHA loan amounts that were already sold PH-1005)

Single-Family HousingSingle-Family Programs HUD’s Single-Family Housing Programs 16 by HUD, and implement procedures and functions for compliance with HUD controls to follow HUD’s requirements requirements. (Audit Report: 2005-AT- and/or prudent lending practices 1003) regarding warnings about borrowers’ SSNs and maximum insurable limits. As a result of a complaint, we reviewed Prime Mortgage, a nonsupervised We also recommended that HUD seek loan correspondent in St. Charles, MO, to civil monetary penalties against determine whether it provided funds to an Washington Mutual for the deficiencies FHA borrower to assist with closing costs. cited in this report. (Audit Report: 2005- We found the owner of Prime Mortgage CH-1002) inappropriately provided funds to two borrowers just before closing their loans. We audited American Mortgage For a third loan, Prime Mortgage did not Express Corporation, doing business as obtain adequate documentation of the Programs Single-Family Housing American Residential Mortgage transfer of gift funds. As a result, HUD Corporation, Mt. Laurel, NJ, to determine insured three loans that would not have whether it followed acceptable loan met the minimum requirements to qualify origination procedures. We found for an FHA loan, placing HUD at risk for significant underwriting deficiencies in loans totaling more than $376,000. four of seven loans. American Mortgage Express underwriters did not properly We recommended that HUD take evaluate the borrower liabilities, income, appropriate administrative action against and credit worthiness. The underwriting Prime Mortgage for its improper actions deficiencies occurred because American and against the sponsors of the three loans Mortgage Express did not provide valued at more than $376,000 with adequate control and supervision over the origination deficiencies. We also staff, nor did it have adequate internal recommended that HUD take appropriate procedures in place to prevent the deficient action against Prime Mortgage for underwriting from occurring. As a result, providing funds to FHA borrowers while American Mortgage Express approved making it appear that the funds came from loans for borrowers who were not qualified allowable sources and for providing loans for FHA-insured mortgages. By approving to borrowers to use as funds to close. these loans, American Mortgage Express Additionally, if HUD allows Prime increased HUD’s insurance risk, as three Mortgage to maintain its FHA approval loans with a total unpaid balance of more status, we recommended that HUD verify than $307,000 defaulted and the fourth that it implements controls that ensure it loan foreclosed with an insurance claim of follows HUD’s quality control review almost $104,000. requirements. (Audit Report: 2005-KC- 1001) We recommended that HUD require American Mortgage Express to indemnify OIG reviewed Flagstar Bank FSB, Troy, three loans totaling more than $307,000 MI, a lender approved to originate FHA and reimburse HUD almost $104,000 in mortgage loans through HUD’s single-family claims paid for another loan. In addition, direct endorsement process. We selected HUD should require American Mortgage Flagstar for audit because of its high late Express to monitor all loan underwriting endorsement rate in fiscal years 2002 and

HUD’s Single-Family Housing Programs 17 2003. Our review objectives were to through HUD’s single-family direct determine whether Flagstar complied with endorsement process. We selected Prestige HUD’s regulations, procedures, and for audit because of its high loan default instructions in the submission of insurance rate. Our audit objectives were to determine endorsement requests and payment of whether Prestige (1) complied with HUD’s upfront mortgage insurance premiums to regulations, procedures, and instructions HUD. in the origination of FHA-insured single- family mortgages and (2) implemented a Flagstar implemented improved quality control plan according to HUD’s procedures and controls in January 2004 requirements. to fully comply with HUD’s requirements regarding late requests for endorsement Prestige did not adequately originate and upfront mortgage insurance FHA-insured loans in accordance with premiums. However, before the controls HUD’s requirements. Prestige failed to were strengthened, Flagstar improperly exercise due diligence to verify or support submitted two loans for late endorsement. borrowers’ income, sources of funds, and These two loans increased the risk to the credit information. In addition, Prestige did FHA insurance fund by more than not always ensure that unbiased appraisals $251,000. Flagstar’s employees incorrectly were provided, cash investment certified that one of the two loans’ escrow requirements were met, information on accounts for taxes, hazard insurance, and inconsistencies contained in loan mortgage premiums were current when documents were explained or resolved, they were not. Flagstar’s staff was not and interested third parties were not adequately trained or was not aware of the handling key documentation. Further, late endorsement processing requirements, Prestige charged borrowers for fees that and procedures and controls were were unjustified. Additionally, Prestige insufficient to ensure timely payment of failed to adequately implement its quality upfront mortgage insurance premiums. control process. It did not always review early payment defaults, perform quality We recommended that Flagstar control reviews on loans in a timely indemnify HUD for any future losses on manner, formally and consistently the two loans with a total mortgage value document the actions taken to resolve the of more than $251,000. Also, we deficiencies found during its reviews, and recommended that HUD pursue perform reviews of its branch office. The appropriate remedies under the Program deficiencies stemmed from Prestige’s Fraud Civil Remedies Act against Flagstar unfamiliarity with HUD’s requirements, its and/or its principals for incorrectly failure to adequately implement its quality certifying the escrow accounts for taxes, control plan, and its senior management’s hazard insurance, and mortgage lack of supervision over its employees. premiums were current for one loan These deficiencies contributed to an submitted for FHA insurance endorsement increased risk to the FHA insurance fund. when the escrow accounts were not current. (Audit Report: 2005-CH-1006) We recommended that Prestige’s sponsors indemnify HUD for any future We audited Prestige Mortgage Group, losses on 25 loans with a total value of more Inc. (Prestige), a loan correspondent than $1.8 million. We also recommended approved to originate FHA mortgage loans that Prestige repay the overcharges for loan

Single-Family HousingSingle-Family Programs HUD’s Single-Family Housing Programs 18 discount points totaling more than $13,000 quality control plan has contributed to and establish controls to ensure personnel higher default and claim rates and, are knowledgeable of HUD procedures therefore, unnecessarily high risk to the and supervision is adequate to maintain an FHA insurance fund. effective operation. (Audit Report: 2005- CH-1001) We recommended that HUD take appropriate administrative actions against We audited First Source Financial First Source based on the information USA’s (First Source) Midvale, UT, branch contained in this report. (Audit Report: office. We determined an audit was 2005-DE-1001) warranted based on deficiencies identified in the areas of loan origination and quality Single Family Property control during a prior audit. Disposition Program Programs Single-Family Housing Our objectives were to determine whether the mortgagee complied with In response to a congressional and HUD regulations, procedures, and departmental request, we audited the instructions in the origination of insured Town of Clifton, VA’s participation in loans and whether the mortgagee’s quality HUD’s Single Family Property Disposition control plan met HUD’s requirements. Program. Our objective was to determine whether the Town complied with HUD’s First Source’s Midvale branch office rules and regulations in administering the did not comply with HUD regulations, sales program. Specifically, we wanted to procedures, and instructions in the determine whether the Town origination of 24 of the 25 loans reviewed. appropriately participated under the sales We found employment information that program using the competitive sales was invalid or questionable and/or passed method and properly resold rehabilitated through the hands of an interested third properties. party, the selling agent for the transaction. In addition, contrary to HUD’s The Town of Clifton did not fully requirements, loans were originated by comply with HUD’s rules and regulations nonemployees or independent contractors. in administering its sales program. The HUD suffered a loss of more than $227,000 Town could not adequately support on the sale of four of the properties and property rehabilitation costs claimed on the paid insurance claims of more than properties it sold under the program. As a $183,000 on two of the properties. As of result, some properties were sold at sales June 30, 2004, the remaining 18 loans have prices above the amount allowed by HUD. a total unpaid insured mortgage balance However, we did find the Town was eligible of $2.2 million, which represents a to participate under the program using the continuing or imminent insurance risk. competitive sales process and it did meet First Source has a quality control plan that the requirements in selling the homes to complies with HUD requirements. income-qualified buyers. However, the quality control plan was not implemented, and related quality control Onsite physical home inspections of 10 reviews were not performed at the Midvale properties with the highest dollar repair office. The lack of implementation of a costs out of 89 properties purchased and

HUD’s Single-Family Housing Programs 19 sold by the Town of Clifton confirmed that We determined HUD’s interests are some of the work itemized on the home not adequately protected. HUD intended inspection repair invoices had not been that the sales program be used to benefit performed. In total, we identified more low- to moderate-income individuals. Our than $9,000 in charges for repairs that audit of the Town of Clifton found the local were not made to seven homes and thus government participated in the sales were ineligible. Since we found the process program primarily as a means to raise used to identify and pay for repair costs revenue for the Town. The Town used its was neither accurate nor reliable, we also government status to purchase homes and question more than $205,000 in repair costs then contracted a for-profit entity to for the 10 homes we inspected. manage its program. The Town did not violate HUD requirements by participating We recommended that HUD require in this manner; however, HUD never the Town of Clifton to schedule an intended the sales program to be used for independent inspection of the 79 this purpose. remaining homes it has processed under the discount sales program to verify that We recommended that HUD all work was satisfactorily completed. If strengthen the established criteria work has not been done, the Town should governing local government entities’ pay down the homeowners’ mortgage by participation under the sales program by the appropriate amount. Additionally, implementing criteria similar to those HUD should review the deficiencies noted under which its nonprofits operate. in this report and determine whether the (Audit Report: 2005-PH-0001) Town should be reinstated to participate in the program. Before reinstatement, HUD should require the Town to set up controls and procedures that fully document and verify the claimed net development costs. (Audit Report: 2005- PH-1003)

We issued a second report, “Criteria Governing Local Government Participation in HUD’s Single Family Property Disposition Program,” to address internal control concerns with HUD’s Single Family Property Disposition Program. Our report (2005-PH-1003) of the Town of Clifton, a participant in the sales program, disclosed that requirements for government entities may not protect HUD. The objective of this review was to determine whether HUD’s criteria governing a local government entity’s participation in the sales program adequately protect HUD’s interests.

Single-Family HousingSingle-Family Programs HUD’s Single-Family Housing Programs 20 Investigations Loan Origination/Property- Flipping Schemes During this reporting period, OIG opened 133 investigation cases and closed In New York, NY, in the U.S. Eastern 208 cases in the single-family housing District of New York, defendant Michael program area. Judicial action taken on Fox, a former loan officer of Mortgage these cases during the period included Lending of America, a private mortgage $408,807,294 in investigative recoveries, lending institution in Long Island, NY, was $16,562,279 in funds put to better use, sentenced to 1 year and 1 day of 214 indictments/informations, 108 incarceration, 60 months of supervised convictions/pleas/pretrial diversions, 162 release, a $100 assessment, and restitution administrative actions, 23 civil actions, in the amount of $45,794,260. From Single-Family Housing Programs Single-Family Housing 1 personnel action, and 213 arrests. September 1997 to November 1999, Michael Fox, while working at Mortgage Some of the investigations discussed Lending of America, fraudulently in this report were conducted jointly with originated more than 250 FHA-insured Federal, State, and local law enforcement loans under the HUD 203(K) program to agencies. The results of our more several not-for-profits, including but not significant investigations are described limited to Family Preservation Center, below. Helpline Soul Rescue Ministries, St. Stephens Baptist Church, St. Stephens Chart 2.3: Single Family Recoveries Community Development Corp., St. Other Loan Stephens Bible College, Word of Life False Statements 1% Origination Ministries, Word of Life Community 46% 25% Development Corp., Advance Local Development Corp., and Federation of Puerto Rican Organizations. These HUD 203(k) loans were originated from Flipping Mortgage Lending of America, a defunct 28% mortgage company that was previously Total Recoveries: $408,807,294 based in Long Island, NY.

Chart 2.4: Single Family Funds Also in this Federal court case, Put to Better Use defendant Howard Finger, owner of real estate companies called Hazmats Realty Other Loan Corp., No Exit Place Realty, and One Exit Property 13% Disposition Origination Place Realty, was sentenced to 5 years 28% 43% probation, $19,730,315 in restitution, and a $100 special assessment. All three companies flipped properties to Advance Local Development Corp., a not-for-profit based in New York City. These HUD 203(k) Flipping Total: $16,562,279 16% loans were originated from Mortgage Lending of America.

HUD’s Single-Family Housing Programs 21 In Los Angeles, CA, in Federal Court, mortgage loans and resulted in losses to Central District of California, defendant HUD of more than $5 million. Christina Antolin, a loan processor for Edgardo and Danilo Guinto, was In Kansas City, MO, defendants Brent sentenced to imprisonment for 4 months Barber, Robert Beckley, and Roderick Criss and placed on probation for 3 years for were indicted by a Federal grand jury in violation of two counts of making false the Western District of Missouri on 67 statements and aiding and abetting. counts, including conspiracy, interstate Antolin’s conviction stemmed from her transportation of stolen property, money participation in a single-family “flipping” laundering, and asset forfeiture. The and loan origination scheme by assisting indictment alleges that the defendants in the preparation of mortgage applications participated in a property-flipping scheme in the names of fictitious purchasers. The that caused 84 victim real estate investors loan applications contained false to purchase 223 properties totaling $15.6 employment documents, verifications that million. The indictment seeks the forfeiture the downpayment was from either the of $4 million from Barber. The defendants buyer’s personal funds or a gift, and purchased inexpensive single-family inflated real estate appraisals. The loans properties in inner city Kansas City, were funded using FHA-insured mortgage obtained fraudulent property appraisals loans and resulted in losses to HUD in the inflated by tens of thousands of dollars, and amount of $5,691,556. The sentence was sold them to victim investors. Investors handed down after Antolin was arrested believed they were buying the properties while trying to reenter the country after at true market value, that they were buying fleeing to avoid prosecution. the properties for no money down, and that renters, including those receiving Section In the same case, defendant Elizabeth 8 rental assistance, occupied the properties. Candella Guinto, a loan processor for In fact, the properties were often unrented, Edgardo and Danilo Guinto, was uninhabitable, and purchased based on sentenced in Federal Court, Central downpayments provided by the District of California, to 5 months of home defendants without the buyers’ knowledge. detention, placed on probation for 3 years, Additionally, the defendants falsified and ordered to pay restitution of $5,863,715 numerous loan application documents, (jointly and severally with Dan and Ed enabling investors to unknowingly Guinto) for violation of two counts of purchase properties for which they would making false statements and aiding and otherwise not qualify. The scheme resulted abetting. Guinto’s conviction stemmed in significant property foreclosures and from her participation in a single-family financial losses to investors and lending “flipping” and loan origination scheme by institutions. assisting in the preparation of mortgage applications in the names of fictitious Also, defendant Peggy J. Ries, formerly purchasers. The loan applications doing business as Appraisals by Peggy, contained false employment documents, Raytown, MO, pled guilty in Federal verifications that the downpayment was Court, Western District of Missouri, to from either the buyer’s personal funds or felony charges that she conspired with a gift, and inflated real estate appraisals. others to commit interstate transportation The loans were funded using FHA-insured of stolen property related to her role in a

Single-Family HousingSingle-Family Programs HUD’s Single-Family Housing Programs 22 property-flipping scheme. Ries and others million scheme that used crack cocaine caused victim real estate investors to profits to buy abandoned and dilapidated purchase 75 properties totaling $4.3 residential properties in Camden. Jenkins million. Ries’ coconspirators purchased arranged cosmetic repairs on the properties inexpensive single-family properties in by paying his contractor in crack cocaine. inner city Kansas City for which Ries Jenkins then “flipped” the properties at an created fraudulent property appraisals inflated price by securing fraudulent inflated by tens of thousands of dollars. HUD-insured loans for unsophisticated and unqualified borrowers. Jenkins, along A Federal grand jury in Las Vegas, with Sabena Ingalls, a licensed real estate NV, indicted defendant Mark Young, agent, targeted naïve and illiterate former branch manager/owner for individuals to purchase properties. Jenkins Nevada First Residential Mortgage and his coconspirators created false and Company, in a superseding indictment to fraudulent paperwork, such as Internal Programs Single-Family Housing 64 counts charging him with submitting Revenue Service (IRS) W-2 forms, pay false information to HUD, mail fraud, stubs, IRS tax forms, and credit conspiracy, obstruction of an official verifications. Several borrowers testified in proceeding, witness tampering, and aiding court that the homes were in poor condition and abetting. Two forfeiture allegations and that they were forced to move out were added to the indictment totaling within weeks or months due to faulty $2,912,465. From May 2000 to June 2002, plumbing, electrical hazards, water Young directed loan officers and processors damage, holes in the roof, and wood rot. in the origination of 233 fraudulent FHA Jenkins and his coconspirators reaped large loans valued at more than $25 million. He profits from the sales of 26 properties, conspired with other mortgage company including 18 which involved a employees and employees of General Realty HUD-insured loan. Fifteen of the 18 to manufacture and submit false HUD-insured borrowers defaulted on their employment and income documentation loans. As a result of his conviction, Jenkins for borrowers. Most of the buyers were conceded to a forfeiture of $1,692,785. illegal immigrants from Mexico. To date, Jenkins, along with Thomas Harper, Sebena 58 loans have gone into default with a total Ingalls, Walter Jenkins, Ronald Rogers, and value more than $6.2 million and a loss to Delores Lewis Jones, was indicted on HUD of more than $1.9 million. Nevada October 29, 2003, as part of a 37-count First Residential Mortgage Company is no indictment and arrested on October 30, longer in business. 2003. The above five coconspirators of Jenkins had previously pled guilty and In Camden, NJ, a Federal jury in U.S. testified against him. Sentencing is District Court, District of New Jersey, scheduled. found defendant Kenneth Jenkins guilty on 1 count of conspiracy to commit mail In Greenbelt, MD, property fraud, 10 counts of conspiracy to commit speculator, John Bryant, and his wife, wire fraud, 1 count of conspiracy to possess Monica Silver, a real estate agent with and/or distribute a controlled substance, Re/Max Professionals, were sentenced in 1 count of money laundering, and 9 counts Federal Court, District of Maryland, for of conspiracy to commit money laundering. their admitted role in an FHA fraud Jenkins, a major Camden, NJ, drug scheme. Bryant was sentenced to 15 wholesaler, organized and operated a $1 months incarceration, to be followed by 36

HUD’s Single-Family Housing Programs 23 months supervised release. Silver was indictments against several defendants for sentenced to 6 months home detention, to their participation in a single-family loan be followed by 60 months supervised origination scheme involving 40 properties release. In addition, they were ordered to insured through the FHA 203(b) insurance pay restitution totaling $1.3 million to HUD program totaling $6,723,937. The actual and various other lenders. The loss to date is $309,732, and restitution will investigation revealed that the defendants, be recommended in the amount of along with six others who were previously $388,205. The Government has also convicted and sentenced, participated in requested that the defendants pay $174,009 a scheme whereby Bryant would purchase in disgorgement from the profits made distressed homes and then flip them at when the properties were sold. inflated prices to unqualified buyers, who were made eligible for FHA-insured Defendants Linda Carnagie, a loan mortgages through the use of false income, officer working for Highland Mortgage, employment, and credit information. In all, and Nina Cameron, a loan officer working Bryant purchased a total of 41 homes for for Acclaim Mortgage/Affiliated Mortgage, speculative and investment purposes, and each had an agreement to kick back a many of the homes that were flipped with percentage of each home sale to Roderick FHA mortgages later went into foreclosure. Wesson, who for a price from $500 and Silver used her real estate contacts to $1,000, would provide false SSNs and false identify homes that Bryant would income information in the form of IRS W-2 purchase, and in many cases, she earned forms and pay stubs. Wesson would also a fee as the realtor of record on the flipped verbally verify income if needed. Defendant transactions. Carnagie was charged with 1 count of conspiracy, 15 counts of wire fraud, 13 In the District of New Jersey, Trenton, counts of making false statements, and 12 NJ, defendant Allen J. Meyer, a closing counts of misuse of an SSN. Defendant attorney for the defunct Mortgage Cameron was charged with one count of Acceptance Corporation, was sentenced to conspiracy and one count of mail fraud. 1 year of confinement and ordered to pay $566,338 in restitution. Meyer previously Defendant James Galloway, a real pled guilty to one count of conspiracy to estate agent for Colorado Classic commit offense or to defraud the United Properties, and Warren Williams entered States. As part of a loan origination and into an agreement requiring Galloway to land-flipping scheme, Meyer falsified provide Williams a kickback on loans that mortgage loan applications and related closed using false information provided by documents to obtain FHA-insured loans Williams. Galloway was charged with one for unqualified borrowers. Meyers’ count of conspiracy, six counts of wire sentencing was based on 11 loans with a fraud, five counts of misuse of an SSN, and loss to HUD of $566,338. Meyer committed four counts of making false statements. these acts during the period of March 27, 1997, through September 2, 1998. Total Defendant Antonio Del Valle, a loan losses to HUD from this case are $1,190,579 officer for Yes Capital Funding and VMP for 25 FHA loans. Funding, worked for a time with Warren Williams, who was also a loan officer. Del In Denver, CO, a Federal grand jury Valle and Williams worked together to for the District of Colorado returned determine the amount of money the

Single-Family HousingSingle-Family Programs HUD’s Single-Family Housing Programs 24 borrower needed to earn to qualify for the verification documents from known FHA-insured loan. Defendant Del Valle forgers who fabricated or inflated the and Williams produced the false income incomes of the buyers. The false forms were information using false SSNs provided by used to make it appear as though the Williams. Defendant Del Valle was charged buyers qualified for FHA-insured home with one count of conspiracy, one count mortgage loans. As a result of Montenegro’s of wire fraud, and one count of misuse of involvement in the scheme, HUD approved an SSN. Defendant Albertico Galindo, a approximately $1,081,850 in fraudulent former FHA-insured homebuyer, was home mortgage loans that resulted in an arrested as a result of his earlier indictment approximate loss of $325,000. by the Federal grand jury for the District of Colorado for making false statements on In the U.S. District Court, District of a loan application, which enabled him to Colorado, Denver, CO, defendant Warren obtain an FHA-insured home using false Williams, an organizer/loan officer Programs Single-Family Housing income information. involved in a fraudulent real estate scheme that used falsified documents to In Spokane, WA, in Federal District assist homebuyers in qualifying for Court, Eastern District of Washington, FHA 203(b)-insured mortgages, was defendant John Hansen, a real estate sentenced to 18 months confinement and appraiser doing business as John Hansen 3 years probation and was ordered to pay Appraisals, was sentenced as a result of a $142,337 in restitution and a $100 special felony conviction for his role in a scheme assessment fee. Williams previously entered to defraud lenders and flip numerous into a plea agreement with the U.S. homes at inflated prices. Hansen was Government and pled guilty to conspiracy sentenced to 18 months of incarceration, for his involvement in the loan origination to be followed by 36 months of supervised scheme. Williams charged loan officers and release and restitution of $287,797. Four real estate agents a fee that ranged from other defendants in the case were $500 to $1,000 per transaction to provide previously sentenced. Hansen provided homebuyers with false SSNs as well as false inflated appraisals of properties for his part IRS W2 forms and pay stubs. Williams was of an elaborate scheme to defraud paid this fee/kickback once the loans were vulnerable borrowers and their lenders. closed. The closed loans totaled $3,817,760, and the actual loss to date is $188,832. In Los Angeles, CA, in Federal Restitution of $250,900 from the sales of District Court, Central District of the properties is being sought. California, defendant Virginia Montenegro was sentenced to 6 months of incarceration, In Los Angeles, CA, in Federal District to be followed by 36 months supervised Court, Central District of California, release, and ordered to pay restitution of defendant Sergio Fernandez, real estate $229,376 and a fine of $100 for wire fraud. agent, was sentenced to 12 months and 1 day The investigation found that Montenegro of incarceration, to be followed by 36 months was a coconspirator in a loan origination supervised release, and ordered to pay scheme in which she recruited unqualified restitution of $250,097 and a fine of $100 for buyers to purchase homes with FHA- mail fraud. Fernandez was a coconspirator insured loans, thus defrauding the HUD in a fraudulent loan origination scheme in single-family program. Montenegro which he obtained false employment and purchased false employment and income income verification forms that fabricated

HUD’s Single-Family Housing Programs 25 or inflated the income of straw buyers. The Sammartano were associated with false forms were used to make it appear as approximately 18 fraudulent FHA though the straw buyers qualified for FHA- mortgages and 13 U.S. Department of insured home mortgage loans. As a result Agriculture loans with a value of of Fernandez’ involvement in the scheme, $2,473,744. HUD approved approximately $981,853 in fraudulent home mortgage loans, which In Jacksonville, FL, in U.S. District resulted in an approximate loss of Court, Middle District of Florida, $300,348. defendants Patrick Singletary, Robert Singletary, Peter Russo, and Clifford Shaw In Trenton, NJ, in the U.S. District were indicted on 22 charges involving Court, District of New Jersey, defendant conspiracy, making false statements to Frank Pepe, Jr., a HUD-certified appraiser HUD, wire/bank fraud, and money and owner of The Home Consultants and laundering. Also named in the indictment SSP Investments, pled guilty to an were the business entities CAL information charging him with three Investments of North Florida, Eagle counts of conspiracy to commit false Investments of North Florida, Sunshine statements. Pepe purchased various Management of North Florida, Sunshine properties under the names of his Mortgage Services of North Florida, companies. He did not disclose his Universal Title Services of North Florida, ownership in these companies, and the Dack Properties of Jacksonville, Tropical properties were flipped to mortgagors. Pepe Mortgage of North Florida, Extreme also appraised these properties. Pepe Investments of North Florida, Global conspired with codefendant, Kim Investments of North Florida, and Shaw Sammartano, branch manager/loan Properties of Jacksonville. The scheme officer, American Home loans, to create involved investor property flipping of HUD and submit fraudulent documentation, real estate owned (REO) properties, FHA which assisted borrowers in obtaining loan origination fraud, and bank fraud. FHA mortgages. FHA insured approximately $100 million in loans generated by the subjects and their Defendant Kim Sammartano, businesses. HUD’s current loss on defaulted Manahawkin, NJ, was sentenced in U.S. loans is approximately $9 million. Patrick District Court, District of New Jersey, to 5 Singletary is a former professional football years probation, 6 months home player for the Philadelphia Eagles. confinement, restitution of $109,000, and a $100 special assessment fee. Sammartano In Newark, NJ, defendant Brian Lyles, pled guilty to conspiracy to commit false a real estate investor, surrendered to the statements. Sammartano created and U.S. Marshal’s Service and appeared in submitted fraudulent documentation, U.S. District Court, District of New Jersey. which assisted borrowers in obtaining Lyles pled guilty to one count of conspiracy FHA mortgages. Sammartano and Pepe to commit mail fraud and making false created and submitted fraudulent IRS W- statements. A sentencing date of May 5, 2 forms, pay stubs, false verifications of 2005, was set, and Lyles was released on a employment, false verifications of $100,000 personal recognizance bond. The rent, false gift letters, and other investigation, which concerns mortgage qualifying documents in the borrower’s fraud, began with Lyles’ purchase of FHA-mortgage application. Pepe and residential homes, which he then flipped

Single-Family HousingSingle-Family Programs HUD’s Single-Family Housing Programs 26 at falsely inflated prices. Unqualified transactions. The investigation revealed buyers were recruited to purchase these that defendant Dronet, individually and homes. Fraudulent mortgage applications through various corporate entities under were completed, along with fraudulent his control, would purchase distressed bank statements, false appraisals, false properties in Anne Arundel County, MD, employment documents, false employment at bargain rates. He would then flip the verifications, and false gift letters. This properties at inflated prices to innocent, activity resulted in fraudulent loans valued first-time homebuyers, whom he qualified at $3,977,224, which to date, have resulted for FHA mortgages through the use of false in a loss to HUD in the amount of $881,292. employment documents, false gift letters and gift checks, and false credit In Los Angeles, CA, in Federal Court, information. Defendant Aconti prepared Central District of California, defendant and submitted the loan packages to Capital Sandra Ruiz, a loan officer, was convicted, Mortgage knowing that they contained the Programs Single-Family Housing following a jury trial, of one count of false information. Most if not all of the conspiracy and two counts of making mortgagors eventually defaulted on their false statements to HUD. This investigation payments. Approximately 40 properties began after OIG received a referral from are involved with an estimated loss of at North American Mortgage Corporation least $650,000 to the FHA insurance fund. (NAMC) of Montebello, CA. The defendant was a loan officer at NAMC In the Eastern District Court of from 1995-1999. An NAMC internal Missouri, St. Louis, MO, defendant Robert investigation revealed discrepancies in Wright pled guilty to one count of bank some of the defendant’s FHA-insured fraud. Wright and his sister, Kim Crowder, home loan applications, including the who owned KRW Capital Corporation, a presence of false income, employment, and mortgage brokerage company, flipped credit-related information. Following an properties to unsuspecting and unqualified OIG investigation and a week-long trial in buyers. Wright and Crowder were which borrowers and cooperating responsible for more than $2.2 million in defendants/coconspirators testified fraudulent loans, resulting in more than against her, Ruiz was convicted of $475,000 in losses. Crowder was previously forwarding loans for unqualified indicted for bank fraud, wire fraud, tax borrowers to HUD for FHA insurance. She evasion, and money laundering. fraudulently originated more than 20 FHA- insured loans, causing more than $800,000 In the Northern District of Illinois, in losses to HUD. Three other real estate Rockford, IL, defendant Jae Horn-Gerber, professionals have already pled guilty as a also known as Jae Rank, pled guilty to one result of this investigation, and additional count of making false statements to HUD, suspects are being pursued. a misdemeanor. As part of her plea agreement, Rank accepted responsibility In Federal Court in Baltimore, MD, for losses to HUD totaling $337,195. defendants Michael K. Dronet, a speculator, and Bart Aconti, a loan officer Horn-Gerber was a licensed real estate for Capital Mortgage, were indicted for agent and employed by codefendant participating in a scheme to furnish false Gordon Nelson as the Vice President and statements to Capital Mortgage on Director of Marketing for his companies. numerous FHA-insured mortgage It was Horn-Gerber’s primary duty to show

HUD’s Single-Family Housing Programs 27 homes for sale on behalf of Nelson’s conventional loans and $165,000 in companies to prospective homebuyers and FHA-insured loans. then help initiate the mortgage loan application process. Rank, as part of her Also, defendant Darron Banks, owner plea, admitted to her participation in a of New Land Title, was charged in a scheme, in which gift letters were created 28-count indictment alleging bank fraud, for buyers to make it appear that the funds wire fraud, conspiracy, and money came from a friend or a relative when, as laundering. Darron Banks was a Horn-Gerber knew, the buyer had received participant in an illegal land-flipping the money from Nelson or one of his scheme involving FHA and conventional companies. Other codefendants in this loans devised to defraud the United States. case, Marcos Reyes and Lynn Martz, have pled guilty, while Nelson has yet to plead. Defendant Galen Wade, a real estate appraisal apprentice, has been charged in In Federal Court, in Dallas, TX, a 28-count indictment alleging bank fraud, defendant Alan Banks, co-owner, New wire fraud, conspiracy, and money Land Title, was charged in a 28-count laundering. Galen Wade was a participant indictment alleging bank fraud, wire fraud, in an illegal land-flipping scheme involving conspiracy, and money laundering. Alan FHA and conventional loans devised to Banks was a participant in an illegal defraud the United States. Wade was an land-flipping scheme involving FHA and apprentice for a legitimate real estate conventional loans devised to defraud the appraiser. He used the appraiser’s license United States. Banks and his associates number without his knowledge and recruited straw borrowers and straw prepared false appraisals for a fee to assist purchasers and paid them a fee to use their his associates in carrying out a fraudulent credit for the purchase of residential land-flipping scheme. Wade was paid property. The straw borrowers and straw $300-$65,000 for his role in the scheme. purchasers were told that they were Eventually, Wade became involved in “investors” and that property would recruiting straw borrowers and straw remain in their name for approximately purchasers who were paid a fee to use their 12-18 months, during which time the credit for the purchase of residential property would be leased out. The property. “investors” were unaware that the property was being sold to them at a Defendant Katrina Crenshaw, significantly inflated amount and that Closing Agent, Texas Title Company, was Banks and his associates were walking charged in a 28-count indictment alleging away from the transaction with thousands bank fraud, wire fraud, conspiracy, and of dollars. The lender was also unaware of money laundering. Crenshaw was one of monies that were being distributed to the participants in an illegal land-flipping Banks from the loan proceeds. The scheme involving FHA and conventional mortgage payments were not made, loans devised to defraud the United States. resulting in the foreclosure of the Crenshaw received a $3,000 payment for properties. Banks was able to carry out the closing an illegal loan transaction. She scheme due to his ownership and position worked at a title company as a settlement as a settlement agent for the title company. agent, enabling her to flip the properties. To date, the loss is $4.5 million in The scheme involved the recruiting of straw

Single-Family HousingSingle-Family Programs HUD’s Single-Family Housing Programs 28 borrowers and straw purchasers who were brokerage company, and Absolute told that they were “investors.” Abstract and Title Company, a title company, both located in Little Rock, AR. Defendant Mark Dean, also known as Michael Dorsey was Comptroller of Mark Banks, the step-son of New Land Freedom and managed Absolute. Casey Title owner Darron Banks, was charged in Miller and Katrina Bowen Soukkaseum a 28-count indictment alleging bank fraud, were Freedom team managers who each wire fraud, conspiracy, and money managed a group of loan officers at laundering. Dean was a participant in an separate Freedom branches. illegal land-flipping scheme involving FHA and conventional loans devised to defraud From January 2000 to March 2002, the the United States. Dean and his associates above defendants allegedly conspired with recruited straw borrowers and straw one another to commit loan origination purchasers and paid them a fee to use their fraud and Real Estate Settlement and Programs Single-Family Housing credit for the purchase of residential Procedures Act (RESPA) violations relating property. to at least 84 loans valued at more than $3.5 million, containing undisclosed In U.S. District Court, District of New inflated fees and materially false and Jersey, Newark, NJ, defendant Sholom misleading information. Freedom and Moskowitz appeared before Honorable Absolute employees under the direction of William Bassler and pled guilty to a Nelson Miller allegedly altered and five-count information, charging him with otherwise falsified loan origination and title tax evasion in connection with his U.S. history documents on mortgage loan Individual Income Tax Return (Form 1040) originations. Freedom employees also for calendar year 2000, bank fraud, and allegedly conspired to commit RESPA making a false statement to a financial violations by charging borrowers institution (concerning FHA-insured exorbitant document preparation fees mortgages). This investigation concerns payable to Jefferson Doc Prep, a shell mortgage loan origination fraud. company created by Nelson Miller, without Fraudulent mortgage applications, false disclosing to the borrowers the relationship appraisals, false employment documents, between Freedom and Jefferson Doc Prep; false employment verifications, and false by charging borrowers exorbitant loan gift letters were completed in order for origination fees while also receiving large unqualified buyers to purchase homes. This yield spread premiums from funding activity resulted in fraudulent loans valued lenders; and by failing to disclose to at $1,249,921, which to date, have resulted borrowers and funding lenders the closely in a loss to HUD in the amount of $109,668. held relationships among Freedom, Absolute, and Jefferson Doc Prep. Defendants Nelson Miller, Michael Dorsey, Bertram Case “Casey” Miller, and Equity Skimming Katrina Bowen Soukkaseum were indicted Equity Skimming by a Federal grand jury in the Eastern District of Arkansas, Little Rock, AR, on In District Court, Western District of 1 count of conspiracy and 15 counts of wire New York, Rochester, NY, defendant fraud. Nelson Miller was the owner and Edwin “Andy” Kane pled guilty to one Chief Executive Officer of Freedom count of equity skimming. Kane devised a Financial Mortgage Company, a mortgage scheme in which he purchased numerous

HUD’s Single-Family Housing Programs 29 FHA-insured properties throughout the pled guilty to a Federal information city of Rochester, NY. At the time of charging him with conspiracy to commit purchase, all of the properties were rented wire fraud, money laundering, income tax to tenants. Kane continued to collect the evasion, and filing false entries in rents on the properties but failed to pay statements to HUD. Grubba conspired with the FHA mortgages, causing the Michael J. Fanghella and PinnFund Chief properties to go into foreclosure. To date, Financial Officer John Garitta to deceive more than 30 properties have been investors and perpetuate a “ponzi” scheme foreclosed upon, resulting in a loss of by preparing and disseminating false approximately $1,140,000 to HUD due to financial statements. Grubba failed to Kane’s actions. Kane could be sentenced declare his full income on Federal income to up to 5 years imprisonment, a fine of tax returns for 1997 through 2000, with $250,000, or both and a term of supervised total taxes due of approximately $2.5 release of 2 to 3 years. million. Officer Next Door Program PinnFund was a subprime lender and a HUD-approved direct endorsement lender. Michael Fanghella, founder and In the Federal Court, Central District director of PinnFund, along with other of California, Los Angeles, CA, defendant PinnFund officers, concealed from investors James Derrick Stewart was sentenced to the fact that PinnFund lost $200 million pay $50,000 in restitution to HUD and a from the mortgage business while soliciting $2,000 fine. Stewart was also sentenced to new investor money. From 1997 through serve 3 years of probation, with the first 2000, Fanghella gave investors money 4 months served on home detention with contributed by new investors and falsely electronic monitoring. Stewart is also to represented to them that these funds were serve 100 hours of community service. earnings or returns on capital. Fanghella Stewart was a former correctional officer was sentenced to 10 years in Federal prison with the California Youth Authority who after he pled guilty to conspiracy to commit purchased a house in Rialto, CA, and wire fraud, conspiracy to commit money received a 50-percent discount through the laundering, tax evasion, and filing a false Officer Next Door (OND) program. entry with HUD. Stewart never resided on the property and instead rented it out to tenants. This was In Federal Court, Western District of in direct violation of HUD’s OND program Pennsylvania, Pittsburgh, PA, defendants regulations which state that an officer must Terry Boring and William McKee, formerly live on the property for 3 years. doing business as Zintron Corporation, pled guilty to charges that they conspired Conspiracy and False Statements to defraud HUD and numerous homeowners in connection with the Title I In Federal Court in San Diego, CA, home improvement program. Boring was defendant Keith G. Grubba, former sentenced to 27 months incarceration, to President of PinnFund U.S.A., Inc., was be followed by 60 months of supervised sentenced to 63 months imprisonment, to release, and McKee was sentenced to 23 be followed by 60 months supervised months incarceration, to be followed by 60 release, and ordered to pay restitution of months supervised release. The defendants $187,665,543. On January 30, 2003, Grubba were also ordered to make restitution to

Single-Family HousingSingle-Family Programs HUD’s Single-Family Housing Programs 30 HUD and to homeowners in the amount sentence. Graham pled guilty to conspiracy of $1.3 million. McKee was also required and making false statements. Graham to forfeit three luxury classic automobiles. helped AIMB by ensuring that questionable The investigation disclosed that the homebuyers located in the New York defendants would market home metropolitan area would qualify for improvements door to door to elderly and FHA-insured loans. low-income homeowners. They claimed affiliation with HUD-FHA and convinced In U.S. District Court in Chicago, IL, many homeowners to order work that was defendant Yinka Otabor, the Executive excessive or not needed and then qualify Director of Hope, a HUD-approved direct them for home improvement loans by sales nonprofit, was sentenced to 6 months falsifying material information such as home confinement, 4 years probation, and their income and credit worthiness. A total restitution in the amount of $94,627. of 41 Title I loans defaulted, resulting in Saundra Mayfield, an investor, was Programs Single-Family Housing claims to HUD in excess of $600,000, in sentenced to 8 months in prison, 3 years addition to many conventional home probation, and restitution in the improvement loans that defaulted. amount of $185,431. Paul Crutchfield, the Executive Director of Omega, a In Federal Court in Lake Success, NY, HUD-approved direct sales nonprofit, was defendant Lenore Thomas, former Loan sentenced to 12 months in prison, 3 years Processor and Underwriter, American probation, restitution totaling $376,190 (of International Mortgage Bankers (AIMB), which $143,772 had been paid prior to Lake Success, NY, pled guilty to sentencing), and a $5,000 fine. conspiracy. She was sentenced to 36 months of supervisory probation. Several Crutchfield and Mayfield pled guilty employees from AIMB assisted in obtaining for their role in an elaborate scheme to use FHA-insured loans from questionable HUD-REO properties, which were homebuyers located in the New York purchased under the direct sales program metropolitan area, including Nassau and with a 30-percent discount. Otabor, Suffolk Counties. More than 90 percent of Crutchfield, and Mayfield admitted to the FHA-insured loans from AIMB violating HUD’s direct sales program rules contained one or a variety of altered by fraudulently concealing the nature of documents, including false pay stubs, bank the transactions from HUD and making statements, IRS W-2 forms, rent material misrepresentations to HUD verifications, verifications of employment, relating to the purchase, ownership, and verifications of deposit, credit worthiness disposition of the homes. In particular, the letters, gift letters and credit reports. HUD-REO properties were used as investments for family members and In the same case, in Federal Court, friends or Section 8 rental properties or Eastern District of New York, defendant were resold to unqualified buyers with FHA Nicholas Graham, an outside contractor insurance through the submission of false working with AIMB in Lake Success, NY, rehabilitation documents, phony gift was sentenced to 41 months incarceration letters, and fraudulent employment. and 3 years probation and was required to pay a court ordered restitution of In U.S. District Court at Chicago, IL, $878,235. He may also face the possibility defendant Virgil Griffin pled guilty to one of being deported after serving his count of mail fraud. This plea also held that

HUD’s Single-Family Housing Programs 31 Griffin was responsible for restitution in to 1 year and 1 day in prison and ordered the amount of $216,378. Griffin was part to pay restitution of $230,481. Defendant of a scheme in which seven other Smith’s brother, defendant Mario McGee, individuals, James Rucker, Gregory Jacobs, was also sentenced to serve 6 months in Stephen Lawhorn, Tina Hoard, Patricia prison and ordered to pay $140,508 in Mays, Carmen Perry, and William Scott, restitution. Defendants Smith and McGee were also charged. Griffin admitted that, previously pled guilty to making false as soon as he began working at statements to HUD and misuse of an SSN. Comprehensive Mortgage and continuing Mardell Smith participated in a mortgage through his employment at Design fraud scheme that involved submitting Mortgage Corporation, he created and false information on loan applications for submitted false loan documents. These the purchase of residential real estate, included IRS W-2 forms, pay stubs, rent knowing that the loans would be offered payment checks, verification of deposits, to HUD for insurance. The scheme verification of employment, and other false involved using employer identification documents to be placed into loan files. numbers as SSNs and the submission of false income documents. In the same case, in Chicago, IL, U.S. District Court, defendant William Scott In Greenbelt, MD, in Federal Court, pled guilty to one count of wire fraud. Also, District of Maryland, defendant Lynn defendant Stephen Lawhorn pled guilty to Kromminga, a settlement attorney, was one count of mail fraud. While Scott was sentenced to 12 months incarceration, to responsible for restitution in the amount be followed by 36 months supervised of $66,851, Lawhorn’s restitution was in release, fined $3,000, and ordered to repay the amount of $177,000. As part of his plea, $299,479 to HUD and other lenders. Scott accepted responsibility for his role in Kromminga had previously pled guilty to initiating fraudulent loan packages and conspiring with codefendant John Bryant, assisting in the setup of shell a speculator, to prepare false settlement companies, known as Pinnacle Investment statements in 1998 and 1999 on FHA and Corporation of America, Wescorp conventional loans. The defendant also Financial, Inc., and Wescorp Realty Corp., admitted that he prepared fraudulent title while employed at Comprehensive insurance policies to facilitate settlements. Mortgage Corp. Lawhorn admitted to signing fraudulent loan applications, In Los Angeles, CA, defendant Emma completing phony land contracts, and Barrientes agreed to pay a penalty of creating fictitious IRS W-2 forms. The $5,500 to HUD pursuant to a PFCRA purpose of these companies was to settlement. Barrientes was previously purchase properties using false information sentenced criminally in the Federal Court, on the loan application, forging other Central District of California, to pay people’s names on verification forms, and $125,772 in restitution to HUD and serve creating false documents for loan files such 4 months in jail. As a loan officer for Star as tax returns and bank checks. Funding, Inc., Barrientes assisted two ineligible borrowers in obtaining In St. Louis, MO, in Federal Court, HUD-insured mortgages. Barrientes Eastern District of Missouri, defendant prepared false loan applications supported Mardell McGee Smith, owner of New by false documentation concerning Alliance Enterprises, Inc., was sentenced financial circumstances and eligibility for

Single-Family HousingSingle-Family Programs HUD’s Single-Family Housing Programs 32 mortgage insurance. The false information Federal agency. Reynolds was also ordered concerning financial documents included to pay restitution in the amount of IRS W-2 forms. Barrientes caused the $100,310 to HUD. borrowers to sign certifications stating that the information was true and correct, In Los Angeles, CA, defendant Raul although she knew the information to be Altamirano agreed to make a payment of false. Barrientes submitted the false loan $40,754 to HUD pursuant to a PFCRA applications to her employer for approval settlement. Altamirano worked as a real and submission to HUD for insurance. estate agent for Dynamic Brokers, Inc., in Barrientes caused the lender to sign a Montebello, CA. Altamirano purchased certification that the information was true false and fraudulent pay stubs and IRS W- and accurate, although she knew it to be 2 forms from forgers in the names of false. unqualified borrowers to qualify them for FHA-insured loans. Altamirano was Programs Single-Family Housing In Federal Court, Central District, in indicted on June 10, 2002, sentenced on Sun Valley, CA, defendant Antonio January 13, 2003, to probation for 3 years, Esquivel was sentenced to serve 15 months and ordered to pay $47,527 in restitution in prison. He was also ordered to pay to HUD. $108,580 in restitution to HUD. He previously pled guilty to two counts of Defendant Rogelio Gonzalez Jr. was making false statements to HUD. In June sentenced in Federal District Court, Central 1999, Esquivel submitted a fraudulent District of California, Los Angeles, CA, to FHA-insured home mortgage loan serve 1 year of probation and to pay application for the purchase of a property. $31,535 in restitution to HUD. Gonzalez He was working as an independent real was also ordered to pay a special assessment estate agent assisting individuals in the fee of $200. In March 2001, Gonzalez pled processing of mortgage loan applications guilty to submitting false statements to for the purchase of residential properties. HUD. Gonzalez, Jr., worked as a real estate Esquivel was released to the Immigration professional buying and selling properties and Naturalization Service on January 23, and was responsible for the submission of 2004, and was deported on February 2, mortgage loan applications used to 2004. He was later arrested on October 29, purchase FHA-insured properties. 2004, for illegally returning to the United Gonzalez, Jr., caused two loans with States and turned over to the Department fraudulent income documents to be of Homeland Security. submitted to HUD. Gonzalez, Jr.’s sentencing was part of a larger In Dallas, TX, pursuant to the Texas investigation which revealed that the Occupations Code, the Texas Real Estate owners of April 8 Realty in La Puente, CA, Commission revoked the real estate license fabricated and sold thousands of false loan of defendant Charles E. Reynolds. supporting documents to numerous real Reynolds was a South Dallas real estate estate agents. agent who was previously sentenced to 30 months in Federal prison following his Also in this case in Orange County, conviction on Federal housing fraud CA, defendant Adriana Forero was charges. Reynolds was previously sentenced to pay a fine of $3,000 to the convicted on Federal charges of making United States as well as a special false and fraudulent statements to a assessment fee of $100. Forero was also

HUD’s Single-Family Housing Programs 33 placed on probation for 1 year. Forero, who causing an act to be done, and conspiracy was originally identified as a target in the and two counts of making false statements. “April 8 Realty” investigation, was charged Bahamondes acted as a loan officer and real with one count of mail fraud, one count of estate agent in transactions involving the making a false statement, and one count sale of real property to unqualified buyers. of aiding and abetting on December 18, He obtained money from real estate 2003. This investigation resulted in 29 investors, including himself, and caused indictments against 38 targets in Southern such money to be placed as downpayments California. Adriana Forero purchased on behalf of unqualified buyers. He enlisted fraudulent documents from Ocampo, a notaries public to fraudulently notarize forger who produced and sold fraudulent necessary signatures of straw buyers and documents to individuals in the real estate fictitious buyers. Bahamondes caused business. mortgage applications for unqualified buyers that contained false employment, In Los Angeles, CA, in U.S. District income, and credit information to be Court, Central District of California, after completed and submitted for funding and a 4-week jury trial, defendant Frank Acosta approved by FHA. was convicted of a total of 25 counts related to an FHA loan fraud scheme. The jury Bahamondes and other unindicted deliberated approximately 4 hours before coconspirators caused the funding and rendering guilty verdicts on 13 counts of insurance of approximately $7.5 million in false statements, 7 counts of wire fraud, 5 fraudulent FHA-insured home mortgage counts of money laundering, and 2 counts loans on properties in Los Angeles, San of conspiracy. Defendant Acosta and his Bernardino, and Riverside Counties. coconspirators were involved in a scheme Approximately 44 of these properties went in which FHA loans were issued to both into default and were resold at a loss to unqualified and straw buyers. Some of the HUD in excess of $2.5 million. straw buyers included teenagers who played on a junior college baseball team In the same case, in Los Angeles, CA, coached by one of Acosta’s coconspirators. the U.S. Attorney’s Office in the Central Acosta’s wife, Elizabeth Madrigal, who District of California issued an information was also involved in Acosta’s scheme, pled charging defendant Bernadette Baldonado guilty in 2003 to one count each of wire with two counts of wire fraud and aiding fraud, conspiracy, and money laundering, and abetting. Baldonado worked as a loan and she is currently serving a 40-month processor and also acted as a notary public Federal sentence. Two other cooperating on sales of real property to unqualified coconspirators, Gerard Current and buyers. Baldonado caused fraudulently Fernando Garcia, are scheduled to be prepared employment, income, credit, and sentenced pursuant to their plea identification documents to be submitted agreements. Sentencing for Frank Acosta to FHA. Baldonado also solicited business is scheduled for June 13, 2005. The owners to falsely certify that they employed estimated loss to HUD in this case is $1.5 the buyers, when she knew they did not. million. Baldonado, aided and abetted by others, caused the funding and insurance of In Los Angeles, CA, in Federal Court, approximately $703,000 in fraudulent defendant George Bahamondes pled guilty FHA-insured home mortgage loans in the to one count of aiding and abetting, Los Angeles County area. All of these

Single-Family HousingSingle-Family Programs HUD’s Single-Family Housing Programs 34 properties went into default and were fraudulent Social Security checks, as well resold at a loss to HUD in excess of as falsifying verifications of employment, $889,686. bank deposits, verifications of rent, letters of credit, IRS W-2 forms, pay stubs, and In Los Angeles, CA, in the Central gift letters. In total, 13 of the 15 loans District of California, defendants Paul and charged were FHA-insured, and the William Peterson’s indictment was mortgages totaled $935,990. Of the 13 superseded. The Petersons were employed FHA-insured loans, 6 are currently in the at Peterson Land and Development, a foreclosure process, and 2 have gone company which developed and sold through foreclosure. residential properties, some of which were sold pursuant to home mortgage loans In addition, Motyka purportedly insured by FHA. Paul and William overstated income and provided Peterson knowingly conspired and agreed fraudulent pay stubs and IRS W-2 forms Programs Single-Family Housing to make false, fictitious, and fraudulent in support of seven mortgages obtained for statements to HUD. Both Paul and William his personal properties. The mortgages for Peterson were charged with one count of Motyka’s personal properties totaled conspiracy, one count of making a false $737,250. statement, and two counts of aiding and abetting. The approximate amount of loss In U.S. District Court in Chicago, IL, to HUD is $1,123,030. defendant Michael Fedynich, a broker/ seller, was indicted on one count of making In Cleveland, OH, a Federal grand false statements to HUD, a misdemeanor, jury in the Northern District of Ohio and two counts of mail fraud. The indicted defendant Stanley Motyka, a indictment alleged that from January 1996 licensed Ohio real estate agent, on nine and continuing until December 1999, felony counts. Motyka was charged with Fedynich, the owner of Westgate Realty, making false statements to HUD, making or people under his direction provided false statements on loan and credit homebuyers with downpayment funds in applications, mail fraud, and bank fraud order for the perspective buyers to qualify for in connection with FHA-insured loans Fedynich-owned properties. According to the obtained on behalf of borrowers as well as indictment, Fedynich provided the conventional loans obtained on behalf of downpayment to a friend or a relative of the himself. homebuyer and instructed those persons to execute a “gift affidavit” in which they falsely According to the indictment, it was stated that they had provided the part of a scheme in which Motyka offered downpayment to the homebuyer as a gift. homes to unqualified buyers in the The person executing the gift affidavit would Cleveland, OH, area knowing that those use the funds provided by Fedynich to buyers had insufficient resources to obtain a cashier’s check made payable to legitimately qualify for mortgage loans. the homebuyer. Following these Through various fraudulent means, transactions, Fedynich purportedly Motyka was alleged to have aided the provided false certification at closing, prospective buyers in securing approval of which indicated that he had not provided mortgage loans, which ultimately resulted funds to the borrower. in the sale of the subject properties. The indictment charged that Motyka created

HUD’s Single-Family Housing Programs 35 In summary, this investigation four felony counts of use of a fraudulently involved 10 FHA-insured loans totaling obtained SSN and one count of making a $716,000 in insurance and losses totaling false statement. This investigation began $516,429. after HUD-OIG received allegations that Andrews was involved in a single-family In Los Angeles, CA, pursuant to an loan fraud scheme in which the defendant information filed by the U.S. Attorney’s would purchase homes using false Office, Central District of California, names, SSNs, and employment/wage defendant Rene Ibarra, a real estate agent, documentation. After purchase of the pled guilty to one count of conspiracy and homes, the defendant would collect a three counts of making false statements. substantial amount of rent on the homes Ibarra was a coconspirator in a fraudulent and immediately default on the mortgages. loan origination scheme in which he One of the three homes in this fraud scheme obtained false employment and income had an FHA-insured mortgage. A claim on verification documents from forger Maggie the FHA defaulted mortgage was made, Cuavas, who was convicted in a separate and HUD was required to pay in excess of investigation. The documents obtained by $188,000 due to the foreclosure. Ibarra fabricated and/or inflated the income of mortgagors and were used to In Phoenix, AZ, a Federal grand jury give the false appearance of mortgagors in U.S. District Court, District of Arizona, qualifying for FHA-insured home mortgage indicted defendants Leonel Estrella and loans. In addition, Ibarra, as an investor, Maria Carmen Garcia on one count of provided the downpayment funds for conspiracy and six counts of submission of several mortgagors and misrepresented false statements to HUD. The grand jury the fact on the applicable HUD-1 further indicted Estrella on three counts of settlement statement addendums. Ibarra’s bank fraud. The investigation disclosed that involvement in the scheme resulted in a loss Estrella, a licensed realtor, and Garcia, a to HUD of approximately $128,496. loan officer, submitted falsified wage documents and SSN information to HUD In Birmingham, AL, in Federal Court, to obtain FHA-insured home loans for their Northern District of Alabama, defendant mutual clients. The investigation further Taveres C. Williams, a loan officer, was disclosed that Estrella created false wage indicted on Social Security fraud, documents for other clients, which were submitting false statements, and theft of used to obtain conventional home loans government property. Williams, who from commercial lenders such as worked as a mortgage industry Washington Mutual Bank, FA. The professional, allegedly caused false investigation has identified 14 FHA-insured documentation to be submitted to HUD home loans involved in the scheme with concerning FHA-insured mortgages. The insured mortgages totaling $1.58 million total amount of loans involved was more and 14 conventional home loans with than $200,000 with a loss to HUD of more mortgages totaling $1.74 million. Five than $112,000. FHA-insured home loans have foreclosed, resulting in a loss to HUD of $140,310. One In Seattle, WA, in Federal Court, conventional home loan has foreclosed Western District of Washington, defendant with a loss to Washington Mutual Bank, Mildreada Andrews was charged with FA of $12,363.

Single-Family HousingSingle-Family Programs HUD’s Single-Family Housing Programs 36 Mail, Wire, and Bank Fraud an SSN, false statements to HUD, and identity theft. Arnold, who was a mortgage loan processor, began using a false In Federal Court in Los Angeles, CA, identity. Arnold, along with an unnamed defendant Luis Angel Sanchez was coconspirator (who has not been formally sentenced to 3 years probation on one charged at this time), rented a Palm Harbor count of wire fraud, aiding and abetting, home, forged a deed to take title to it, then and one count of false statements, aiding filed simultaneous applications to take out and abetting. Sanchez was also ordered to three mortgage loans totaling nearly pay restitution of $620,510 and a special $400,000. Arnold used a new name, assessment of $200. Sanchez located “Teresa Blecker,” along with her son’s SSN residential properties that were on the and another set of phony financial market for sale. These properties were then credentials, to obtain an FHA-insured purchased for the purpose of resale. Programs Single-Family Housing mortgage loan in Hillsborough County. Potential buyers were recruited for these The FHA loan was mortgaged for properties who often did not qualify for approximately $150,000. FHA-insured mortgage loans due to inadequate income or insufficient assets for In Los Angeles, CA, in Federal District a downpayment. Recruiters received a Court, Central District of California, commission for every purchaser they defendant Domingo Salaza was sentenced located. The buyers were then assisted in after he pled guilty to an information of finding cosigners for their loans. As a two counts of wire fraud. Salazar was result, fraudulent mortgage applications sentenced to pay $228,000 in restitution to were completed and submitted in the HUD. He was also ordered to pay a $200 names of buyers and cosigners that fine and serve 6 months of probation. contained false employment documents, Salazar worked as a real estate agent at false verifications that downpayments Dynamic Brokers and caused fraudulent were from either the buyers’ personal funds information to be submitted to HUD. or a gift, false explanation letters Salazar was originally identified as part of concerning the relationships of the the “April 8 Realty” investigation. cosigners to the buyers, and false notarizations of the signature of buyers and In Springfield, MA, a Federal District cosigners. The total loss to HUD is Judge sentenced defendant Chester approximately $23 million. J. Ardolino to 6 months house arrest, 3 years probation, a $7,000 fine, and In Tampa, FL, in U.S. District Court, 200 hours of community service. Middle District of Florida, defendant Alison Arnold was sentenced to 24 months This sentencing is the result of the incarceration and 24 months supervised December 17, 2004, guilty verdict on seven release and ordered to pay $265,000 in counts returned by a Federal jury in restitution and a special assessment fee of Springfield, MA, in connection with a $100. Arnold was also sentenced to single-family fraud investigation. prohibition from engaging in any Defendants Chester J. Ardolino, Police employment relating to mortgage services Captain with the City of Springfield, MA, or financial lending. Arnold pled guilty on Police Department, and Michael September 30, 2004, to conspiracy to Hutchison, a former employee of the commit bank fraud, false representation of Hampden County Employment and

HUD’s Single-Family Housing Programs 37 committed wire fraud using the HCETC fax machine to transmit the fraudulent loan documents to the mortgage company. The indictment also contained a forfeiture count for the property valued at $83,000.

Also, defendants Paul Starnes, Marc Brown, and David McCoy, all of Springfield, MA, were indicted by a Federal grand jury. The indictment charged the defendants with conspiracy to launder money and wire fraud in connection with a multimillion dollar mortgage scheme. The defendants were involved in a property- flipping scheme, in which 10 other individuals were previously indicted in September 2004, that had included more than 70 properties in the Springfield, MA, area, including HUD-REO properties purchased with FHA-insured mortgages totaling more than $5,900,000. The scheme by these three defendants duped lenders and homebuyers out of $1.5 million. The scheme included purchasing distressed properties, paying off appraisers to inflate their values, recruiting poor first-time buyers, drafting phony financial Copyright, 2005. The Republican - Springfield, documents to obtain mortgages, and MA. Reprinted with permission. collecting large profits.

Training Consortium (HCETC), a City of Also in this case in Springfield, MA, Springfield agency funded with in U.S. District Court, defendant Elliott Community Planning and Development Beals, a real estate broker in the Springfield (Community Development Block Grant) area, entered a guilty plea on an funds, were both found guilty. The two information filed by the U.S. Attorney’s were arrested in January 2004, following Office. Beals agreed to plead to four counts the unsealing of a March 2003 indictment, of failure to file income tax returns for tax which charged Ardolino and Hutchison years 1998, 1999, 2000, and 2001 on with seven counts of wire fraud, mail income generated from land flipping. Beals fraud, false impersonations, money was offered this plea agreement as a part laundering, and bank fraud. The of the overall agreement to testify. Beals indictment alleged that Hutchison and was the main witness in the recent trial of Ardolino conspired to fraudulently obtain former Springfield patrolman Chester the mortgage to purchase a property at an Ardolino and former Greater Springfield inflated price using a straw buyer, which Entrepreneurial Fund employee Michael in this case, was Hutchison’s sister. The Hutchison, in which they were convicted indictment further alleged that Hutchison of money laundering and wire/mail fraud

Single-Family HousingSingle-Family Programs HUD’s Single-Family Housing Programs 38 Copyright, 2005. The Republican - Springfield, MA. Reprinted with permission.

involving the flipping of one of the through the help of Terry Hansen, the properties. Beals was involved in former Chief of HUD’s Property Programs Single-Family Housing numerous land flips, some involving Disposition Branch, for a fraction of their HUD-REO properties, all of which true value and then obtain FHA 203(k) occurred during the 1998-2001 period in loans to rehabilitate the homes. Brown and the Springfield area. A sentencing date is Doctor profited from the purchases and use pending. of the 203(k) rehabilitation funds. Hansen, his wife Judy, her two children, Chad and Forgery, Theft, Embezzlement, Dawn Elve, and John and Emalee Birne, former HUD contractors, have been and Money Laundering convicted and sentenced in this case.

In U.S. District Court, Western District A Maricopa Country grand jury, of Michigan, Grand Rapids, MI, Phoenix, AZ, indicted Edward Carrillo in defendant Jack Brown, the president of Scottsdale, AZ, on three counts of Great Lakes Housing Incorporated (GLHI), fraudulent schemes and artifices and one a HUD-approved nonprofit, was sentenced count of theft. Carrillo was arrested, and to $443,694 in restitution, 400 hours of search and seizure warrants were executed community service, and 15 months at his home/office. During the execution incarceration, while defendant Tim Doctor, of the warrants, a Cadillac Escalade, a an employee of GLHI, was sentenced to Chevrolet Corvette, and $21,281 in cash $62,000 in restitution, a fine of $5,000, and were seized. The seizure warrant also 12 months probation following their included a BMW, which has not yet been September 2004 guilty pleas. located. Carrillo, doing business as Sahara Investments, sold his fraudulent “ Brown and Doctor were responsible pre-foreclosure” business to three investors for engaging in fraudulent transactions for $400,000 in January 2004, 6 weeks after involving HUD and FHA-insured HUD-OIG executed a Federal search mortgages. Both admitted to misleading warrant at Carrillo’s home/office. The HUD officials into believing GLHI was a Federal investigation was initiated after a nonprofit entity when it operated for a mortgage company notified HUD-OIG profit for their personal gain. Because of that Carrillo had been purchasing their misrepresentations, GLHI was able to FHA-insured properties through HUD’s purchase at least 105 HUD properties “pre-foreclosure” program, at substantial within the Grand Rapids Office jurisdiction discounts, often using fraudulent

HUD’s Single-Family Housing Programs 39 U’ igeFml osn rgas 40 Single-FamilyHUD’s Single-Family HousingPrograms Housing Programs return theinvestors’money. the previousmortgagesandrefusedto defaulted mortgages.Carrilloneverpaidoff Carrillo cashforthepropertieswith $85,000 and$115,000.Theinvestorspaid FHA-insured propertiestoinvestorsfor in June2004,Carrillosoldtwo The grandjuryindictmentalsoallegedthat “pre-foreclosure” salesinthePhoenixarea. money toapproveandassistwithover100 counseling agenciesacceptedlargesumsof mortgage company,andhousing coconspirators atthetitlecompany,a Federal investigationdisclosedthat “pre-foreclosure” program.Theongoing each propertysoldthroughthe value. HUDpaidsubstantialclaimsfor same dayhepurchasedthematmarket appraisals. Carrillothensoldthehomes contact homeownersand representhimself investigation disclosed thatColeywould who werefacingforeclosure. The with aschemetodefraud FHAmortgagors issuing fictitiousobligationsinconnection in FederalCourt RESPA andFederalstatutes. Anderson’s actionsaffectedSection8of to properlydisburseescrowfunds. from theescrowtrustaccountandfailed company, Andersonabscondedwithfunds owner ofWashingtonOneStop,anescrow possession ofcocaine.Asthepresident/ transmission ofstolenfunds,and wire fraud,moneylaundering,interstate on eightcountsofconspiracytocommit indictment. Andersonwasinitiallyindicted funds, countsixofthesecondsuperseding guilty tointerstatetransmissionofstolen restitution. Andersonpreviouslypled supervised release,and$108,511in months imprisonment,36of Scott Andersonwassentencedto24 Western DistrictofWashington,defendant In Defendant GaryT.Coleywascharged Seattle, WA, Baltimore, MD, in U.S.DistrictCourt, with property heowned. from theSpiveyBuilding, aseparate removal ofasbestos-containing materials addition, Cohnadmitted theillegal escrow fundsforhisownpersonaluse.In was creatingfalseinvoicestoobtainthe lending bankwasalsounawarethatCohn used forenvironmentalcleanup,andthe unaware thattheescrowfundshadtobe funds ascollateral.Thelendingbankwas loans usingtheenvironmentalescrow admitted obtainingmorethan$620,000in East St.LouisSchoolproperty.Cohnalso escrow fortheenvironmentalcleanupof obtain portionsof$1millionplacedin invoices andfalselyendorsingchecksto crimes. Cohnadmittedcreatingfalse fraud, and2countsofenvironmental counts ofbankfraud,1countwire fraud, 11countsofmoneylaundering,3 20 countsthatincluded3ofmail Phillip Cohnwaspreviouslyindictedon also pledguiltytoonecountofbankfraud. Defendant KatrinaFrede,Cohn’swife, violating theEnvironmentalCleanAirAct. mail fraud,moneylaundering,and in U.S.DistrictCourt,SouthernIllinois,to Cohn, arealestatedeveloper,pledguilty scheme. FHA mortgagesthatwereinvolvedinthis mortgage insurancefundwillbemadeon that almost$1millioninclaimstothe losing theirhomes.Further,itisestimated money theygaveColey,alsoendedup homeowners, inadditiontolosingthe Treasury notes.Manyoftheaffected approximately $1.8millionincounterfeit of themortgages.Allegedly,Coleypassed and mortgagecompaniestowardpayment Treasury notesthathesubmittedtobanks manufactured counterfeit,worthless substantial fundsfromthem,then foreclosure proceedings.Hecollected assist theminstoppingimminent as aninvestorwhowouldbewillingto In East St.Louis,IL, defendantPhillip Single-Family Housing Programs , to one count Phoenix, AZ Phoenix, Defendant Harold V. Fields, real estate Harold V. Fields, Defendant of fraudulent schemes, one count of theft, of fraudulent schemes, of unlicensed real estate and one count previously been indicted activity. Fields had grand jury on 3 counts by an Arizona State schemes, 1 count of of fraudulent estate activity, and 26 unlicensed real Valley Home Experts had counts of theft. one seller of HUD-REO been the number for several years. The properties in Arizona recruited investigation disclosed that Fields in the investors through advertisements investor newspaper and requested that each buy HUD- give him $25,000 to $100,000 to $1,502,166 REO properties. 26 investors lost investor in the scheme. Fields told each in a trust that these funds would be held and account to be used for downpayments closing costs for up to 12 investment financing properties. Often because of close, and issues, many of the loans did not into the the properties were recycled back investors HUD inventory. Many of the their began to demand that Fields return closing money after he failed to provide were costs for several homes. These funds and never deposited into a trust account, wire the investigation disclosed that Fields to an transferred more than $500,000 offshore sports betting operation. agent, Valley Home Experts, Glendale, AZ, Home Experts, agent, Valley County in the Maricopa pled guilty Court, Superior Assistant U.S. Attorney Assistant Dallas, TX, In HUD’s Single-Family Housing Programs 41 William McMurrey filed an information in an information McMurrey filed William on of Texas District Court the Northern Garza, Jr., for Frederico M. defendant Garza owned and defrauding HUD. Reality. He was in the operated Garza and selling real estate business of buying individuals who wanted and representing real property. Garza to buy and sell foreclosures in his parents’ purchased HUD to sell the HUD- names, then contracted to homebuyers at acquired properties The HUD properties that inflated markups. condition Garza acquired were in poor to make and needed significant repairs for them habitable and FHA insurable sell the financing. Garza contracted to with the HUD homes to buyers would understanding that the properties financing be repaired. Garza arranged the for the first-time unsophisticated He caused homebuyers who trusted him. to lenders loan documents to be submitted without for approval for the buyers were informing the lenders the properties occasions, in disrepair. On a number of before Garza contracted to sell the property providing he actually owned it as well as for the fraudulent gift funds downpayments. There were 18 HUD-REO properties involved, with an FHA-insured amount of $1,221, 053.

Chapter 3

HUD’s Public and Indian Housing Programs he U.S. Department of Chart 3.1: Public and Indian Housing Program Housing and Urban Reports Issued DevelopmentT (HUD) provides grants and subsidies to approximately 4,200 public 1 housing authorities (PHAs) nationwide. About 3,200 PHAs manage public housing units, and another 1,000 with no public housing manage units under Section 8 programs. Many PHAs administer both 22 public housing and Section 8 programs. Internal Reports External Reports HUD also provides assistance directly to PHAs’ resident organizations to encourage Chart 3.2: Public and Indian Housing increased resident management of public Program Dollars housing developments and to promote the formation and development of resident 200,000,000 management entities and resident skills 150,000,000 programs. Programs administered by PHAs 100,000,000 are designed to enable low-income 50,000,000 families, the elderly, and persons with 0 disabilities to obtain and reside in housing Internal Reports External Reports that is safe, decent, sanitary, and in good Questioned Costs Funds Put to Better Use repair. Audits Section 8 Voucher Program Activities During this reporting period, the Office of Inspector General (OIG) issued We audited the Housing Authority of 23 reports, 1 internal audit and 22 the City of Houston, TX, Section 8 external audits in the Public and Indian Housing Choice Voucher program. This is Housing program area. These reports the second in a series of audits at the disclosed approximately $52.9 million Authority. Our audit objective was to in questioned costs and $188.2 million determine whether the Authority’s in recommendations that funds be put to contractor was performing inspections to better use. We reviewed the Section 8 ensure assisted units were decent, safe, and Housing Choice Voucher program sanitary before tenants moved in and activities and public housing activities, annually thereafter as HUD and including PHA activities with related Authority policies required. nonprofit entities, and PHA pension plan forfeiture policy. In addition, we conducted In most cases, the Authority’s a corrective action verification review. contractor performed annual and initial inspections as required. However, since a majority, 88 out of 118 units, failed our

The chart cost figures in this chapter represent the actual monetary benefits for all reports issued during this semiannual period. The monetary benefits shown in the Profile of Performance represent only those reports with management decisions reached during this semiannual period. Because there is a time lag between report issuance and management decisions, the two totals will not agree.

Public & Indian HousingPublic & Indian Programs HUD’s Public and Indian Housing Programs 44 Public & Indian Housing Programs The Authority’s contractor did not The Authority’s We recommended that HUD require We designed the audit to determine the audit We designed contractor the Authority’s whether assistance calculated housing correctly the effect if the and to determine payments the payments contractor calculated incorrectly. or support its correctly calculate 8 housing assistance calculations of Section projection of the results of payments. Our showed the Authority’s a statistical sample errors in at least 7,168 of contractor made files over its 13,732 housing choice voucher a 13-month period. Due to the contractor’s least $1.1 errors, the Authority overpaid at in million and underpaid at least $115,000 did not Section 8 assistance. The Authority it did detect or prevent the errors because and not properly monitor its contractor itself. The relied on the contractor to police with the Authority terminated its contract if the contractor in October 2004. However, and Authority does not implement controls it will procedures to prevent similar errors, million in incur at least an additional $1 assistance incorrectly calculated housing payments over the next 12 months. Section 8 the Authority to review all of its correct housing choice voucher files and any errors that have occurred. HUD should require the Authority to repay the approximate $13,000 that we identified as ineligible payments and pay the tenants approximately $1,700 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 more that $1.1 million that we identified as unsupported payments or repay those Section 8 funds to HUD and support more than $113,000 that we identified as assistance underpayments or pay those Section 8 funds to the tenants. Finally, HUD should require the Authority Section 8 Housing ) Houston, TX, 2005-FW-1007 We audited the Housing Authority of We recommended that the Houston Projecting the results of the statistical Projecting the results HUD’s Public and Indian Housing Programs 45 Choice Voucher program. This is the third review in a series of audits at this Authority. the City of Office of Public Housing require the Office of Public Housing require units we Authority to ensure all 88 failed the identified meet standards. Further, all of its Authority needs to inspect 12 months remaining units within the next standards to ensure those units also meet 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 units that are not decent, safe, and sanitary in the next year. (Audit Report: sample to the population indicates at least sample to the population 13,524 units do not 9,088 of the Authority’s In addition, our meet standards. 88 units inspections showed that 39 of the previous had either uncorrected items from existed inspections or conditions that had results for more than a year. Thus, our $26.1 indicate the Authority expended failed million on 3,503 units, which have or more. items that have existed for a year contractor Further, since the Authority’s its did not ensure the units met standards, decent, tenants lived in units that were not safe, or sanitary. housing quality standards (HQS) quality standards housing inspections the contractor’s inspections, were decent, safe, the units did not ensure failure rate The significant and sanitary. the contractor appeared occurred because on performing a large to be more focused than on the quality quantity of inspections of those inspections. U’ ulcadIda osn rgas 46 PublicHUD’s Publicand IndianHousingPrograms & Indian Housing Programs Public Housing Authority Activities Authority Housing Public Public Housing Authority Activities Authority Housing Public Public Housing Authority Activities Authority Housing Public Report: weaknesses citedintheauditreport.(Audit controls tocorrectthedeficienciesand Authority toimplementproceduresand recommended thatHUDrequirethe decent, safe,andsanitary.We than $700,000wasspentforunitsthatwere a result,HUDlacksassurancethatmore income wasnotproperlydetermined.As verified, andprogramparticipants’annual and recertificationformswasnotproperly requirements, informationonapplications policies arenotconsistentwithHUD programs, theAuthority’sadmission Voucher andlow-rentpublichousing Also, forboththeSection8HousingChoice properly byinspectorsoftheAuthority. not detectedorbutreported properly, andHQSviolationswereeither assistance paymentswerenotcalculated Voucher program,theAuthority’srental regulations ofHUD. out inaccordancewithrequirementsand whether suchactivitiesarebeingcarried continued occupancyactivitiesand Our reviewfocusedontenantselectionand Housing Authorityof public housingprogramsoftheGlensFalls 8 HousingChoiceVoucherandlow-rent HUD regulationsandrequirements inthe determine whethertheAuthority followed The objectiveofour reviewwasto AZ Authority ofMaricopaCounty’s( (Audit Report: we projecttobeatleast$1millionperyear. housing assistancepaymenterrors,which to implementcontrolspreventfuture Public Housing Authority Activities Authority Housing Public Public Housing Authority Activities Authority Housing Public ) mixedfinancedevelopment activities. Under theSection8HousingChoice We completedanauditoftheSection We completedanauditoftheHousing 2005-NY-1001 2005-FW-1006 ) Glens Falls,NY ) Phoenix, . regulations. TheAuthority didnot contract, applicablelaws, directives,and conditions ofitsannual contributions and compliedwiththeterms efficiently, effectively,andeconomically administered itsselectedprograms determine whethertheAuthority primary purposesofourauditwereto administered bytheAuthority.The projects owned,managed,and Homeownership program;andmultifamily Project; Section5(h)PublicHousing program; dispositionoftheSouthEnd Public HousingCapitalFund Authority. Theprogramsincluded programs ofthe Office, wecompletedanauditofselected funds. (AuditReport: public housingprogramusingnonfederal the questionedcoststoitslow-income the Authorityshouldberequiredtorefund projects cannotbebroughtintocompliance, declaration oftrustamendments.Ifthe including contributionscontractand the mixed-financedevelopmentprogram, the legalandcompliancerequirementsof with HUDtoensuretheproject/unitsmeet recommended thattheAuthoritywork to whichitisnotlegallyentitled.Thereport operating subsidyandcapitalgrantfunds has receivedmorethan$500,000of changes resultingfromthetwoprojects,it contributions contracttoreflectthe the Authoritydidnotamenditsannual investment atrisk.Additionally,because requirements hasputthis$7.2million failure tofollowHUD’sdevelopment Federal dollarsintheprojects.The invested morethan$7.2millionofits projects, itwentforwardwiththemand never obtainedHUDapprovalofitstwo We foundthateventhoughtheAuthority and relatedpropertydispositionactivities. development ofitsmixedfinanceprojects At therequestofHUD’sHartfordField Waterbury, CT 2005-LA-1002 , Housing ) Public & Indian Housing Programs ) , Housing Authority of the We recommended repayment to the We recommended We audited the activities of the We audited the activities of It was determined that the Authority Also, the Authority had implemented Authority had Also, the tenant eligibility, controls over the effective and tenant rent procedures, certification complete, well- functions and had subsidy files and rent subsidy maintained tenant documentation. accounts for the Authority’s program any of the unsupported ineligible costs and adequate supporting costs for which could not be provided. We documentation changes to accounting also recommended ensure controls and procedures to and compliance with HUD’s requirements Report: accounting principles. (Audit 2005-DE-1002 Stockton, CA County of San Joaquin to determine low-rent whether the Authority (1) used housing program funds for non-low-rent and (2) housing program expenses its own followed Federal requirements and In procurement policies and procedures. whether addition, we determined were allegations received in two complaints valid. million improperly awarded more than $3.3 in contracts for goods and services. We attribute this to the Authority’s decentralized procurement process, which allowed department managers to procure goods and services without following Federal regulations and its own adopted policies. The Authority misused more than $5.5 million in low-rent housing program funds to pay for its non-low-rent housing program expenses. We attribute the Authority’s misuse of low-rent housing program funds to poor management decisions, as well as the lack of adequate controls in place to safeguard low-rent housing funds. We validated the primary , County ) Boulder, CO 2005-BO-1001 The Authority did not properly use We audited We recommended that HUD assure We recommended We concluded that the Authority’s that the We concluded HUD funds, which resulted in at least $433,000 in ineligible and $123,000 in unsupported costs. The internal controls over and procedures for accounting functions were inadequate and used inappropriate accounting practices. We determined that the personnel functions performed by Authority staff were effectively completed and documented. Housing Authority. Our audit objectives Housing Authority. Our audit of the were to determine the effectiveness the receipt controls over and accounting for the and use of HUD funds, evaluate HUD- effectiveness of the controls over determine funded personnel functions, and the effectiveness of HUD-funded tenant eligibility and certification procedures and evaluate controls over tenant rent subsidies. HUD’s Public and Indian Housing Programs 47 the Authority reimburses the applicable the Authority reimburses than $676,000 from program more nonfederal funds for the inappropriate provides expenses cited in this report, than documentation to support more cited $850,000 for the unsupported funds applicable in this report or reimburses the funds, program from nonfederal in recaptures more than $2.3 million program funds not used, and implements the procedures and controls to correct (Audit weaknesses cited in the report. Report: management controls were too weak to management controls with the terms and ensure that it complied annual contributions conditions of its laws, directives, and contract, applicable regulations. administer its programs in an efficient, its programs administer manner. and economical effective, U’ ulcadIda osn rgas 48 PublicHUD’s Publicand IndianHousingPrograms & Indian Housing Programs Housing Programof Township HousingCommission’sPublic access andtherequirednumber ofhandicap- uniform Federalaccessibility standardsfor Housing Commissionalso didnotmeetthe handicap accessibilityrequirements. The physical conditionstandardsandFederal deficiencies thatdidnotmeetHUD’suniform selected housingunitsandidentified1,166 construction analystinspected32statistically units wereinpoorphysicalcondition.AHUD housing fundsweremisspent. contrary toHUD’srequirements,andpublic poor physicalcondition,tenantswerehoused Commission’s publichousingunitswerein complainants allegedthattheHousing based ontwocitizencomplaints.The selected theHousingCommissionforaudit Report: program’s relatedexpenditures.(Audit program fundsareusedonlyforthat controls toensurethatlow-renthousing rent housingprograms,andestablishbetter unsupported costsincurredbyitsnon-low- nonfederal fundsforineligibleand rent housingprogram$518,559from housing programfunds,reimbursethelow- misusing morethan$5.5millioninlow-rent nonfederal fundsinaccruedinterestfor program morethan$154,000from expenses, reimbursethelow-renthousing non-low-rent housingpurchasesand of usinglow-renthousingfundstopayfor procurement department,ceasethepractice requests forproposal,establishacentralized security servicescontractsandissuenew Authority toterminateallcurrentlegaland what appearedtobefriendsorcolleagues. Director awardedconsultingcontractsto that theAuthority’sformerExecutive allegations intwocomplaintsanddetermined We completedanauditoftheRoyalOak The HousingCommission’shousing We recommendedthatHUDrequirethe 2005-LA-1001) Ferndale, MI . We corporations/resident advisory councils.We activities ofitsresident management contract management astheyrelateto of LosAngeles’procurement actionsand Angeles, CA, Commission. (AuditReport: improper oversightoftheHousing Commission’s BoardofCommissionersforits administrative actionagainsttheHousing We alsorecommendedthatHUDtakestrong to correcttheweaknessescitedinthisreport. and (2)implementprocedurescontrols funds fortheinappropriatelyusedmonies public housingprogramfromnonfederal Housing Commissionto(1)reimburseits authority. requirements regardingitsroleand Board alsodisagreedwithHUD’s Board approval.TheHousingCommission’s contractors inatimelymannerwithoutprior maintenance andadministrativestaff Executive Directortohire,evaluate,andfire Commissioners notallowingitsformer Housing Commission’sBoardof prior approval. name ofanexistingprojectwithoutHUD’s $8,000 foranewprojectsignchangingthe attorney, anditapprovedapproximately than $3,000fortravelexpensesitsBoard Commission alsoinappropriatelypaidmore “one strike”policy.TheHousing criminal convictionsinviolationofHUD’s not evictexistingtenantswithknown criminal convictionstobehousedanddid Commission allowednewtenantswith Federal accessibilitystandards.TheHousing uniform physicalconditionstandardsand renovations wasneededtomeetHUD’s in repairsandmorethan$192,000forunit analyst estimatedthatmorethan$5million accessible housingunits.HUD’sconstruction We completedanauditofthe We recommendedthatHUDrequirethe We attributedtheseconditionstothe Housing AuthorityoftheCity 2005-CH-1003 Los ) Public & Indian Housing Programs 2005-PH- ) Copyright, 2004. The Morning Call - Allentown, PA. Reprinted with permission. Commissioners to create internal controls to internal controls to create Commissioners the improper detect, and resolve prevent, of and conflict of HUD assets pledging Report: (Audit interest situations. 1001 , 2005- Emmaus, PA ) We recommended that HUD take We found that the Authority improperly We performed an audit at the Lehigh Nonprofit/Nonfederal Entities Nonprofit/Nonfederal Entities Nonprofit/Nonfederal Entities Nonprofit/Nonfederal Entities Nonprofit/Nonfederal Entities Activities with Related Activities with Related Activities with Related Activities with Related Activities with Related Public Housing Authority Public Housing Authority HUD’s Public and Indian Housing Programs 49 found significant problems with the significant problems found and management procurement Authority’s its into with it entered of contracts corporations and management resident recommended that the consultant. The report or provide documentation Authority refund million in ineligible and to support $1.8 and take actions to questioned costs and contract strengthen its procurement (Audit Report: management processes. LA-1805 action, if appropriate, to declare the Authority in substantial default of its consolidated annual contributions contract and direct the Authority to take immediate action to remove its remaining encumbrances of $130,000 in HUD assets. We also recommended that HUD require the Authority to recover approximately $13,000, which it improperly provided its affiliated entities, or repay the amount from nonfederal funds. Lastly, we recommended that HUD direct the Authority’s Board of used HUD funds to develop and support its used HUD funds to develop and our affiliated nonfederal entities. Further, conflict of audit identified an apparent Director’s interest regarding the Executive affiliated relationship with the Authority’s nonfederal entities. in response to a complaint. The complainants funds alleged the Authority used HUD nonfederal improperly to benefit its affiliated Housing entity known as Valley Development Corporation. County Housing Authority of Public Housing Authority Public Housing Authority Public Housing Authority U’ ulcadIda osn rgas 50 PublicHUD’s Publicand IndianHousingPrograms & Indian Housing Programs HUD fromnonfederalsources.Wealso it couldnotproperlysupportorreimburse disbursement of$4millionHUDfundsthat documentation tofullysupportits the Authoritytoprovideadequate of itsaffiliatednonfederalentities. funds topaysalaryandadministrativecosts also usedanestimated$726,000inHUD funds. Duringthesameperiod,Authority HUD publichousingandSection8program from January2001toDecember2003using to support$4millioninexpendituresitmade could notprovideadequatedocumentation its affiliatednonfederalentities.TheAuthority and usedHUDfundstodevelopsupport support expendituresmadewithHUDfunds contract, theAuthoritycouldnotalways nonfederal entities. funds todevelopandsupportitsaffiliated use ofHUDfundsandwhetheritused the Authoritycouldadequatelysupportits audit objectivesweretodeterminewhether response toacomplaintin Lehigh CountyHousingAuthorityin We recommendedthatHUDrequire Contrary toitsannualcontributions We performedasecondauditofthe Copyright, 2004.TheHeraldSun -Durham,NC.Reprintedwithpermission. Emmaus, PA . Our (Audit Report: it properlysupportsandallocatescosts. approving newproceduresneededtoensure plan. ItalsoagreedtopassBoardresolutions and didnothaveacertifiedcostsallocation adequately supportcostsduringtheaudit Authority acknowledgedthatitcouldnot it providedtoitsnonfederalentities.The for ineligiblesalariesandadministrativecosts than $726,000tothepublichousingprogram nonfederal entitiesandtoreimbursemore of allocatingadministrativeexpensestoits Authority toimplementanequitablemethod recommended thatHUDrequirethe (DVI), anonprofitsubsidiary.AsofJune30, operations ofDevelopmentVentures,Inc. stability bymisusingfundstosubsidize followed HUDprocurementregulations. and stabilitywhethertheAuthority promotes serviceability,economy,efficiency, ability tooperateitsprojectsinamannerthat Authority’s misuseoffundsjeopardizedits objectives weretodeterminewhetherthe procurement procedures.Ouraudit Housing Authority’sfinancialoperationsand We reviewedthe The Authorityjeopardizedproject 2005-PH-1007 Durham, NC, ) Public & Indian Housing Programs . We found the Charleston, SC We recommended that HUD require the We reviewed the Housing Authority of We reviewed the Authority did not support its allocations of Authority did not million and costs of more more than $8.9 and than $6.6 million in salaries, wages, to the fringe benefits that were charged Authority Federal programs as required. method officials believed their allocation However, complied with the requirements. the without support to substantiate services allocations and costs of actual type of performed by personnel or some effort, the quantifiable measures of employee charged Authority may not have accurately the the Federal programs. In addition, its Section Authority transferred $400,000 of Housing 8 administrative fee reserves to its Authority Finance Agency. When the Finance transferred the funds to its Housing of the Agency account, HUD lost visibility funds to funds and could not monitor the ensure they were properly spent. Authority to provide documentation to justify the more than $8.9 million in allocated costs and $6.6 million in costs without supporting certifications and ensure the Authority makes appropriate adjustments to the various programs. Also, we recommended that HUD require the Authority to develop a reasonable method for allocating its future costs to include daily activity reports and semiannual certifications for services performed by its personnel. Further, we recommended that HUD require the Authority to transfer the $400,000 of Section 8 administrative fee and future reserve funds of more than $102 reserve funds and future prudently and will be used million condition of the to improve the expediently 6,700 low-rent more than Authority’s provide suitable housing housing units and on its Section 8 to nearly 3,000 households lists. (Audit Report: and low-rent waiting 2005-PH-1008) the City of , Pittsburgh 2005-AT-1004) implementation of its Moving to Work implementation of its Moving to We recommended that HUD not extend As result of our audit review of the As result of our audit review We recommended that HUD require the We recommended that HUD require The Authority inappropriately procured The Authority inappropriately HUD’s Public and Indian Housing Programs 51 the Authority’s current agreement after it expires on December 31, 2005, and develop and implement a workable strategy to transition the Authority out of the program. This process will ensure that accumulated PA’s found the demonstration program, we and Authority was not able to develop to fully use implement an effective strategy Moving to the freedom and flexibility of the Work program. Since entering the program in November 2000, the Authority has accumulated more than $81.4 million in HUD funds and an additional $21.2 million in the first and final year of its agreement. However, the Authority lacked the capacity to implement all components of its Moving to Work plan. Housing Authority of the City of Authority to (1) devise plans with multiple Authority to (1) devise plans with and strategies for resolving both its short-term (2) repay long-term financial problems, programs approximately $6.9 million to its provide from nonfederal funds, and (3) support for another $953,000 of questionable expenditures. (Audit Report: about $6.9 million and cannot support about $6.9 million for goods and services. In another $953,000 Authority can increase the our opinion, the procurement activities for effectiveness of its capital funds by developing the $2.2 million in improved procurement and implementing procedures that comply with procurement regulations. 2004, DVI owed $4.1 million to the owed $4.1 2004, DVI rate of spending, At its current Authority. had enough the Authority we estimated 7 for about continue operations funds to months. U’ ulcadIda osn rgas 52 PublicHUD’s Publicand IndianHousingPrograms & Indian Housing Programs (Audit Report: along withtheinterestearnedonfunds. reserve fundsbacktotheaccount, related nonprofitentities. oversight ofPHAdevelopment activitieswith activities aspartofour auditofHUD’s administration ofitshousingdevelopment Housing AuthorityoftheCityCarrollton’s (Audit Report: Federal programsfrom2000through2003. justify the$3.3millioninsalarychargedto Authority toprovidedocumentation also recommendedthatHUDrequirethe account andrepaythe$396,000balance.We or currentbalanceowedtotherevolvingfund Authority tosettlethemorethan$771,000 dividing theirtimeamongseveralprograms. allocated forFederalprogramsemployees did notsupport$3.3millioninsalarycosts years (FY)2000through2003,theAuthority monitor therevolvingfundaccount.Forfiscal not haveadequatecontrolsinplaceto actions occurredbecausetheAuthoritydid the programsorentitieshadondeposit.These nonprofit corporations,inexcessofthefunds nonprofit entities,includingaffiliated to paytheexpensesofitsprogramsand $771,000 andinappropriatelyused$396,000 approval. the otherentitieswithoutspecificHUD agreements orregulationstothebenefitof contract orotherlow-incomehousing low-income housingannualcontributions diverted oradvancedresourcessubjecttoits determine whethertheAuthorityhad activities. Ourprimaryobjectivewasto administration ofitshousingdevelopment Jefferson CountyHousingAuthority’s We reviewedthe We reviewedthe We recommendedthatHUDrequirethe The Authorityadvancedmorethan 2005-AT-1002 2005-AT-1006 Birmingham, AL, Carrollton, GA, ) ) the set-offprovisions,closing itsaccountswith funds atriskbyeitherseeking awaiverof that haveputmorethan$1.4 millioninHUD immediate actiontoterminate theagreements that HUDrequiretheAuthoritytotake housing program.Wealsorecommended more than$120,000orreimburseitspublic documentation tosupporttheadjustmentof prior HUDapproval,andprovide that nofurtheradvancesaremadewithout interest lostfromnonfederalsources,ensure funds thatwereadvancedand$15,000in Authority torepaymorethan$43,000in were notmade. HUD fundsondepositiftheloanpayments that allowedthelendertowithdraw The agreementsincludedset-offprovisions than $1.4millionofitsHUDfundsatrisk. purchase ofprivatepropertythatputmore also executedfiveloanagreementsforthe documentation asrequired.TheAuthority with activityreportsorequivalent administrative andmaintenancesalarycosts Authority didnotsupportitsallocationof were notavailableforinvestment.The $15,000 ininterestincomebecausethefunds the Authorityfailedtorealizeapproximately to serveitslow-incomeresidents.Inaddition, funds foritspublichousingprogramneeded $359,000 inineligibleadvancesreduced did notsupport.Asaresult,morethan approximately $121,000thattheAuthority cash paymentandanadjustmentof advanced. Therepaymentincludedthe of May31,2004,another$43,000hadbeen however, itcontinuedtoadvancefunds.As $249,000, theamountowedatMay31,2004; repaid theHUDprogramapproximately reimburse theAuthority.TheAuthority sufficient incometopayitsobligationsand the privatehousingprogramdidnothave approval. Theadvancesweremadebecause River Management,withoutspecificHUD $316,000 toitsprivatehousingprogram,Little We recommendedthatHUDrequirethe The Authorityadvancedmorethan Public & Indian Housing Programs 2005- Housing Authority of ) We performed a corrective action We found the Authority cannot account the Authority cannot We found take We recommended that HUD Review Review Review Review Review Corrective Action Verification Corrective Action Verification verification review of the actions the verification review of the actions Baltimore, MD, Baltimore City had taken to implement key recommendations cited in OIG Audit Report 2001-PH-1003, issued March 28, 2001. As of September 22, 2004, HUD determined the Authority had fully implemented final actions on all of our prior recommendations. Our overall objective was to determine whether the Authority implemented our key audit recommendations and corrected the deficiencies we identified in our previous audit report. for more than $5.1 million in Indian Housing than $5.1 million for more financial funds. The Authority’s Block Grant was unauditable system management statements, general because the financial ledgers for FY 1999 ledger, and subsidiary not complete and accurate through 2001 are the Authority did not as required. Further, financial statement obtain the necessary and 2003. As a result, the audits for FY 2002 provide reasonable Authority cannot Indian Housing Block Grant assurance that its intended beneficiaries. In funds helped the the Board our opinion, this occurred because of Commissioners and the Authority’s control management did not have effective of Authority accounting operations. Authority administrative action to ensure the and complies with program requirements any Indian require the Authority to return used for Housing Block Grant funds not authorized purposes. (Audit Report: SE-1001 Corrective Action Verification Corrective Action Verification Corrective Action Verification 2005-AT- , we performed an we performed an 2005-PH-1002) Marysville, WA, Huntington, WV ) In In HUD’s Public and Indian Housing Programs 53 1001 the local lender, or refinancing the loans with lender, or refinancing the local Report: lender. (Audit another audit at the Huntington Housing Authority audit at the Huntington a complaint. Our audit in response to determine whether the objective was to used HUD funds to Authority properly its affiliated nonfederal develop and support Authority was generally entities. While the not guarantee debt of its prudent and did entities, it sometimes affiliated nonfederal and improperly used HUD funds to develop It did not support its nonfederal entities. its affiliated allocate all relevant salary costs to Housing Development Corporation, contract. contrary to its annual contributions 2004, the As a result, from July 1999 to June estimated Authority improperly paid salaries work its at $320,000 from Federal funds for nonfederal employees performed for this the future, entity. We also estimated that in use more the Authority will be able to better properly than $46,000 annually by work its accounting for and allocating the entities. employees perform for its nonfederal the We recommended that HUD require $320,000 Authority to recover more than from the Housing Development Corporation properly for employee salary expenses not or repay it allocated to the nonfederal entity from nonfederal funds. We also recommended that the Authority develop a reasonable method for allocating its future cost to its nonfederal entities, thereby putting more than $46,000 to better use annually. (Audit Report: audit of the Tulalip Tribes Housing Authority’s block grant to determine whether the Authority established and operated its program in accordance with HUD requirements for financial management systems. U’ ulcadIda osn rgas 54 PublicHUD’s Publicand IndianHousingPrograms & Indian Housing Programs expenses. (AuditReport: program formorethan$70,000ofineligible the Authoritytorepayorreimburse the Authority’sreserveaccountandrequire recapture $25.1millionofthe$38in also recommendedthatHUDimmediately administration oftheSection8program.We system controlsandkeycomponentsoverits Authority’s needtoimproveitsfinancial recommendations thataddressedthe these remainingissues. appropriate processestoaddressandresolve was stilldevelopingandimplementing recommendations, wefoundtheAuthority resources. AlthoughHUDhadclosedthese budget anduseitsavailableSection8 adequate procedureswerefollowedtofully in accordancewithHUDrequirementsand ensure itsbooksandrecordsweremaintained all thefinancialsystemcontrolsnecessaryto had notyetfullydevelopedandimplemented recommendations. WefoundtheAuthority affected itsabilitytofullyimplementtheother management informationsystemadversely Authority experiencedinimplementingits anticipated. However,thedelays correct thantheAuthorityhadoriginally Section 8programrequiredmoretimeto because theseverityofproblemsin recommendations. Thisresultedinpart fully implementedallkeyOIG Based onourreview,wereopened The Authorityhadnotyet 2005-PH-1004 ) PHA Pension Plan Forfeiture Plan Pension PHA PHA Pension Plan Forfeiture Plan Pension PHA PHA Pension Plan Forfeiture Plan Pension PHA $5,300,000 unit. WebelievethatHUDcouldputabout that revertsorinurestothegovernmental share ofanypreviouslyallowedpensioncosts Federal Governmenttoreceiveanequitable Circular A-87.Thecostprinciplesrequirethe local, andIndianTribalGovernments,OMB and Budget’s(OMB)costprinciplesforState, inconsistent withtheOfficeofManagement forfeitures tootherplanparticipantsis policy thatpermitsauthoritiestoallocate contributions oradministrativecosts.The plan participantsortoreduceemployer forfeitures ofseparatingemployeestoother contribution pensionplanstoreallocate allows housingauthoritieswithdefined Federal programs.HUD’scurrentpolicy plan forfeiturestothebenefitofcontributing contribution pensionplanstoreturn and requiresPHAswithprivatedefined be puttobetteruseifHUDchangesitspolicy to determinetheamountoffundsthatcould 2005-FW-0001 to thehousingauthorities.(AuditReport: revision andpromptlydistributethepolicy Public andIndianHousingprocessapolicy pension costs. housing programsthatincurredtheoriginal pension planforfeiturestotheFederal housing authoritiestorefundorcredit PHA Pension Plan Forfeiture Plan Pension PHA PHA Pension Plan Forfeiture Plan Pension PHA Policy Policy Policy Policy Policy The objectiveofthis We recommendedthattheOfficeof

per yeartobetteruseifitrequires ) internal auditwas Public & Indian Housing Programs a Federal grand Springfield, MA, Springfield, MA, In Officials/Employees Officials/Employees Officials/Employees Officials/Employees Officials/Employees PHA Management and Program PHA Management and Program jury in Springfield, MA, returned a jury in Springfield, in which Raymond superseding indictment Arthur Sotirion (the former Asselin, Sr., and and Deputy Executive Executive Director Housing Authority) Director, Springfield four additional counts were charged with John Spano (vendor) was of bribery and one additional count of charged with Raymond bribery on January 11, 2005. with two Asselin, Sr., was charged additional counts of witness tampering; Asselin, Raymond Asselin, Sr., Raymond James Jr. (son), Maria Serrazina (daughter), (vendor) Asselin (son), and Peter Davis counts were charged with five additional Asselin of obstruction of justice; Raymond Sotirion, Sr., Janet Asselin (wife), Arthur each and Paul Bannick (vendor) were false charged with five counts of filing forfeiture income tax returns. A criminal was also filed against the following Sr., and individuals: (1) Raymond Asselin, located at Janet Asselin against property MA; 115 Mayfair Avenue, Springfield, Road, property at 56 Stage Island BMW; Chatham, MA (Cape Cod); a 2002 in a 23-foot Chaparral boat; and $290,650 U.S. currency seized during the execution of Federal search warrants at the house of Raymond Asselin, Sr., Janet Asselin, and Maria Serrazina; (2) Arthur Sotirion for property located at 811 Dickinson Street, Springfield, MA; undeveloped property located on Little Diamond Island, ME; and a time-share located in Aruba; (3) Christopher Asselin (son) and Merylina Asselin (daughter-in-law) for property located at 184 Bowles Park Ext., Springfield, MA; (4) James Asselin for property located at 16 Dwight St., Springfield, MA; (5) Joseph Asselin (son) and Melinda Asselin (daughter-in-law) for PHA Management and Program PHA Management and Program PHA Management and Program 10% 14% Fugitive Employee Non-HUD Felon Initiative 4% 7% Other False 6% Statements PHA Fraud 3% Other 40% 10% Fraud Section 8 Contract Chart 3.3: PIH Recoveries Chart 3.3: PIH Recoveries Chart 3.3: PIH Recoveries Chart 3.3: PIH Recoveries Chart 3.3: PIH Recoveries The results of our more significant During this reporting period, the OIG this reporting period, During 96% 10% Chart 3.4: PIH Funds Put to Better Use Chart 3.4: PIH Funds Put to Better Use Chart 3.4: PIH Funds Put to Better Use Chart 3.4: PIH Funds Put to Better Use Chart 3.4: PIH Funds Put to Better Use Section 8 Investigations Investigations HUD’s Public and Indian Housing Programs 55 Investigations investigations are described below. Some investigations are described below. this report of the investigations discussed in were were conducted by OIG, while others State, and conducted jointly with Federal, local law enforcement agencies. opened 389 investigation cases and closed opened 389 investigation and Indian housing 253 cases in the public Judicial action taken on program area. the period included these cases during investigative recoveries, $79,673,692 in funds put to better use, $20,679,282 in 284 590 indictments/informations, diversions, 887 convictions/pleas/pretrial actions, 9 civil actions, 15 administrative personnel actions, and 1,419 arrests. Investigations Investigations Embezzlement Total: $20,679,282 Total Recoveries: $79,673,692 U’ ulcadIda osn rgas 56 PublicHUD’s Publicand IndianHousingPrograms & Indian Housing Programs superseding indictment. guilty tothechargesoutlinedin court onJanuary19,2005topleadnot Ludlow, MA.Alldefendantsappearedin property locatedat140SallieCircle, Amherst, MA;and(6)MariaSerrazinafor property locatedat518OldFarmRoad, Copyright, 2004.TheRepublican-Springfield,MA.Reprintedwithpermission. probation andordered topay$33,000in to 6monthsconfinement and60months Housing Authority(WHA), wassentenced former ExecutiveDirector oftheWamego vendors. been madepayabletolegitimateCCHA check registertoreflectthatthecheckshad she concealedbyalteringtheelectronic writing checkspayabletoherself,which 10-year period,Braunembezzledfundsby investigation revealedthatoveratleasta to repaytheCCHA$136,396.The by 3yearsprobation.Shewasalsoordered imprisoned for18months,tobefollowed funds fromtheCCHA.Braunwasordered her previousadmissionofguilttostealing Western DistrictofPennsylvania,basedon (CCHA), wassentencedinFederalCourt, funded ClarionCountyHousingAuthority Braun, formeraccountantfortheHUD- In In Wamego, KS Pittsburgh, PA ,

Sheila L.Spangler,a ,

defendant Patti losses. WHA. Thismisuseresulted in$33,000 second underSheilaSpangler incareofthe name ofatenantincare oftheWHAand two additionalcards,thefirstunder name ofaformerExecutiveDirectorand misused aWHAcreditcardissuedinthe records anddiscoveredthatSpangler Commissioners auditedthefinancial WHA hadresumed.TheBoardof discovered afterthemaildeliveryto in Arizona.Thecreditcardfraudwas having themailforwardedtoheraddress the mailbeforeherdepartureandwas revealed thatSpanglerhadputaholdon Arizona. Acheckwiththepostmaster not receivingmailafterSpanglermovedto investigation revealedthattheWHAwas Maricopa CountyHousingAuthority.The Arizona andbecameemployedatthe 18, 2003,andimmediatelymovedto of resignationtotheWHABoardonMarch personal use.Spanglersubmittedaletter WHA, toobtaingoodsandservicesforher business card,issuedinthenameof access devicesforusingaU.S.BankVisa defraud inusingoneormoreunauthorized Spangler wasconvictedforherintentto District CourtofKansas,Topeka,KS. of atwo-countindictmentintheU.S. restitution aftershepledguiltytoonecount Public & Indian Housing Programs Cleveland, company and , Federal Court, Middle Orlando, FL The investigation disclosed that Following their August 31 arrest, 10 their August Following In , were indicted for various State felony for various , were indicted District of Florida, Courtney Escoffery, District of Florida, Courtney with the former Quality Assurance Director was Orlando Housing Authority (OHA), and sentenced to 30 months incarceration ordered 3 years supervised release and was a result of to pay restitution of $205,185 as his guilty plea to one count of conspiracy to embezzle funds. Escoffery and conspirators Randy Donawa and Kisha Stewart, former OHA employees, used their positions to divert approximately $424,853 from the OHA Section 8 funds by changing landlord bank routing codes in the OHA internal computer system. The investigation revealed that Escoffery and Donawa used stolen funds as seed money to start a property management employees of the Cuyahoga Metropolitan of the Cuyahoga employees Authority (CMHA), Housing OH County Common charges in Cuyahoga OH. Lenard Pleas Court, Cleveland, was indicted for theft McClain, Supervisor, with records, and in the office, tampering Gerald Ford, John bribery. Employees Ellington were charged Tsolakis, and Ray to commit theft in office in a conspiracy with records. Employees and tampering James Jones, Darrel Kevin Martin, and Sampson, Alvin Roan, Keith Smith, felony Leon David were also charged with and counts of tampering with records misuse of a credit card. The investigation fraud, focused on payroll and overtime on specifically, being paid for working work personal residences during regular CMHA hours and employees stealing cards materials and using agency gas credit loss of for personal use, resulting in a total approximately $20,000. Miladys Gomez, a

, , a Federal grand jury , a Federal Newark, NJ Billings, MT Billings, In In HUD’s Public and Indian Housing Programs 57 for the District of Montana, returned a returned District of Montana, for the charging Dwight indictment four-count and Billie Wayne Other Medicine, Stewart, count each of converting Tall Bull with one at $5,000 or more by property valued travel expenses or falsifying or inflating In addition, Crow taking payroll advances. Authority (CTHA) funds Tribal Housing personal purposes that were used for to Disney World. The included a trip indicated that the CTHA indictment also as a result of each lost more than $10,000 that each of the defendants’ conduct and trust. The defendant abused a position of charged fourth count of the indictment each of the defendants with embezzling, use or the stealing, and converting to their use of another and willfully misapplying property or allowing to be misapplied of Title belonging to the CTHA in violation and Theft 18 U.S.C. § 1163, Embezzlement from an Indian Tribal Organization. former Assistant Administrator for the former Assistant Administrator Perth Amboy Housing Authority, Court. appeared in United States District of theft Gomez pled guilty to four counts programs of Section 8 funds (theft from Assistant receiving Federal funds). As 8 program Administrator for the Section for the Perth Amboy Housing Authority, Gomez was responsible for the printing and issuing of housing subsidy checks to landlords on behalf of Section 8 recipients. She also secured and reviewed application forms submitted by prospective participants in the Section 8 program and updated computer records for the program. Between April 1, 2000, and January 23, 2004, Gomez used her access to the checks to steal $407,603 in Section 8 funds from the Perth Amboy Housing Authority as well as using these checks for her own personal use. U’ ulcadIda osn rgas 58 PublicHUD’s Publicand IndianHousingPrograms & Indian Housing Programs York HousingAuthoritywhen,infact, purportedly beingreturnedtotheNew funds fromtheOHA,whichwere Donawa todivert$86,000inSection8 Escoffery, conspiredwithEscofferyand Davis. Davis,thebrother-in-lawof Federal funds,andwirefraudwasSamuel theft concerningprogramsreceiving conspiracy toembezzle,embezzlement, District ofFloridaoneightcounts accounts. AlsoindictedintheMiddle into theTourners’andGlover’sbank approximately $219,668inFederalfunds Stewart andDonawa,whodiverted Tourners andGloverwerefriendsof Brian Tourner,andShawannaGlover.The money launderingwereLeslieTourner, programs receivingFederalfunds,and embezzle, embezzlement,theftconcerning Florida on42countsofconspiracyto intended torentSection8tenants. purchased threecondominiumsthey Copyright, 2005.TheBostonGlobe -Boston,MA.Reprintedwithpermission. Indicted intheMiddleDistrictof Donawa andKishaStewart. Middle DistrictofFloridawereRandy bank account.Previouslyindictedinthe they werebeingwiredtoDavis’personal Coordinator, and salarychecks. overpaying herselfwithunapprovedbonus herself forexpensesthatdidnotexistand $64,000 ina3-yearperiodbyreimbursing Brown allegedlyembezzledapproximately more than$50,000fromHUD.Defendant Northern DistrictofIowa,withembezzling charged inaninformationFederalCourt, Maquoketa HousingAuthority,was Brown, formerExecutiveDirectorofthe warrant asaresultoftheindictmentand arrested pursuanttoaFederalarrest three countsofbribery.Moraleswas jury inU.S.DistrictCourt,Boston,MA,on Authority wasindictedbyaFederalgrand In Marysol Morales,formerSection8 Maquoketa, IA Avon, MA ,

defendant Miriam , Housing Public & Indian Housing Programs the District of

, Hans Fretthlor- Boston, MA, Minneapolis, MN In In Officials Officials Officials Officials Officials Investigations Involving Public Investigations Involving Public Ames, landlords of multiple market rent of multiple Ames, landlords The three civil 8 properties. and Section were filed complaints administrative violated the defendants repeatedly because Reduction Act by failing The Lead Hazard lead paint disclosures in to make required thereby preventing at least 28 transactions, informed measures to tenants from taking their exposure to lead- reduce or eliminate following civil penalties based paint. The the three landlords: were proposed against McDaniel $176,000, and Quinn $638,000, Van Ames $132,000. Civil Minnesota, the U.S. Attorney’s Office, landlord, Division, and David Ray Beaudet, Beaudet reached a settlement, in which an agreed to pay $425,000. This followed that the investigation into allegations females conditions of the lease for various sexual were based on their granting him in the favors. Beaudet owns 36 properties of which St. Paul, MN area, more than half from are subsidized by Section 8 payments the St. Paul Housing Authority. Verduzco and Jesus Oritiz Durazo were arrested at the Bunker Hill Public Housing Development in Boston, MA. Fretthlor- Verduzco was charged with offering bribes to a public official, cocaine trafficking in a school zone, and conspiracy to violate drug laws. Durazo was charged with cocaine trafficking in a school zone and conspiracy to violate drug laws. Seized during this arrest was one kilogram of cocaine. Also, a State search warrant was executed at Fretthlor-Verduzco’s apartment located in the Harbor Point Housing Development. Twenty-six pounds of marijuana and $4,300 in U.S. currency were seized during Investigations Involving Public Investigations Involving Public Investigations Involving Public three civil

, , a criminal complaint was Skowhegan, ME Gary, IN In In Violation of Tenant Rights Violation of Tenant Rights HUD’s Public and Indian Housing Programs 59 was being held pending a detention held pending was being an the result of These actions are hearing. which HUD-OIG investigation, ongoing solicited bribes that Morales had revealed 8 applicants ranging from three Section It is also alleged that from $2,600 to $6,000. more than 90 Section 8 Morales issued not have been issued, vouchers that should authority to terminate causing the housing from the Section 8 more than 90 families 90 fraudulent Section 8 program. The valued at more than $1.3 vouchers were the Avon Housing million, which caused per Authority to pay in excess of $50,000 that month in housing assistance payments of the it did not have. As a result Authority allegations, the Avon Housing Morales’ has also attached a lien against Brockton, personal residence, located in since she MA, in the amount of $350,000, for sale. had placed the property up the Avon Morales was fired from her job at 30, 2004. Housing Authority on December County, filed in the Superior Court of Lake Denise Crown Point, IN, against Yolanda for the Hughes, the Payroll Coordinator role in a Gary Housing Authority, for her from the scheme to embezzle funds authority. According to the complaint, used her Hughes was alleged to have position in the Payroll Department to “pad” her paychecks over and above her salary for approximately $45,000 during the years 2003 and 2004. Moreover, the complaint alleged that Hughes used these funds for the purchase of clothing, jewelry, and a second vehicle. administrative complaints were filed with HUD’s Administrative Law Judge against Colin Quinn, Stephen McDaniel, and Van Violation of Tenant Rights Violation of Tenant Rights Violation of Tenant Rights U’ ulcadIda osn rgas 60 PublicHUD’s Publicand IndianHousingPrograms & Indian Housing Programs Grand Theft/False Statements/ Theft/False Grand Grand Theft/False Statements/ Theft/False Grand Grand Theft/False Statements/ Theft/False Grand City ofPlattsburgh.Previously, Griffin of bagsasbestos throughout the Parker’s employeesdumped hundreds Plattsburgh HousingAuthority.Thereafter, asbestos from31buildingsofthe Management Grouptoillegallyremove employees ofParkerEnvironmental false claims.In2001,Parkerdirected Superfund Act,mailfraud,andmaking the CleanAirAct,conspiracytoviolate 22 felonycountsforconspiracytoviolate Management Groupwerefoundguiltyof was alsosentencedto2yearsofprobation. Environmental ManagementGroup,Inc., to 48monthsinprison.Parker District ofNewYork,andwassentenced appeared inFederalCourt,Northern Environmental ManagementGroup,Inc., President andOwnerofParker investigation wasinitiated. Verduzco’s bribeattempt,andan Massachusetts StatePoliceofFretthlor- Police OfficersinformedHUD-OIGandthe housing development.ThetwoSpecial Housing Development,aBostonpublic marijuana inandaroundtheHarborPoint Fretthlor-Verduzco soldcocaineand Fretthlor-Verduzco fromotherpolicewhile Police Officersiftheyagreedtoprotect Verduzco offeredcashbribestotheSpecial Elimination Grantsfunds.Fretthlor- who werepaidwithHUDDrug Development PublicSafetyDepartment from theHarborPointHousing approached twoSpecialPoliceOfficers when HansA.Fretthlor-Verduzco the resultofanincidentinJanuary2004 the search.Thearrestsandindictmentwere Grand Theft/False Statements/ Theft/False Grand Grand Theft/False Statements/ Theft/False Grand Conspiracy Conspiracy Conspiracy Conspiracy Conspiracy In Parker andEnvironmental Syracuse, NY , AndreParker, Authority. from buildingsofthePlattsburghHousing disposed ofasbestos-containingmaterial Act. Escobarillegallyremovedand Response, Compensation,andLiability the ComprehensiveEnvironmental conspiring toviolatetheCleanAirActand plea toaone-countinformationfor Authority. Hewassentencedbasedonhis of $200,000tothePlattsburghHousing release andwasorderedtopayrestitution confinement and4yearsofsupervised sentenced to9monthsofhome Supervisor forParkerEnvironmental,was Court, NorthernDistrictofNewYork. totaling $199,302.48inU.S.District probation andwasorderedtopayafine International wassentencedto3years Plattsburgh HousingAuthority.Griffin during anabatementprojectatthe perform illegalasbestosworkpractices permitted ParkerEnvironmentalto fraudulent airmonitoringsamplesand Management Group.Griffintook International andParkerEnvironmental illegal agreementbetweenGriffin abatement. Thechargesarosefroman monitoring tofirmsperformingasbestos project design,monitoringandair mail fraud.GriffinInternationalprovides conspiracy toviolatetheCleanAirActand International, Inc.,pledguiltyto for herroleinreceiving approximately Hamilton CountyCourt ofCommonPleas was foundguiltyofgrand theftinthe September 2004.Duringthattrial,Cuevas following herconvictionatajurytrialin restitution intheamountof$1,000, 3 yearsprobation,andcourtordered was sentencedto6monthsimprisonment, Authority (BMHA)tenantandemployee, a formerButlerMetropolitanHousing In Also, FelipeEscobar,Project Hamilton, OH , GeovannyCuevas, Public & Indian Housing Programs , the Circuit Court of , the Circuit , a civil complaint was Chicago, IL Chicago, Boston, MA The complaint alleges that Baez In for O Kennard accepted responsibility In filed by the U.S. Attorney’s Office, District filed by the U.S. Attorney’s Office, Claims of Massachusetts, under the False public Act, against Delia J. Baez, a former at the housing tenant who had resided (BHA) Boston Housing Authority development known as Franklin Field. The complaint alleges that Baez obtained Federal financial assistance designed for the indigent through false claims as part of the fraud. applied for and received an apartment at Franklin Field, income assistance and foods stamps from the Massachusetts Division of Transitional Assistance, and Medicaid, all funded in whole or in part by the Federal Government. According to the complaint, Baez received more than $63,000 in such assistance. To obtain these benefits, Baez Cook County, Barbara O Kennard, Section Barbara O Cook County, a class two felony pled guilty to 8 tenant, The information the information. following of Hazel Crest, IL, charged O Kennard in violation of with theft by deception Statutes, chapter 720, Illinois Compiled On the same day, O section 5/16-1(a)(2). sentenced to 30 months Kennard was in the amount of probation, restitution at a rate of $200 per $40,150 payable costs of $179. month, and court a newly the scheme, in which she occupied 8 tenant purchased home as a Section the despite the fact that she co-owned as the property with her sister who acted listed her landlord. Further, O Kennard family daughter as an unemployed in fact, member residing in the home when, was she did not reside in the home, housing employed, and received her own total loss assistance out of De Kalb, IL. The to HUD is $40,150. was

Shamia Nears, a Shamia Nears, Cedric Williams was

, St. Louis, MO Oakland, CA, In In HUD’s Public and Indian Housing Programs 61 sentenced to serve 18 months in prison and ordered to pay $118,665 in restitution. Bateman conspired with Williams to commit wire fraud, as described above. $17,000 in overpaid housing subsidies in overpaid housing $17,000 she maintained allegations that based on in Brooklyn, NY, apartment a subsidized the unit in Ohio occupying while also under the BMHA. former Section 8 tenant with the Oakland former Section 8 (OHA), and her Housing Authority were sentenced in the mother, Doris White, Superior Court for their State of California the Alameda County scheme to defraud CalWORKS, Child Care Social Services, false Links, and the OHA through had three representations that Nears had none. dependent children when she pled In September 2004, Nears and White of aid by guilty to six felony counts to misrepresentation, perjury, conspiracy In light commit a crime, and grand theft. to of her conviction, Nears was sentenced 5 years of serve 16 months in prison and in parole and ordered to pay $123,361 due to restitution, of which $17,266 was abettor in the OHA. White, who was an jail. this matter, received 30 days in county serve 12 sentenced in Federal Court to to pay months in prison and ordered previously $118,665 in restitution. Williams pled guilty to conspiracy to commit wire fraud. Williams used his Section 8 residence to make credit card transactions using stolen credit card numbers. He accomplished this by starting fictitious businesses, opening business accounts, and using a credit card reader to enter stolen credit card numbers, which resulted in credits to his business accounts. In the same investigation, Mark Bateman U’ ulcadIda osn rgas 62 PublicHUD’s Publicand IndianHousingPrograms & Indian Housing Programs damages andcivilpenalties. period 2001through2004andseekstreble income. Thecivilcomplaintcoversthe admitted toreceivingasubstantialmonthly containing largesumsofmoneyandhas addition, Baezmaintainedabankaccount that shewastheownerofmoney.In United Statesbyairplane.Baezadmitted while shewasattemptingtoleavethe from BaezatLoganAirportinBoston,MA, and BorderPatrolserviceseized$62,552 multifamily residenceinRoslindale,MA. Plain, MA(MiTierraRestaurant),anda including commercialrealestateinJamaica assets whenshehadsubstantialassets, she hadlittleincomeandthatno certifications onnumerousoccasionsthat represented onwrittenapplicationsand the amountof$16,354 inadditiontoa release andorderedto pay restitutionin was sentencedto36months supervised subsidies ontheirbehalf. in a$17,972overpaymentofSection8 Authority. Thisfailuretoreportresulted income totheDavisCountyHousing failure toreporttheirtruehousehold third degreefelony,resultingfromtheir of attemptedcommunicationsfraud,a result ofapreviousguiltypleatoonecount home detention.Thissentencingwasthe wife, Holt,wasorderedtoserve45daysof serve 90daysofhomedetentionwhilehis of homedetention.Rosswasorderedto after theyeachcompleteaspecifiedperiod defendants toserve36monthsofprobation $17,972. Thejudgeorderedboth of $500,plusrestitutionamountingto for SecondDistrictCourttoeachpayafine were sentencedbyaDavisCountyJudge Theresa Holt,whoarehusbandandwife, In On August13,2002,theU.S.Customs In Ft. Lauderdale,FL Farmington, UT , HenryRossand ,

Arjunen Apana Authority. through thePompanoBeachHousing with conspiringtostealFederalfunds charged Apanaandsevencoconspirators Federal grandjuryindictment,which This sentencingwasrelatedtoa30-count District ofFlorida-FortLauderdale,FL). Magistrate JudgeJamesCohn(Southern to onecountofconspiracybeforeFederal $2,000 fine.Apanapreviouslypledguilty receiving herSection8rental subsidy.The Section 8propertyfor whichshewas McPherson hadownership interestinthe The investigation disclosed that false statementstotheU.S.Government. 2005, chargingMcPhersonwithmaking four-count informationonFebruary28, former Section8tenant,pledguiltytoa Housing Authority. Federal fundsthroughthePompanoBeach coconspirators withconspiringtosteal which chargedChandradatandseven a 30-countFederalgrandjuryindictment, conspiracy. Thissentencingwasrelatedto previously pledguiltytoonecountof addition toa$100fine.Chandradat restitution intheamountof$16,004 supervised releaseandorderedtopay Chandradat wassentencedto36months Authority. Also,inthesamecase,Nirmala through thePompanoBeachHousing with conspiringtostealFederalfunds charged Nelsonandtwococonspirators related toatwo-countinformationthat Fort Lauderdale,FL).Thissentencingwas James Cohn(SouthernDistrictofFlorida- laundering beforeFederalMagistrateJudge of conspiracyandonecountmoney Nelson previouslypledguiltytoonecount in additiontoa$200specialassessmentfee. pay restitutionintheamountof$24,855 months supervisedreleaseandorderedto FL , DebbieNelsonwassentencedto60 In thesamecase,in In Kensington, NH ,

Amy McPherson, Ft. Lauderdale, Public & Indian Housing Programs , Court Karen Vidal was Toledo, OH Bronx, NY, In Lucas County, In the arrested based upon a Federal arrest arrested based upon a Federal District warrant that was issued by the U.S. York, for Court, Southern District of New funds. two counts of theft of government Yonkers During this investigation, the observed Municipal Housing Authority tenant that Section 8 checks for their mother (Vidal) were being mailed to Vidal’s Starting in and not the Section 8 landlord. through October 2002 and continuing April 2004, Vidal received approximately HUD-OIG $11,745 in Section 8 benefits. Section determined that Vidal received her Victim’s 8 benefits through the 9/11 which was Emergency Help and Housing, adversely established to assist individuals Vidal affected by the 9/11 terrorist attacks. produced false documents to show that she lost her job due to the 9/11 terrorist attacks. The investigation determined that Vidal left her employment before September 11, 2001, making her ineligible for the Section 8 vouchers that she received. Additionally, the Social Security Administration (SSA) OIG determined that Vidal fraudulently received approximately $28,235 in Social Security disability benefits for her daughter. of Common Pleas, Alfred Darah, Jr., and Alice Faye Darah pled guilty to one count of attempted grand theft. Alfred Darah, a community service. Waters and Flowers service. Waters community in for a scheme, responsibility accepted newly purchased occupied a which they in spite of the fact co-occupants home as tenant and landlord. They they were both coconspirator, Preston used another residence as a drop box Handcox, and his assistance payments. for the housing would accept checks Waters and Flowers from the housing made out to Handcox them in their joint authority and deposit total loss in this case is bank account. The $48,000. Sharonda Jenkins defendant Eneida

, , Allison Waters, Section 8 San Juan, PR St. Louis, MO, In the Circuit Court of Cook County, In In Chicago, IL landlord, and Patricia Flowers, Section 8 tenant, pled guilty to one felony count following their January 2004 indictment. They were each sentenced to 300 hours of Soto-Rodriguez entered into an agreement Soto-Rodriguez entered into an Housing to reimburse the Department of $14,064. for the Municipality of San Juan Soto- During the years 1995 to 2000, Rodriguez falsely stated no employment to income on her annual certifications Also in qualify for a Section 8 rent subsidy. this case defendant Jeannie Fuentes- Carmona entered into an agreement to reimburse the Department of Housing for the Municipality of San Juan $19,910. During the years 1994 to 2001, Fuentes- Carmona falsely stated no employment income on her annual certifications to qualify for a Section 8 rent subsidy. HUD’s Public and Indian Housing Programs 63 signed a pretrial diversion agreement in the signed a pretrial diversion agreement in U.S. District Court for Eastern Missouri false which she admitted to making Housing statements to the St. Louis rental Authority to receive excess failed to assistance payments. Jenkins had Jenkins report her income since 2002. amount agreed to make restitution in the of $15,863. first two counts of the information relate counts of the first two U.S. Department the third to the to HUD, (HHS), and and Human Services of Health of Department to the U.S. the fourth McPherson agreed to Agriculture (USDA). to the United States in the make restitution but for the purposes of amount of $98,854, the amount the criminal restitution, court should not exceed ordered by the is based upon the $67,547. The $67,547 $38,765 (HUD), following loss amounts: and $23,026 (HHS). $5,756 (USDA), U’ ulcadIda osn rgas 64 PublicHUD’s Publicand IndianHousingPrograms & Indian Housing Programs $102,000 intheftofservices. violation ofStatelaw,whichamountedto outside oftheproperschooldistrictin continued tosendtheirthreechildren purchased andmovedintoahomebut entitled. Further,duringthistime,they assistance towhichthefamilywasnot benefit ofapproximately$39,000inrental MCHA andinsodoing,obtainedthe recertification formsshefurnishedto and incomeofherhusbandonannual defendant failedtodisclosetheresidency that from1995through2002,the determined. Theinvestigationdisclosed of services.Asentencingdatehasnotbeen the ColoniaSchoolDistrictthroughtheft Authority (MCHA),andalsotodefrauding Montgomery County(PA)Housing program, asadministeredbythe federally fundedSection8rentalassistance in StateSuperiorCourttodefraudingthe tenant AnndriaSmithWatkinspledguilty Alice DarahtoSSAis$40,510. approximate overpaymentonbehalfof occupying thesameresidence.The was separatedfromAlfredwhiletheywere to SSAfrom1995through2004thatshe accepted responsibilityforfalselycertifying Alfred Darahis$7,100.Alice The approximateoverpaymentofbehalfon rate rentcheckafterhismothermovedout. Housing Authoritypaymentandamarket simultaneously collectingaLucasCounty admitted tosubleasingtheunitand unit aftershemovedout.Finally,Darah housing assistancepaymentsonthevacant to him.Hepurportedlycontinuedcollect and failingtodisclosehertruerelationship for rentinghissubsidizedunittomother Section 8landlord,acceptedresponsibility Patricia LaverneBryant with25countsof amended complaintwas filedcharging of California,County ContraCosta,an In In Martinez, CA, Norristown, PA theSuperiorCourt ,

former Section8 Identity Theft Identity Identity Theft Identity Identity Theft Identity and duringthesearch, 100poundsof drugs and/orpreparation ofdrugsforsale, an outstandingwarrant forpossessionof Felon Initiative.Morganwasarrestedon Cleveland, OH,undertheFugitiveand located at4882East106thStreet, August 1,2003,atherSection8residence assistance payments. and actingasthelandlordforhousing the nameElizabethSpencerfor$126,900 while purchasingthissamepropertyunder CMHA underthenameJackieMorgan obtaining aSection8rentalvoucherfrom Jackie Morgan.Further,Morganadmitted Housing Authorityundertheidentityof subsidy fromtheCuyahogaMetropolitan the nameJackieDaviswhilereceiving New YorkCityHousingAuthorityunder receiving apublichousingsubsidyfromthe $132,162. incarceration andrestitutiontotaling drugs. Hersentencewas66months possession ofdrugs,andtraffickingin tampering withrecords,aggravatedtheft, Morgan pledguiltytoidentitytheft, Cleveland, OH, and wassentencedinCuyahogaCounty, $46,000 wasun-entitledhousingbenefits. resulted inalossof$162,381,which a childcareprovider.Bryant’sactions Bryant derivedfrommoniesintendedfor subsidized unitandadditionalincome boyfriend’s residencyintheHUD- Housing AuthorityofPittsburgher disclosed Bryant’sfailuretoreportthe stemmed fromaninvestigation,which fraud, andperjury.Thecomplaint charges consistedofgrandtheft,welfare violating theCaliforniaPenalCode.The Identity Theft Identity Identity Theft Identity Morgan wasoriginallyarrestedon Morgan acceptedresponsibilityfor Defendant JackieMorganpledguilty Court ofCommonPleas. Public & Indian Housing Programs , on January 25, 2005, as Miami, FL In addition, HUD-OIG initiated a data In addition, HUD-OIG data HUD-OIG also initiated a data HUD-OIG has a current In addition to these initiatives, HUD- In part of the Section 8 Initiative, HUD-OIG Special Agents arrested six tenants and one landlord on Federal housing fraud charges public housing tenants and housing choice tenants and public housing State wage data recipients with voucher States. HUD-OIG by more than 22 reported projects and these matching will supervise cases identified from pursue any criminal Agency OIGs will work the results. Other on these potential jointly with HUD-OIG cases. with the National comparison agreement and Exploited Children Center for Missing reporting period. during this semiannual of a new This data comparison is part to locate HUD-OIG national initiative in HUD- missing children who are residing funded housing. this comparison agreement during the U.S. semiannual reporting period with Bureau Department of Homeland Security, of Immigration and Customs Enforcement. will locate This data comparison initiative failed to subsidized housing residents who depart the United States as ordered. the comparison agreement with Justice Department of Justice, Criminal the U.S. Information Services Division, and of the Marshal’s Service (USMS) in support Fugitive Felon Program. This initiative attempts to identify fugitives receiving HUD-funded rental assistance and target them for arrest. OIG continues to explore and identify proactive ways to identify fraud in HUD programs and assist Federal, State, and local law enforcement. , s s s s s ’ La Puente, CA La Puente, Lydia Irma Iniguez of Lydia Irma In support of the HUD-OIG Rental Improvement Program Improvement Program Improvement Program Improvement Program Improvement Program the Rental Housing Integrity the Rental Housing Integrity the Rental Housing Integrity the Rental Housing Integrity the Rental Housing Integrity Enforcement Actions in Support of Enforcement Actions in Support of Enforcement Actions in Support of Enforcement Actions in Support of Enforcement Actions in Support of The Office of Inspector General The Office of Inspector General a Section 8-assisted housing participant, a Section 8-assisted charged with obtaining was arrested and On September 27, aid by false statements. title to a house 1998, Iniguez acquired CA, using the name located in LaPuente, signed over her Irma Cortez. Iniguez in the house to Claudia ownership interest and true individual). Garcia, (a separate her Section 8 Iniguez then transferred 11, benefits to the house on November County 1998, and told Los Angeles that her Housing Authority personnel of 2004, landlord was Garcia. In April to Irma Garcia granted the house back Iniguez’s Cortez. This was in violation of payment Section 8 housing assistance false contract. Based on Iniguez’s $52,392 in statements, the Authority made payments to Garcia. HUD’s Public and Indian Housing Programs 65 marijuana, $103,000 in cash, and three $103,000 in marijuana, were seized. vehicles Assistance Fraud Initiative, HUD-OIG, Office of Investigation, proactively initiated additional computer matching agreements during this semiannual reporting period. These new agreements will identify rental assistance fraud by Federal employees and U.S. Postal Service employees. These two groups of employees would not have been captured in the HUD, Office of Public and Indian Housing, Rental Housing Integrity Improvement Project (RHIIP) Upfront Income Verification (UIV) computer matching tool. UIV, now known as Enterprise Income Verification, compares The Office of Inspector General The Office of Inspector General The Office of Inspector General U’ ulcadIda osn rgas 66 PublicHUD’s Publicand IndianHousingPrograms & Indian Housing Programs continues tobeproactive inreportingto largest housingauthority inSouthFlorida, The MiamiDadeHousing Agency,the in Section8subsidypayments tohimself. property heownedanddiverted$21,000 third partywasthelegalownerofa more than20years,Norriscertifiedthata Agency’s LeasingandContractsSectionfor statements toHUD.AsaSupervisorinthe government fundsandmakingfalse Samuel Norriswaschargedwiththeftof defrauding theSection8subsidyprogram. of theMiamiDadeHousingAgencyfor Corruption Section,indictedanemployee endeavor. worked withOIGinthiscollaborative efforts ofthehousingauthoritiesthat 8 subsidizedhousingandapplaudedthe eliminate fraudandcorruptioninSection importance ofthenationwideeffortto United StatesAttorneyaddressedthe which InspectorGeneralDonohueandthe operation resultedinapressconference This investigationandenforcement and thelandlordhavesincepledguilty. checks foran11-monthperiod.Onetenant continued toreceiveandnegotiatesubsidy property herentedundertheprogramand defendant, aSection8landlord,soldthe undisclosed tenants.Theseventh concealing ownershipofbusinesses,and concealing ownershipofproperty, concealing employmentincome, Section 8subsidizedtenantsconsistedof The falsestatementsprovidedbythesix $139,000 inSection8housingsubsidies. defendants defraudedHUDofmorethan statements toHUD.Collectively,the subsidized housingfundsandfilingfalse multiple countsoftheftfederally separately indictedthedefendantswith housing authorities.AFederalgrandjury Southern DistrictofFlorida,andthree with theUnitedStatesAttorney’sOffice, stemming froma9-monthcollaboration The U.S.Attorney’sOffice,Public program. Federal Section8subsidizedhousing and fraudulentactivityinvolvingthe landlords whoareengagingincorruption OIG thoseemployees,tenants,and WHA’s Department of PublicSafety, Worcester, MA,being conducted bythe Section 8/FugitiveFelon Initiativein highlight thecontinuing successofthe Authority (WHA)onOctober28,2004,to conference attheWorcesterHousing Kenneth Donohueattendedapress stations. stations, twonewspapers,andradio conference includedthreetelevision seized were100rocksofcrackcocaine. occupant oftheunit.Amongthoseitems Rockford HousingAuthoritytenantoran of theindividualsarrestedwaseithera Housing Authority’sdevelopments.Each concentrated onatleast15oftheRockford the earlymorningsweep,which assisted units. in thecityofRockfordathousingauthority- District ofIllinois.Allthearrestsoccurred Federal indictmentfromtheNorthern Bureau ofAlcohol,Tobacco,andFirearms of thosearrestedwaspartarecent drugs, assault,weapons,andfraud.One include StateofIllinoischarges,involving Sheriff’s Office.Theoutstandingoffenses Department andtheWinnebagoCounty and officersfromtheRockfordPolice Great LakesRegionalFugitiveTaskForce, arrested byagentsfromHUD-OIG,the possession ofacontrolledsubstancewere felony warrantsand2personsin 21, 2005,24individualswithoutstanding part of“OperationSilverFox,”onMarch Throughout the In Media coverageforthepress More than50officersparticipatedin Worcester, MA, State ofIllinois Inspector General , as Public & Indian Housing Programs Chicago, embezzlement. their participation in their participation In U.S. District Court at District Court In U.S. , in a parallel criminal/civil investigation , in a parallel criminal/civil for eviction, and 8 removed from the and 8 removed for eviction, program. IL EIGHT” (Enforcement known as “Operation Housing Task Force), of Ineligible Grantees from the Chicago 14 Section 8 tenants (housing authority) were Housing Authority forcriminally charged to defraud the housing multiple schemes actions were the authority. These a 3-year-long HUD-OIG culmination of housing proactive match between authority tenants and employment information from the Illinois Department of Employment Security. These individuals false were charged with making statements and/or theft/ in the Among those schemes included an indictments were tenants having they were ownership interest in the property 8 and renting, a tenant collecting Section and public assistance in both Wisconsin Copyright, 2004. Chicago Sun Times - Chicago, IL. Reprinted with permission. On October 25, 2004, law enforcement On October 25, 2004, HUD’s Public and Indian Housing Programs 67 agents from the WPD, MSP, the Worcester agents from the Department of Public Housing Authority’s HUD-OIG conducted Safety, and inquiries at the reasonable suspicion Apartments, a PHA Wellington Street Worcester, MA. Based on development in of illegal residents previous allegations approximately 20 living in the units, the apartments were visited to determine 26, validity of the allegations. On October from the 2004, law enforcement agents Safety, WPD, WHA, Department of Public 30 and HUD-OIG obtained approximately Federal arrest warrants at Worcester, MA, State housing sites for outstanding Fugitive warrants as a continuation of its Section 8/ Felon Initiative. The Worcester in Fugitive Felon Initiative has resulted referred more than 70 arrests; 11 have been Worcester Police Department (WPD), Police Department Worcester (MSP), and State Police Massachusetts HUD-OIG. U’ ulcadIda osn rgas 68 PublicHUD’s Publicand IndianHousingPrograms & Indian Housing Programs Assistance VoucherFraud Assistance VoucherFraud Support ofRental Support ofRental OIG EnforcementActionin OIG EnforcementActionin Fugitive FelonInitiative: Fugitive FelonInitiative: assisted housingparticipant (tenant)who purpose ofthislawisany federallyfunded housing programs.Afugitive felonforthe participation infederally fundedassisted felon agroundfortheterminationof 1437f(d)(1)(B)(v), makesbeingafugitive amended 42U.S.C.§§1437d(1)(9)and Pub. LawNo.104-193(Aug.22,1996), Reconciliation Actof1996(PRWORA), Responsibility andWorkOpportunity Assistance VoucherFraud Support ofRental OIG EnforcementActionin Fugitive FelonInitiative: Muhammad Abudullah. Charlette White,JuwanaFoster,and Angela Gibbs,RodonBailey,EvelynGriffin, Willis, BaderHafeez,UrenaWoods, Chalmers, TenilleDavis,JohnnieMae Michelle Lowe,HowardWilson,Sovaya charged wereasfollows:AntoineReed, these cases.Thenamesofthosecriminally based ontheallegedfalsestatementsin housing authorityexceeded$400,000 enrichment. Insummary,lossestothe claims, paymentbymistake,andunjust against themforthefollowingcounts:false 14 individualshadcivilcomplaintsfiled Transportation. Onthesameday,12of of theIllinoisDepartment Board ofEducation,andaformeremployee County, twoteachersfromtheChicago an employeeoftheCircuitCourtCook prolonged periodoftime. to reportsubstantialsumsofincomefora deceased landlord,andtenantswhofailed housing assistancepaymentsforher insured residences,atenantwhocashed subsidized unitswhileoccupyingFHA- Illinois, twotenantswhovacatedtheir Assistance VoucherFraud Assistance VoucherFraud Support ofRental Support ofRental OIG EnforcementActionin OIG EnforcementActionin Fugitive FelonInitiative: Fugitive FelonInitiative: Section 903ofthePersonal Among theindividualschargedwere reaching tooltoimplement thisstrategyby Office ofInvestigationidentified amorefar- data inanefforttoidentity fugitives.The Initiative usedonlyUSMS wantedperson in FY2003.Initially,theFugitiveFelon the subjectisnolongerafugitive. tenancy terminationmayberemoved,as fugitive provisionmakingitagroundfor fugitive felonhasoccurred,thePRWORA OIG recognizedthatoncethearrestof PRWORA violator’stenancy.Inaddition, party, generallyPHA,managesthe the PRWORAstatute.Rather,athird that terminatesthetenancyofaviolator agencies, neitherHUDnorOIGisthebody recognized that,unlikesomeotherFederal in federallyfundedassistedhousing.OIG designed toidentifyfugitivefelonsresiding Initiative. TheFugitiveFelonInitiativewas GAO report,OIGbeganaFugitiveFelon regard. or evaluatedtheeffortsofPHAsinthis PHAs andthatHUDhadnotmonitored effectively delegateditsresponsibilitiesto further determinedthatHUDhad fugitives receivingrentalassistance.GAO conducted adatamatchtoidentify critically notedthatHUDhadnot from Federalassistanceprogramsand that relatedtofugitivesreceivingbenefits to implementvariousPRWORAprovisions report evaluatedseveralagencies’efforts Provisions ShouldBeStrengthened Reform: ImplementationofFugitiveFelon issued GAOReportNo.02-716, Government AccountabilityOffice(GAO) commission ofafelony. probation orparoleimposedforthe of afelony,orviolatingcondition fleeing toavoidconfinementforconviction is fleeingtoavoidprosecutionforafelony, The OIGFugitiveFelonInitiativebegan To assistHUDinitsresponsetothe On September25,2002,the . TheGAO Welfare Public & Indian Housing Programs pursuant to HUD-OIG Agents and HUD-OIG Los Angeles, CA, Aurora, CO, Aurora, In In HUD-OIG’s National Fugitive Felon HUD-OIG’s National Fugitive Initiative, the Los Angeles HUD-OIG USMS coordinated with the Los Angeles an attempt Regional Fugitive Task Force in to effect 25 outstanding arrest warrants, which were identified based on HUD- OIG’s listing of wanted felons who were simultaneously receiving Section 8 benefits. This multiagency operation was successful in executing 13 of the 25 arrest warrants, all without incident. The 13 arrests made were pursuant to outstanding warrants for various criminal violations including felony fraud, possession of narcotics and dangerous drugs, burglary, obstructing justice, assault with a deadly weapon, counterfeiting, and welfare fraud. All individuals arrested were located at their respective subsidized residences within the the Aurora Police Department conducted Police Department the Aurora Fugitive Felon as part of the a sweep, a Apartments, at Weatherstone Initiative, project-based housing HUD Section 8 apprehension unit also development. The scattered Section 8 visited individually throughout Aurora. voucher sites is located next Weatherstone Apartments and, consequently, is door to a high school OIG. As a result of the a high priority for Carter, Kencheze Ray, sweep, Marcus Arlene Peterson, Tyronne Peterson, Bridgette Jennifer Warn, Maria Herrera, were Hamilton, and Tammy Hill apprehended for having outstanding and warrants. Donald Davis was arrested of drug charged with possession marijuana paraphernalia and possession of than 91 with intent to distribute. More Davis’ grams of marijuana was seized from Herrera, apartment. Neisha Jones, Maria Beverly Marcus Ramos, and Markitina for various were issued municipal citations during the infractions of the law occurring course of the felony sweep. on December 8, 2004, Boston, MA, In The following cases reinforce the OIG The following cases reinforce the This data-matching is used by all This data-matching law enforcement agents from the Boston, law enforcement agents from the Police, MA, Police Department (BPD), BHA of Parole, Massachusetts Department of Youth Massachusetts Department Transit Services, Massachusetts Bay 15 Authority, and HUD-OIG, arrested fugitive individuals as part of an ongoing Boston felon initiative in the Metropolitan sweep area. This particular fugitive felon focused on the BHA public housing development known as Bromley Heath, located in the Jamaica Plain section of Boston. Although the fugitive felon initiative in Bromley Heath had been in the planning stages, following a meeting between the BPD Police Commissioner Kathleen O’Toole and HUD-OIG, the initiative became a priority with BPD following the rape of a 17-year-old female by 10 youths in the basement at Bromley Heath on November 29, 2004. Five of the ten suspects in this sexual assault were among the 15 that were apprehended in this initiative. HUD’s Public and Indian Housing Programs 69 commitment to the Fugitive Felon Initiative. commitment to the Fugitive Felon Investigation Regional Offices to assist with Investigation Regional 8 Rental Assistance the OIG Section Initiative in HUD-funded Voucher Fraud housing to public and multifamily assisted apprehend fugitives residing in reporting housing. During this semiannual efforts period, the Office of Investigation fugitive in this initiative resulted in 824 felon arrests. working with the Department of Justice’s with the Department working Service and Justice Information Criminal National Criminal its data in the matching felons with Center for fugitive Information Tenant Rental Assistance HUD’s PIC and data on assisted living Certification System housing tenants. U’ ulcadIda osn rgas 70 PublicHUD’s Publicand IndianHousingPrograms & Indian Housing Programs Felon Initiativewarrantmatchinglist. from theHUD-OIG’sNationalFugitive number ofadditionalwarrantsidentified remaining 12outstandingwarrantsanda conducted topursueandexecutethe aforementioned agenciesisbeing Regional FugitiveTaskForceandthe Additional coordinationwiththeUSMS from therentalassistanceprogram. Authority forpossibleterminationofbenefits referred totheLosAngelesHousing and theforegoinginformationwillbe (DCFS). Judicialactionswillbemonitored, Department ofChildrenandFamilyServices Sheriff’s Department(OCSD),andthe Department (LAPD),theOrangeCounty State ParoleBoard,theLosAngelesPolice Tobacco, andFirearms(ATF),theCalifornia included theUSMS,BureauofAlcohol, City ofLosAngeles.Participatingagencies of USMS,ledthisinitiative. 8 housing.HUD-OIG,alongwithmembers wanted personsresidinginpublicandSection State ofLouisianainanefforttoapprehend ongoing andwillbeworkedthroughoutthe Authority ofNewOrleans.Thisinitiativeis referred forevictionthroughtheHousing or nationally.Theseindividualswillbe of individualswhoarewantedeitherlocally New Orleans,LA USMS, twosweepshavebeenconductedin Felon Initiative.Alongwithmembersof implemented theLouisianaNationalFugitive of 2005,HUD-OIGSpecialAgents Fugitive FelonInitiative,beginninginMarch In furtheranceofHUD’sNational , resultinginfivearrests Chapter 4

HUD’s Multifamily Housing Programs U’ utfml osn rgas 72 MultifamilyHUD’s Multifamily HousingPrograms Housing Programs Audits Audits interest. program duetoincreasedcongressional period andpriorperiods,ontheSection232 We haveplacedanemphasis,duringthis more significantauditsaredescribedbelow. contract administrator.Theresultsofour management agentoperations,andone health carefacilityoperations,ownerand funds beputtobetteruse. $3.9 millioninrecommendationsthat million inquestionedcostsandmorethan area. Thesereportsdisclosednearly$30.4 reports inthemultifamilyhousingprogram Inspector General(OIG)issued11external Audits between reportissuanceand management decisions,thetwototalswillnotagree. reports withmanagementdecisions reachedduringthissemiannualperiod.Becausethere isatimelag this semiannualperiod.The monetary benefitsshownintheProfileofPerformancerepresent onlythose The chartcostfiguresinthis chapter representtheactualmonetarybenefitsforallreports issuedduring the elderlyandhandicapped. housing, andprovidessupportservicesfor construction orrehabilitationofrental low-income households,financesthe defaulted mortgages,subsidizesrentsfor multifamily projectsacquiredthrough mortgages, theDepartmentowns Development (HUD)-heldorHUD-insured U.S. DepartmentofHousingandUrban Audits Audits Chart 4.1:MultifamilyHousingProgram Chart 4.1:MultifamilyHousingProgram Chart 4.1:MultifamilyHousingProgram External Reports Chart 4.1:MultifamilyHousingProgram Chart 4.1:MultifamilyHousingProgram I I Over thepast6months,weaudited During thisperiod,theOfficeof I I I housingdevelopmentswith n additiontomultifamily Reports Issued Reports Issued Reports Issued Reports Issued Reports Issued 11 Section 232/Health Care Facility Care 232/Health Section Section 232/Health Care Facility Care 232/Health Section Section 232/Health Care Facility Care 232/Health Section the mortgageloandefault.Wefoundthat agreements andtoidentifythereasonsfor operated inaccordancewiththeregulatory to determinewhethertheprojectwas Care Center,locatedin (Audit Report: distributions intheamountof$3.7million. and recoveryofthenetineligible note, appropriateadministrativeaction, loss incurredonthesaleofmortgage note. Werecommendedtherecoveryof resulting lossof$323,000onthesale the mortgagenotetoHUD,andHUD’s increased risktoHUD,theassignmentof expenses. Theseactivitiesresultedin through ineligiblecashdistributionsand disbursed $3.7millioninprojectfunds project’s mortgage.Inaddition,theowner bankruptcy andthendefaultedonthe incorporated theprojectinitspetitionfor Carmichael, CA Carmichael RehabilitationCenterin Section 232/Health Care Facility Care 232/Health Section Section 232/Health Care Facility Care 232/Health Section Reviews Reviews Reviews 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 Reviews Reviews We completedareviewoftheCanoga We completedanauditofthe

0 Questioned CostsFundsPuttoBetterUse Chart 4.2:MultifamilyHousing Chart 4.2:MultifamilyHousing Chart 4.2:MultifamilyHousing Chart 4.2:MultifamilyHousing Chart 4.2:MultifamilyHousing Program Dollars Program Dollars 2005-LA-1801 Program Dollars Program Dollars Program Dollars . Wefoundthattheowner External Reports Canoga Park,CA, ) Multifamily Housing Programs greements ) we reviewed we audited the 2005-CH-1005) 2005-FW-1003 Bethany, OK, Bethany, OK, Farmington Hills, MI, In In Operations Operations Operations Operations Operations Owner and Management Agent Owner and Management Agent the records of RVA Properties, Inc., to determine whether it used project funds in compliance with the regulatory a and HUD’s requirements. The owners and/or RVA Properties, Inc., management agent, inappropriately used $272,000 from four projects when the projects were in a non- surplus-cash position. The inappropriate expenses included $23,000 for ineligible expenses and $248,000 for unsupported default during this time. HUD incurred a HUD incurred during this time. default of the mortgage million on the sale loss of $1 that the owner recommended note. We for fund $518,000 the insurance reimburse disposals and the the inappropriate double damages Department pursue action under the Program remedies, pursue Act, impose civil Fraud Civil Remedies and pursue money penalties, sanctions against the administrative Report: owners. (Audit Heartland Health Care Center of Bethany, Heartland Health Care Center of to a HUD-insured nursing home, complied determine whether the Center and HUD with the regulatory agreement project requirements when disbursing used funds. We found the Center officials as loan $2.3 million for ineligible costs, such could not repayments and late fees, and support $4.5 million in expenditures. provide Further, Center officials did not use of documentation to support the million. revenue amounting to nearly $12 mortgage This ultimately resulted in We default and closure of the Center. officials recommended that the Center costs and reimburse HUD for the ineligible actions. take appropriate administrative (Audit Report: Owner and Management Agent Owner and Management Agent Owner and Management Agent . ) We

. 2005- 2005-LA-1804 Milwaukee, WI Kalamazoo, MI ) We audited Lakewood Care Center, a We audited Lakewood Care Center, We audited Wood Hills Assisted HUD’s Multifamily Housing Programs 73 GMAC Commercial Mortgage did not Commercial Mortgage GMAC loan, and the originate the properly substantially loan origination improper default. We, to the mortgage contributed that GMAC therefore, recommended be held accountable Commercial Mortgage $6.7 million insured loan for the improper the $3.3 million loss origination and when the insured note incurred by HUD also recommended civil was sold. We actions against the and/or administrative owner, and operator individual lender, in the improper loan officials involved origination. (Audit Report: skilled nursing facility in of $1 The owner inappropriately disposed the project million in project assets while and in was in a non-surplus-cash position Housing default of its Federal loan. Administration (FHA)-insured also During this time, the owner of project inappropriately loaned $612,000 of funds to the identity-of-interest operator the owner the project. We recommended for reimburse the project’s reserve insurance replacement and/or HUD’s FHA fund $1 million for the inappropriate We also disposition of project assets. double recommended that HUD pursue money damages remedies, impose civil penalties, and pursue administrative sanctions against the owner and its managing member. (Audit Report: CH-1004 found the owner had inappropriately disposed of $518,000 in project assets without obtaining HUD approval and in violation of its regulatory agreement and also inappropriately lent almost $13,000 of project funds to the identity-of-interest operator of the project. The project was in a non-surplus-cash position and/or in Living Facility in U’ utfml osn rgas 74 MultifamilyHUD’s Multifamily HousingPrograms Housing Programs (Audit Report: sanctions againsttheownerasappropriate. disbursements andpaymentsimpose owner forthe$124,000inineligible Department seekreimbursementfromthe condition. Werecommendedthatthe and (4)maintainedthepropertyinpoor $10,000 tootheridentity-of-interestentities, and inanon-surplus-cashposition,(3)paid when thepropertywasnotingoodrepair company, (2)took$45,000indistributions unapproved identity-of-interestmanagement concluded theowner(1)paid$68,000toan a HUD-insuredmultifamilyproject.We survey atHighlandMeadowsApartments, 2005-CH-1801 and/or managementagent.(AuditReport: administrative sanctionsagainsttheowners pursue doubledamagesremediesand that HUD,inconjunctionwithHUD’sOIG, nonproject funds.Wealsorecommended amount thatcannotbesupportedfrom appropriate reservecapitalaccountforthe and/or managementagentreimbursethe operations. Werecommendedtheowners were availablefortheprojects’normal efficiently andeffectively,fewerfunds expenses. Asaresult,fundswerenotused for necessaryandreasonable operatingcosts. documentation toshow the paymentswere property accountsforwhich therewasno expenses andpaidanother $1,469,926from income totaling$771,103topaynonproject agreements, Domiciledivertedproperty HUD requirements. the regulatoryagreementsandapplicable assisted propertyfundsincompliancewith to determinewhetherDomicileusedHUD- asked ustodotheaudit.Ourobjectiveswere Inc. (Domicile).TheOfficeofInvestigation audit ofDomicilePropertyManagement, In In In violationoftheproperties’regulatory San Antonio,TX, Dallas, TX, ) 2005-FW-1801 we performedanaudit wecompletedan ) Contract Administrator Operations Administrator Contract Contract Administrator Operations Administrator Contract Contract Administrator Operations Administrator Contract not ensurethat$1.4million ofproject 2004). WefoundOregon Housingdid Number 2004-SE-1003, datedMarch26, audit ofUptownTowerApartments (Report administrator, asafollowuptoourrecent Housing andCommunityServices,acontract NY-1802) these feesinthefuture.(AuditReport: approval beforemakinganypaymentsfor expenditures andobtainwrittenHUD the projectforamountofineligible HUD instructthepartnershiptoreimburse entity. Consequently,werecommendedthat $1,000 tothepartnersofownership $10,000 andmadeanunallowableloanof ineligible entityexpensesofmorethan regulations. Wefoundtheprojectpaid regulatory agreementandotherHUD expenditures compliedwiththeproject’s Jersey City,NJ expenditures reportedbyArlingtonArmsin FW-1002 owner andDomicile.(AuditReport: take administrativesanctionsagainstthe Government $352,053forourauditcosts,and charges totheproperties,reimburse provide supportfor$2,290,291inimproper require Domicileanditsownertorepayor HUD’s risks.WerecommendedthatHUD HUD’s securityinterestsandincreasing properties ofoperatingfunds,reducing settlement obligation,itdeprivedthe diversions andfailuretopaytheprevious insurance. BecauseofDomicile’scurrent report andpay$49,262forself-fundedhealth $272,113 undertheagreement,itdidnot 1992 and1993.AlthoughDomicilepaid claim, involvingprojectoverchargesduring settlement agreementforapreviousHUD Further, Domiciledidnotabidebythe1995 Contract Administrator Operations Administrator Contract Contract Administrator Operations Administrator Contract In We completedalimitedreviewof Salem, OR, ) ,

to determinewhether we auditedOregon 2005- 2005- Multifamily Housing Programs ) 2005-SE-1003 HUD’s Multifamily Housing Programs 75 funds distributed to owners conformed to conformed to owners funds distributed Housing Oregon HUD requirements. or allowed approved inappropriately fees, split management unreasonable the revaluation of management fees, unreasonable interest commercial space, commercial space, and payments on residual receipts. Funds distributions from paid to the owners or inappropriately reduced the amount of management agents for deposit into the residual money available The funds in these accounts receipts accounts. available for legitimate should have been balance project purposes with the unused of the returning to HUD upon termination that subsidy contracts. We recommended projects a Oregon Housing reimburse the fees and total of $1.4 million for the payments it inappropriately authorized. Oregon We also recommended that excessive Housing immediately reduce the projects to management fees, stop allowing split management fees, and discontinue owner allowing the project to pay fund distributions from the residual receipts Oregon when surplus cash is not sufficient. to Housing should also be required using the recalculate owner distributions, portion of original value of the commercial to ensure the project, and implement controls and that fees and distributions to owners (Audit management agents are reasonable. Report: U’ utfml osn rgas 76 MultifamilyHUD’s Multifamily HousingPrograms Housing Programs Total Recoveries:$2,489,543 Total: $2,293,596 Chart 4.4:MultifamilyFundsPuttoBetterUse Chart 4.4:MultifamilyFundsPuttoBetterUse Chart 4.4:MultifamilyFundsPuttoBetterUse Chart 4.4:MultifamilyFundsPuttoBetterUse Chart 4.4:MultifamilyFundsPuttoBetterUse Investigations Investigations investigations aredescribedbelow. The resultsofourmoresignificant State, andlocallawenforcementagencies. others wereconductedjointlywithFederal, this reportwereconductedbyOIG,while arrests. actions, 8personneland132 pleas/pretrial diversions,61administrative indictments/informations, 41convictions/ $2,293,596 infundsputtobetteruse,61 $2,489,543 ininvestigativerecoveries, these casesduringtheperiodincluded program area.Judicialactiontakenon 81 casesinthemultifamilyhousing opened 78investigationcasesandclosed Investigations Investigations Investigations Section 8 13% Chart 4.3:MultifamilyRecoveries Chart 4.3:MultifamilyRecoveries Chart 4.3:MultifamilyRecoveries Chart 4.3:MultifamilyRecoveries Chart 4.3:MultifamilyRecoveries Some oftheinvestigationsdiscussedin During thisreportingperiod,theOIG Other 9% Section 8 56% Embezzlement Other 6% 9% Skimming Statement 81% Employee False 15% HUD 11% Insurance Fraud Insurance Conspiracy Insurance Fraud Insurance Conspiracy Insurance Fraud Insurance Conspiracy June 23,2004,buthasyet tobesentenced. September 2,2004.Gaiblpledguiltyon Cassidy pledguiltyandwassentencedon with twocountsofmakingfalsestatements. count ofconspiracy.Gaiblwasalsocharged November 19,2003,bothchargedwithone were indictedbyaFederalgrandjuryon matter. JanetGaiblandJosephCassidy defendants hadbeenchargedinthis on September22,2004.Twoadditional one countofconspiracy.Hewasindicted defendant JosephO’Connorpledguiltyto participation inthescheme. from othercoconspiratorsforhis Rosemont andlaterreceivingakickback insurance premiumstotheCityof Aulenta wasresponsibleforoverbilling multifamily projects. owner andmanageroftheHUD of theoverpaidinsurancepremiumto then laterprovidingakickbackofportion falsely inflatingthepremiumamountand multifamily projects.Aulentaadmittedto the insurancepremiumsprovidedtothese was partofaschemeinwhichheoverbilled multifamily projects.Aulentaadmittedhe insurance coveragetoHUD-insured ordered topay$2,006,832inrestitution. Federal penitentiary.Aulentawasalso Grady toserve1yearand8monthsina sentenced beforeU.S.DistrictJudgeJohn of Illinois,defendantRalphAulentawas Insurance Fraud Insurance Conspiracy Insurance Fraud Insurance Conspiracy In In In additiontothefraudagainstHUD, Aulenta wasresponsibleforproviding Chicago, IL, Boston, MA, in theNorthernDistrict in U.S.DistrictCourt, Multifamily Housing Programs in U.S. District Hot Springs, AR, In Court, Western District of Arkansas, de- Court, Western District of Arkansas, a plea of fendant Rodney Myers entered District Court. Donald Baldyga, Jr., owner Court. Donald Baldyga, District Living Adult Family of the multifamily in Saco and located Care Center, on December ME, was charged Biddeford, Federal indictment 1, 2004, in a one-count The case involved a with equity skimming. totaling $2.9 million. defaulted mortgage resold for $900,000, The property was to HUD of $2 million. resulting in a loss indictment in that it This was a significant skimming from a HUD- involved equity living development from funded assisted skimmed almost which the owner and a $400,000, causing the foreclosure had significant loss to HUD. The facility physical been in good financial and over the condition before Baldyga took only one project; however, he made fees he mortgage payment and used the the collected for personal use, causing The State elderly residents undue hardship. and ultimately shut down the facility is relocated the residents. Sentencing scheduled for May 2005. defendant Donald Copyright, 2005. The Journal Tribune - York County, ME. Reprinted with permission. Portland, ME, In The November 2003 indictment 2003 The November Equity Skimming Equity Skimming Baldyga, Jr., pled guilty to one count of Baldyga, Jr., pled guilty to one in U.S. multifamily equity skimming HUD’s Multifamily Housing Programs 77 alleged that between 1988 and mid-2000, that between 1988 alleged of employees Cassidy, former Gaibl and (FRM), combined Management First Realty to be submitted to cause false statements to a rent subsidy program to HUD relating a HUD-insured at Cummins Towers, managed by FRM. multifamily complex allegedly identified Gaibl and Cassidy subsidized units at the certain federally their own use or the use development for caused false statements of friends and then related HUD forms and to be made on for supporting documents to be fabricated units the purpose of obtaining subsidized otherwise for individuals who would not Cassidy qualify. By their actions, Gaibl and $140,000 caused a loss to HUD in excess of of the and also deprived qualified families was also use of the subject units. O’Connor 8 units, a beneficiary of one of these Section from which he ran a cleaning company. Equity Skimming Equity Skimming Equity Skimming U’ utfml osn rgas 78 MultifamilyHUD’s Multifamily HousingPrograms Housing Programs Counsel inFortWorth,TX. to OIGbytheHUDOfficeofGeneral scheduled. Thisinvestigationwasreferred diversions. Myers’sentencinghasnotbeen work notperformedtoconcealhis inflated andphonyinvoicesbidsfor personal bankaccounts.Myersused and depositingthecashier’scheckstohis endorsements, purchasingcashier’schecks, contractors orforgingcontractor and eitherreceivingcashkickbacksfrom writing BHAcheckstoseveralcontractors checks tohispersonalbankaccountsand the regulatoryagreement. from ApriltoJulyof2000inviolation $40,000 inprojectrentsandotherfunds in default,Myersdivertedmorethan and whiletheHUD-insuredmortgagewas bankruptcy wasdismissedinApril2000 Court’s cashcollateralorder.Afterthe agreement andtheU.S.Bankruptcy other fundsinviolationoftheregulatory more than$110,000inprojectrentsand devised aschemetodefraudanddiverted Chapter 11bankruptcyproceeding,Myers default andduringtheperiodofBHA’s while theHUD-insuredmortgagewasin Springs, AR. Harbour Apartments(BHA)inHot insured multifamilyproject,Burchwood jury. MyersistheformerownerofaHUD- to HUD,perjury,andsubornationofper- money laundering,makingfalsestatements equity skimming,bankruptcyfraud, ern DistrictofArkansason22counts dicted byaFederalgrandjuryintheWest- count ofperjury.RodneyMyerswasin- one countofmoneylaundering,and guilty toonecountofbankruptcyfraud, Myers’ schemeinvolveddivertingrent From December1998toApril2000, False Statements False Theft and Embezzlement and Theft False Statements False Theft and Embezzlement and Theft False Statements False Theft and Embezzlement and Theft Section 8payments. excess of$270,000inoverpaymentHUD individuals areallegedtohavecausedin and lenders.Intotal,theabove-mentioned Bankruptcy Court,andvariouslocalbanks Security Administration,theU.S. multiple falsestatementstotheSocial these individualspurportedlymade In additiontothefalsestatementsHUD, Income payments,andtaxicabmedallions. tenants owned,SupplementalSecurity rental incomefrompropertiesthatthe checking andinvestmentbankaccounts, income, self-reportedsavings, indictment werethefailuretoreportW-2 focused onthebuilding. culmination a5-yearinvestigation,which Evaristo Torres.Thesechargesarethe Afusat Durojaye,MuradaliBohjani,and Mustapha, SimonKent,HakeemDurojaye, Mireku, AbdulMustapha,Bukonla Hakeem Adewolej,JonesMireku,Amma located inChicago:ArleneAdewole, 100-percent HUD-subsidizedbuilding were Section8tenantsat810W.Grace,a forgery countsthefollowingindividuals,who County grandjuryindictedonmultiple fraud andotherwisewithout authorityfor embezzling, stealing, and obtainingby false documentation to HUDandfor Kentucky indictedHaycraftforsubmitting grand juryfortheWesternDistrictof indictment. OnJune18,2003,aFederal was foundguiltyon8countsina10-count president, U.H.M.ManagementServices, District ofKentucky,LondyRyaHaycraft, False Statements False Theft and Embezzlement and Theft False Statements False Theft and Embezzlement and Theft Among thoseschemesallegedinthe In In Chicago, IL, Louisville, KY, a

Circuit CourtofCook in theWestern Multifamily Housing Programs This Simeon in Federal Sea Breeze State felony in the Superior Court in Fort Lauderdale, FL, Stockton, CA, In Defendant Edgar Manterola Simeon, Defendant Edgar In charges of grand theft, embezzlement, adult, crimes against an elder or dependent and “white collar” enhancement. Southard is scheduled to be sentenced. a million Southard embezzled more than mortgage- dollars in cash from a HUD involved insured project. The scheme and the fraudulent contractor’s invoices manipulation of rent rolls and rental income, and it is believed that a majority of the money involved was cash. Court, Southern District of Florida, defendants Maha Elsaai and Ashraf Elsaai pled guilty to felony charges that they conspired to defraud HUD under the Section 8 Rental Assistance Voucher Program. Maha Elsaai was sentenced to 14 months incarceration, to be followed by 36 months of supervised release. Ashraf Elsaai was sentenced to 12 months incarceration, to be followed by 36 months supervised of California, County of San Joaquin, of California, County of San former defendant Mark Southard, management agent for the Apartments, pled guilty to FHA insurance, and other fraudulent and FHA insurance, mill was The false document activities. apartment in a HUD-insured located five individuals So far, three of the complex. have pled guilty. involved in the operation Gomez, pled guilty also known as Roberto District of Texas, Dallas in the Northern of fraud and misuse Division, for violations conspiracy, and of identity documents, on one FHA loan. misuse of an SSN at $93,500 with an estimated loan was valued loss to the Government of $26,000. was also a part of a false document produced manufacturing operation that for illegal numerous forms of identification aliens. in Federal Court, in the Northern District Charleston, WV, Charleston, WV, Dallas, TX, In The OIG investigation determined that The OIG investigation determined In of Texas, Dallas Division, defendant Daniel Manterola Muedano, also known as Daniel Gonzalez Monzalvo, pled guilty for violations of fraud and misuse of identity documents, conspiracy, and misuse of a Social Security number (SSN). Muedano was part of a false document manufacturing operation that produced numerous forms of identification for illegal aliens. These false documents included resident alien cards, Social Security cards, Texas driver’s licenses, insurance cards, vehicle inspection stickers, etc. These documents were used to obtain employment, purchase homes that received Ms. Taylor Williams recruited her daughter Ms. Taylor Williams recruited her receive and a friend to apply for and which Section 8 housing choice vouchers, The they then turned over to the defendant. to provide defendant used both vouchers building “free” housing in her apartment benefit to as an inducement or fringe for enable her to recruit skilled individuals her nonprofit agency. Southern District of West Virginia, Southern District Taylor Williams, a defendant Romona and former Executive property manager nonprofit organization, Director of a local for her admitted role in a was sentenced two State scheme to defraud HUD and to be agencies. The defendant was ordered followed imprisoned for 6 months, to be and was by 6 months supervised release, to HUD ordered to repay a total of $63,788 and the two other agencies. HUD’s Multifamily Housing Programs 79 his own use, more than $800,000 in funds use, more than his own a 20-story 256 to Blanton House, belonging In by HUD. subsidized unit facility demonstrated that trial evidence addition, payable to personal Haycraft wrote checks credit cards, and casinos. use, petty cash, U’ utfml osn rgas 80 MultifamilyHUD’s Multifamily HousingPrograms Housing Programs maintain rentalassistancesubsidies. employment andincomedocumentsto and AshrafElsaaihavefalsified investigation foundthatsince1997Maha special assessmentfeeof$100.This of $41,383andeachwasorderedtopaya to makerestitutionHUDintheamount release. Thedefendantswerealsoordered was sublettingtheunitfromPalencia. tenants, AlbadiaPena,admittedthatshe encountered. Oneoftheunauthorized several unauthorizedtenantswere residence. the floorofuncleanandunhealthy the factthattwochildrenweresleepingon of ChildrenandFamilyServicesbasedon referral wasalsomadetotheDepartment of Californiaforthesalenarcotics.A based onhispriorconvictionintheState immigration violationsthatwasinitiated on anoutstandingFederalwarrantfor immigration violations. and toexecuteoutstandingwarrantsfor violation ofSection8rulesandregulations determine whethertheresidentswerein conduct followupinvestigationsto subsidized propertieswerevisitedto the courseofoperation,threeHUD- the PierceParkapartmentcomplex.During a RentalAssistanceInitiativeoperationat Customs EnforcementAgencyconducted HUD-OIG andtheImmigration property managementstaff,LosAngeles investigative leadsprovidedbytenantsand The chargescameasa resultofanOIG counts ofmakingfalsestatements toHUD. defendant AdrienneBradley withfour Division, aninformation wasfiledcharging Court ofNorthernCalifornia,Oakland In In At theresidenceofLilianPalencia, Eliazar Plasenciowasarrestedbased Oakland, CA, Pacoima, CA, in theU.S.District pursuant to Plaza, Bronx,NY,was arrested, charged, a Section8complexknown asAndrews defendant JacquelineGrullon, atenantat $11,000 inrentalassistance. receiving abenefitofapproximately official formsthroughMay2004,thereby her husband’sresidencyandincomeon management. Shethencontinuedtoomit in Juneof2001andfailedtoreportthis investigation disclosedthatHicksmarried complaint totheHUDHotline.The Department wasinitiatedbasedona OIG andtheChristiansburg,VA,Police of Federalfunds.Ajointinvestigationby tenant, wasindictedononecountoftheft defendant ToniaHicks,formerSection8 benefit. project operatingfundsforpersonal payable tohimforcash.Kingusedthe cosign blankchecksormade instructed propertymanagementstaffto from theoperatingaccount.King Cooperative revealedpossibletheftoffunds statements fortheColonialSquare HUD. Anindependentauditoffinancial receiving acapitalimprovementloanfrom Square Cooperative,Inc.,whichwas value inexcessof$5,000fromColonial and obtainedbyfraudpropertywitha for a1-yearperiod,Kingembezzled,stole, information. Theinformationchargedthat Square Cooperative,Inc.,pledguiltytoan Treasurer, BoardofDirectors,Colonial District ofKentucky,defendantAlanKing, $25,000. resulted inalosstoHUDtotalingmorethan 1995 through2003.Bradley’sactions information regardingherincomefrom Apartments managementwithaccurate failed toprovidetheCrescentPark investigation, whichdisclosedthatBradley In FederalCourtin In FederalCourt,in In Louisville, KY, in theWestern Roanoke, VA, Bronx, NY, Multifamily Housing Programs in the 17th District Palcom, KS, In Court of Kansas, defendant Steve Wood, a Court of Kansas, Section 8 tenant, rural housing multifamily criminal deprivation of pled guilty to sentenced to serve 360 property and was and 24 months days imprisonment ordered to pay $8,708 probation and was HUD. Wood failed to in restitution to he had inform Embers Apartments that residence purchased and moved to another that with his girlfriend. Interviews revealed unit for Wood used the Embers Apartment in rental storage. Wood received $8,708 entitled. assistance to which he was not Saneaux. Robert Grullon, brother of brother Robert Grullon, Saneaux. intermediary, has and another Jacqueline his part in the pled guilty to already scheme. HUD’s Multifamily Housing Programs 81 and remanded pending a $100,000 bond pending and remanded individuals and three responsible signed by was charged with cash. Grullon $7,500 in fraud, accepting to commit conspiracy programs receiving bribes concerning and witness tampering. Federal funds, of accepting bribes as Grullon is accused or middleman for the an intermediary project manager. The Andrews Plaza prospective tenants being scheme involved they wanted to move in, advised that if to pay a fee to Grullon, a they would need associate of Saneaux. tenant and known that Evidence was also provided showing before Grullon was contacting witnesses them to trial and threatening them to get or either not talk to government officials allegedly not tell the truth. Grullon from accepted payments of up to $8,000 money to several applicants and gave the

Chapter 5

HUD’s Community Planning and Development Programs U’ omnt lnigadDvlpetPorm 84 CommunityHUD’s Community PlanningandDevelopment Programs Planning & Development Programs Audits Audits sector. levels ofgovernmentandtheprivate development ofpartnershipsamongall primary meanstowardthisendisthe low- andmoderate-incomepersons.The expanded economicopportunitiesfor as suitablelivingenvironments,and approaches thatprovidedecenthousing, communities bypromotingintegrated (CPD) seekstodevelopviable Guarantee program. programs andtheSection108Loan Development BlockGrant(CDBG) be puttobetteruse. $850,000 inrecommendationsthatfunds million inquestionedcostsandmorethan area. Thesereportsdisclosednearly$1.2 external auditreportsintheCPDprogram of InspectorGeneral(OIG)issuedfour Audits between reportissuanceand management decisions,thetwototalswillnotagree. reports withmanagementdecisions reachedduringthissemiannualperiod.Becausethere isatimelag this semiannualperiod.The monetary benefitsshownintheProfileofPerformancerepresent onlythose The chartcostfiguresinthis chapter representtheactualmonetarybenefitsforallreports issuedduring Audits Audits Chart 5.1:CommunityPlanningand Chart 5.1:CommunityPlanningand Chart 5.1:CommunityPlanningand Chart 5.1:CommunityPlanningand Chart 5.1:CommunityPlanningand T T The OIGauditedtheCommunity During thisreportingperiod,theOffice T T T External Reports Development ReportsIssued Development ReportsIssued Development ReportsIssued Development ReportsIssued Development ReportsIssued PlanningandDevelopment he OfficeofCommunity 4 Community Development Block Development Community Community Development Block Development Community Community Development Block Development Community New YorkCity’sUtilityRestorationand ineligible administrativeexpensesunder Disaster RecoveryAssistancefundsfor disbursed morethan$141,000ofitsCDBG eligible grantapplicants. Disaster RecoveryAssistancefundsto whether theauditeedisbursedCDBG Our auditobjectivesweretodetermine to therebuildingofLowerManhattan. September 30,2004,foractivitiesrelated than $276millionbetweenApril1and Development (HUD)anddisbursedmore Department ofHousingandUrban Recovery AssistancefundsfromtheU.S. more than$2.7billioninCDBGDisaster in NewYorkCity.Theauditeereceived terrorist attacksontheWorldTradeCenter State followingtheSeptember11,2001, funds. Thesefundswereprovidedtothe of theCDBGDisasterRecoveryAssistance Corporation’s (theauditee)administration Lower ManhattanDevelopment ongoing auditsofthe Community Development Block Development Community Community Development Block Development Community Grant Program Grant Grant Program Grant Grant Program Grant Grant Program Grant Grant Program Grant 1,000,000 1,500,000 500,000 Our reviewdisclosedthattheauditee We performedthefourthofour

0 Questioned CostsFundsPuttoBetterUse Chart 5.2:CommunityPlanning Chart 5.2:CommunityPlanning Chart 5.2:CommunityPlanning Chart 5.2:CommunityPlanning Chart 5.2:CommunityPlanning and DevelopmentDollars and DevelopmentDollars and DevelopmentDollars and DevelopmentDollars and DevelopmentDollars External Reports New York,NY , Community Planning & Development Programs ) New City of

2005-FW-1001 ) CDBG program, we audited We recommended that Louisiana As part of our audit of the Program Program Program Program Program Section 108 Loan Guarantee Section 108 Loan Guarantee Orleans, LA, a Section 108 loan to the Louisiana Artists a Section 108 loan to the Louisiana Both Guild to construct Louisiana Artworks. Guild the City and the Louisiana Artists that stated systems were in place to ensure sufficient Louisiana Artworks would create 108 loan. jobs for the $7.1 million Section the While Louisiana Artworks expended reviewed vast majority of the funds attorney properly, it overpaid the City’s support more than $1,600 and could not or more than $17,000 paid to the attorney Both the $3,000 paid to a financial analyst. agreed to City and Louisiana Artworks amounts. provide support or recover the in excess Artworks repay more than $1,600 charges for legal fees, repay the more than $17,000 of unsupported funds paid to the attorney and $3,000 paid to the financial analyst or provide adequate support, and establish the necessary management controls. (Audit Report: $774,000 for ineligible and $298,000 for and $298,000 for ineligible $774,000 and recover disbursements unsupported provided to the assets any remaining City should seek Further, the Museum. sanctions appropriate administrative in the deficiencies against parties involved report. (Audit Report: described in the 2005-FW-1005 Section 108 Loan Guarantee Section 108 Loan Guarantee Section 108 Loan Guarantee New 2005- CDBG program, we audited ) We recommended that the Of five City-awarded grants, two Of five City-awarded grants, As part of our audit of the City of HUD’s Community Planning and Development Programs 85 New Orleans Community Planning Development Director require the City to repay its CDBG program more than Orleans, LA, to meet grants totaling $745,000 failed HUD requirements. For the remaining $1 million, three grants totaling more than that it met the Museum failed to document one of HUD’s national objectives. Further, the Museum did not exercise financial oversight or management for its five grants. The Museum commingled funds, did not have adequate controls over procurement, and failed to comply with Federal and State income tax requirements, resulting in more than $50,000 in ineligible and $181,000 in unsupported disbursements. Infrastructure Rebuilding program. The Rebuilding Infrastructure parent company) subrecipient (its auditee’s Recovery CDBG Disaster drew down without first funds from HUD Assistance to the auditee for submitting its invoices and eligibility of the review of the accuracy We recommended that costs being billed. the auditee and/or its HUD instruct reimburse the Utility subrecipient to Infrastructure Rebuilding Restoration and than $141,000 in CDBG program more Assistance funds that Disaster Recovery for ineligible salary and were drawn down fringe benefits costs. (Audit Report: African its subrecipient, the New Orleans of our American Museum. The objective the audit was to determine whether program Museum administered its CDBG efficient funds in an economical and the terms manner and in accordance with City and of the grant agreements with the laws. applicable regulations and Federal NY-1003 U’ omnt lnigadDvlpetPorm 86 CommunityHUD’s Community PlanningandDevelopment Programs Planning & Development Programs Investigations Investigations investigations aredescribedbelow. The resultsofourmoresignificant State, andlocallawenforcementagencies. others wereconductedjointlywithFederal, this reportwereconductedbyOIG,while actions; and15arrests. 23 administrativeactions;4personnel convictions, pleas,andpretrialdiversions; use; 16indictments/informations;18 recoveries; $1,309,036infundsputtobetter period included$7,137,802ininvestigative action takenonthesecasesduringthe 22 casesintheCPDprogramarea.Judicial opened 25investigativecasesandclosed Investigations Copyright, 2005.TheRepublican -Springfield,MA.Reprintedwithpermission. Investigations Investigations Some oftheinvestigationsdiscussedin During thisreportingperiod,OIG Wire/Mail Fraud and Bribery/ and Fraud Wire/Mail Wire/Mail Fraud and Bribery/ and Fraud Wire/Mail Wire/Mail Fraud and Bribery/ and Fraud Wire/Mail by MCDI,whichprovidededucationaland charged andconvictedhadbeenemployed abetting. Thefourdefendantswhowere threatening awitness,andaiding justice, makingfalsestatements, program fraud,wireobstructionof included theviolationsofconspiracy, grand juryinJanuary2004.Theindictment previously beenhandeddownbyaFederal Springfield, MA.Thisindictmenthad superseding Federalindictmentin September 2,2004,ina19-count defendants inthiscasewerechargedon 2005, aftera5-weektrial.Allfour funded Stateorganization,onFebruary28, Development Institute(MCDI),aCDBG- former officialsoftheMassachusettsCareer Court, Wire/Mail Fraud and Bribery/ and Fraud Wire/Mail Wire/Mail Fraud and Bribery/ and Fraud Wire/Mail Payoffs Payoffs Payoffs Payoffs Payoffs A FederaljuryinDistrict Springfield, MA , convictedfour Community Planning & Development Programs , in the Western Rochester, NY In District of New York, Emmett Porter was sentenced to 2 years probation and a $1,000 fine. Porter was charged on October 15, 2004, with one count of mail fraud. Porter was a contractor in the City of Rochester who submitted numerous fraudulent bids by mail to receive the winning bids on large single-family rehabilitation contracts. Porter is known to have submitted three fraudulent bids for approximately $216,000. Porter fraudulently prepared bids from other Rochester contractors on their letterhead without their knowledge. The City of criminal complaint with mail fraud and complaint with criminal to HUD. Young, a false statement making of for the City specialist a rehabilitation for writing NY, was responsible Rochester, for the rehabilitation of specifications housing within the City privately owned homeowners must first of Rochester. The Home Ownership Made qualify for CPD These grants range Easy (HOME) funds. and $30,000 per project, between $10,000 may qualify for more and the homeowner grant. Young was charged than one type of bribes from various with receiving through contractors during the years 2002 to the 2004. Young steered the contracts the contractors by telling the contractors contractor amount of the lowest bid. The than the would then bid a lower amount contractor lowest bid to win the bid. The and $500 would pay Young between $300 of the in cash, depending on the size with contract. Young was also charged that submitting two final inspections work had verified that all rehabilitation been completed on two HUD-subsidized made false grants totaling $25,000. Young when statements in these final inspections that the he signed them and certified when rehabilitation had been completed, it had not been completed. , to 20 months , Steven Young pled Newark, NJ Rochester, NY In Joseph Barry, a Hudson County Joseph Barry, incarceration and ordered to pay $1 million incarceration and ordered to pay in restitution to HUD, the U.S. Department Federal of Transportation, and the 2 weeks Highway Administration within paying and a $20,000 fine. Barry admitted County $115,000 in cash to Hudson a reward Executive Robert Janiszewski as Federal for his help in securing State and Barry grants for his project in Hoboken. on surrendered for imprisonment 22, 2004, December 2, 2004. On June fraud and Joseph Barry pled guilty to mail HUD bribery. Barry managed to secure under the grants and loan guarantees grant in Economic Development Initiative a Section the amount of $1 million, as well as in the 108 loan guarantee for these projects was amount of $6.69 million. Barry previously indicted on 16 counts. The indictment detailed $8.8 million in Federal and State loan grants that Barry and his enterprise, the Applied Companies, secured through bribery. Barry maintained a “payoff sheet” of bribe amounts, dates, and notations, indicating which government loan or grant the payoff(s) were connected to. guilty to one count of mail fraud. On November 30, 2004, Young was charged in the Western District of New York by HUD’s Community Planning and Development Programs 87 developer of the Shipyard project in developer of the sentenced in U.S. District Hoboken, NJ, was Court, job-training programs for income-eligible programs for job-training area. The four in the Springfield individuals former MCDI were the defendants Phillips, former Director Gerald Executive Polimeni, former Administrator Giuseppe employee Luisa no-show MCDI former MCDI Secretary Cardaropoli, and investigation concerned Jamie Dwyer. The no-show employees. U’ omnt lnigadDvlpetPorm 88 CommunityHUD’s Community PlanningandDevelopment Programs Planning & Development Programs Conspiracy to Commit to Conspiracy Conspiracy to Commit to Conspiracy Conspiracy to Commit to Conspiracy at leastthemid-1990stopresent. conspired toviolateracketeeringlawsfrom an internationalengineeringfirm, Jackson, whoisaseniorvicepresidentof pursued publiccontracts;andGilbert office ofaNewJerseycompanythat Jividen, whoworkedintheCleveland in aShakerSquare,OH,office;Brent that NateGray,whooperatedhisbusiness of corruptactivity.Theindictmentcharges States andsetforthindetailawiderange The chargesintheindictmentspanmultiple to publicofficialsinreturnforofficialacts. value, includingmoneyandluxuryitems, other things,providingnumerousthingsof Jividen, andGilbertJacksonwith,among Ricardo Teamor,MoniqueMcGilbra,Brent Mayor EmmanuelOnunwor,JosephJones, of therecentlyconvictedEastCleveland Cleveland, OH,anallegedcoconspirator fraud infurtheranceofthecorruptactivity. racketeering, extortion,andmailwire charges ofconspiracytocommit corruption andfraudscheme,including defendants inawide-rangingpublic jury indictmentwasunsealedchargingsix District ofOhio,a45-countFederalgrand low-income families. City ofRochester,whichwillbesoldto other sourcestorehabilitatehousinginthe $12 millioninfundingfromnumerous funding, theCityofRochesterhasreceived HOME grantfunds.InadditiontoHUD $2 millionperyearinHUDCDBGand Rochester rehabilitationprogramreceives Conspiracy to Commit to Conspiracy Conspiracy to Commit to Conspiracy Racketeering, Fraud, and Extortion and Fraud, Racketeering, Racketeering, Fraud, and Extortion and Fraud, Racketeering, Racketeering, Fraud, and Extortion and Fraud, Racketeering, Racketeering, Fraud, and Extortion and Fraud, Racketeering, Racketeering, Fraud, and Extortion and Fraud, Racketeering, In The indictmentchargedNateGrayof Cleveland, OH, the Northern follows: described intheindictmentwereas payments topublicofficialsallegedand scheme. Examplesoftheextortion the mailsandtelephonestofurthertheir honest servicesofitspublicofficials,using of extortionanddeprivedthepublic of Houston,TX,committednumerousacts Building ServicesDepartmentfortheCity and MoniqueMcGilbra,whoheadedthe Metropolitan HousingAuthority(CMHA); as legalcounselfortheCuyahoga businessman RicardoTeamor,whoserved Joseph Jones;Clevelandarealawyerand along withClevelandCityCouncilman It furtherchargesthatthesethree, conviction inthesummerof2004; subject ofOnunwor’sowntrialand made toOnunworthatwerethe Numerous cashpaymentsthatGray and atleastoneotherpayment. subject ofJones’earlierindictment and TeamortoJonesthatwasthe The $5,000interest-freeloanbyGray limousine service;and family inMiamiBeach,FL,aswell Gray purchasedforMcGilbraandher A dinnercostingnearly$1,000that purchased forher; McGilbra selectedforherselfandGray A $700LouisVuittonpursethat Jackson ontheirarrival; boyfriend, whowereentertainedby Orleans forMcGilbraandher 2002 NFLSuperBowlinNew including a$4,500weekendtriptothe and JividenprovidedtoMcGilbra, Two football-relatedtripsthatGray Community Planning & Development Programs , New York, NY Wing K. Cheng of Wing K. Cheng Funds - State of New York Funds - State of New York Funds - State of New York Funds - State of New York Funds - State of New York Disaster Recovery Assistance Disaster Recovery Assistance owner of Well Planned New York City Co., owner of Well Planned business located in Lower Inc., a garment sentenced in Federal Manhattan, was probation, a $5,000 fine, Court to 2 years $26,250, and a special restitution of Cheng previously pled assessment of $100. Court to one count of theft guilty in Federal in connection with of government money Empire a scheme to defraud HUD and (ESDC) of State Development Corporation after Federal grant money made available attacks to the September 11, 2001, terrorist in provide assistance to certain businesses 11 Lower Manhattan. After the September Center terrorist attacks, the World Trade Grant Small Firm Attraction and Retention by program (SFARG) was established to certain ESDC to provide assistance that were businesses in Lower Manhattan attacks. adversely impacted by the terrorist through a The SFARG program is funded HUD. $700 million appropriation from Disaster Recovery Assistance Disaster Recovery Assistance Disaster Recovery Assistance , Springfield, MA Francis G. Keough III, Director of The Francis G. Keough In addition to the conspiracy, extortion to the conspiracy, In addition HUD’s Community Planning and Development Programs 89 Copyright, 2005. The Republican - Springfield, MA. Reprinted with permission. Friends of the Homeless, shelter, a HUD-funded long-term homeless was was arrested after a Federal indictment with one unsealed. Keough is charged from count of extortion. The charge stems Frank Keough extorting $29,000 from Inc., a Ware, owner of The Ware Group, to do construction contractor hired at 501 renovations of the women’s shelter on or Worthington Street in Springfield Keough about April 23, 1999, while home in was building a summer Charlestown, RI. and fraud charges, Gray is charged with charges, Gray and fraud than $1.5 million payment of more evading owed the United taxes due and in back same period as he ran his States during the enterprise described corrupt racketeering The taxes due are a result in the indictment. of Gray’s tax liability of the determination for tax evasion for following his conviction and 1984 on or about the years 1982, 1983, December 13, 1990. U’ omnt lnigadDvlpetPorm 90 CommunityHUD’s Community PlanningandDevelopment Programs Planning & Development Programs False Statements False False Statements False False Statements False Homeless ServicesAuthority (LAHSA). $1,050,000 grantfrom theLosAngeles Connection (BCC), had receiveda Chief ExecutiveOfficer for theBlueCollar making falseclaims.Brown,servingas making falsestatements,andonecountof one countofconspiracy, three-count felonyindictment,including was chargedbyaFederalgrandjuryin Central DistrictofCalifornia,RolinaBrown LMDC. $220,873 wasreturnedandreportedby Program. FromAugusttoDecember2004, grant moneyreceivedundertheAmnesty OIG hasbeenreportingthereturnof prosecuted. SinceFebruary2004,HUD- assurance thattheywouldnotbe funds withnoquestionsaskedand which thegranteescouldreturngrant initiated anAmnestyProgram,through fulfilling the2-yearrequirement,LMDC disbursed byLMDCandmanygrantees Residents Grant.Duetonumerousgrants who fraudulentlyobtainedtheTwoYear arrested andconvictednumerouspeople HUD-OIG inNewYork/NewJersey LMDC andHUD-OIGauditreferrals, Manhattan foraminimumof2years.From to stayinaspecifiedareawithinLower residents ofLowerManhattanwhoagreed LMDC toproviderentalassistance Year ResidentsGrantwascreatedby residents toLowerManhattan.TheTwo- goal ofwhichwastoretainandattract funds, LMDCcreatedagrantprogram,the World TradeCenter.FromtheseCDBG September 11,2001,terroristattacksonthe revitalization ofLowerManhattanafterthe HUD tocoordinatetherebuildingand received $2.7billionofCDBGfundsfrom Manhattan DevelopmentCorp.(LMDC) False Statements False False Statements False In In Los Angeles,CA New York,NY , FederalCourt, , theLower Embezzlement/Theft Embezzlement/Theft Embezzlement/Theft Cleveland fromNovember of2000to Development Directorfor theCityofEast $101,659 inrestitution. and CeciliaGeorgewasorderedtopay was orderedtopay$40,475inrestitution, $26,115 inrestitution,CharlesReed,Sr., $100, WillieGeorgewasorderedtopay Center. CharlesReed,Jr.,wasassessed Cleveland CommunityDevelopment to thetheftofgovernmentfundsfromEast earlier guiltypleastoconspiracy,relating George weresentencedfollowingtheir Reed, Sr.,CharlesJr.,andWillie Cleveland, OH, information beingreportedbyBrown. it withdrewfundingduetoinaccurate $458,517 fromthe$1,050,000grantbefore services. LAHSAhadpaidBCCatotalof and/or othertypesofrecoverysupport abuse counseling,mentalhealthtreatment, in needofassistance,includingsubstance support towomenwhowerehomelessand The purportedpurposeofBCCwastooffer and $200,000. causing totallossesofbetween$120,000 State medicalassistance.Ashcraftadmitted Retirement Account,andfalselyobtaining $10,000 fromherhusband’sIndividual transacting counterfeitchecks,embezzling individuals’ names,makingand using creditcardssheobtainedinother rehabilitation grant.Shealsoadmittedto Services toobtaina$24,660housing documents toCedarRapidsHousing stipulated thatshesubmittedfalse fraud, andSocialSecurityfraud.Ashcraft statements toHUD,identitytheft,bank Joyce Ashcraftpledguiltytomakingfalse Embezzlement/Theft Embezzlement/Theft Cecilia Georgeservedas Community In theNorthernDistrictofOhio, In Cedar Rapids,IA CeceliaGeorge,Charles , FederalCourt, Community Planning & Development Programs Cornell Lewis, a Cornell Lewis, ; , Deborah Ahmad Bey, also In U.S. District Court at Chicago, and sentenced as a result of this as a and sentenced Asselin, the former James W. investigation. to was ordered Director, GSEF Executive in Federal months confinement serve 41 supervised release and prison and 3 years in restitution to the to repay $723,553 as well as a $300 Federal Government fee special assessment Board member, was former GSEF home confinement sentenced to 6 months and ordered to pay and 3 years probation restitution of $29,000, a $5,000 fine, make assessment fee, and serve pay a $300 special and 300 hours of community service; GSEF Salvatore Anzalotti, the former 6 months Accountant, was sentenced to 4 home confinement, placed on additional to make years probation, and ordered a $300 restitution of $68,000 and pay special assessment fee. Chicago, IL on known as Deborah Dunn, was indicted According seven counts of bankruptcy fraud. police to the indictment, Bey, a Chicago a HUD- officer, and former owner of called approved nonprofit organization Living, Developing Economical and Better the HUD Inc. (DEBL, Inc.), participated in multiple Bulk Sale program by purchasing discounted properties with the commitment to rehabilitate and resell to median-level income families. However, Bey refinanced several of the discounted properties in her own name, causing her to receive significant profits. Bey filed multiple bankruptcy petitions and allegedly failed to disclose ownership of multiple properties and significant amounts of cash from property sales, rental income, and additional employment. As a result, she was granted a financial discharge of more than $56,000 in debts and withheld more than $80,000 in unreported income to the U.S. Bankruptcy Court. James Krzystofik, Springfield, MA, In Officials Officials Officials Officials Officials Investigations Involving Public Investigations Involving Public HUD’s Community Planning and Development Programs 91 December of 2001. While in that position, of 2001. While December coconspirators and her three George of the City of East the citizens defrauded embezzling and and HUD by Cleveland CDBG funds. Cecilia otherwise stealing federally funded contracts George steered that were associated to “front companies” members and then with her family back through those funneled the money accounts under the companies to bank and George families. In control of the Reed and George families addition, the Reed documents to conceal falsified and forged CDBG that they were benefiting from funds. former Deputy Director, Greater former Deputy Director, (GSEF), Springfield Entrepreneurial Fund a City of Springfield nonprofit in U.S. organization, was sentenced District Court, District of Massachusetts, 36 months to 41 months confinement and of of supervised release upon completion special sentence, ordered to pay a $300 to make assessment fee, and ordered restitution of $723,553. Krzystofik previously pled guilty to conspiracy and other charges relating to the embezzlement and theft of more than $700,000 in funds received from the Small Business Administration (SBA) and U.S. Department of Commerce (DOC). GSEF had also obtained $697,000 in Urban Development Action Grant (UDAG) funds for its startup costs. It had been determined that much of the UDAG funds had been used to cover shortages in the books, which had to be presented to SBA and DOC monthly. Kryzstofik was one of four public officials working at GSEF to be convicted Investigations Involving Public Investigations Involving Public Investigations Involving Public U’ omnt lnigadDvlpetPorm 92 CommunityHUD’s Community PlanningandDevelopment Programs Planning & Development Programs checks. $36,000 waspaidtohim tocoverthose to himwithnonsufficient funds,andthe checks cashedbythestoreowner cameback of KCMHA“payee”clients.Manythe an agreementwithKCMHAtocashchecks paid toastoreownerwhohadenteredinto More than$36,000ofthegrantfundswere Security Administration“Payee”program. participation asa“payee”intheSocial were writtenbyKCMHAaspartofits $70,230 purpose otherthantheintendeduse.The diverted the$70,230grantfundsfora Erma KendrickandEdwinaJackson accessible vanandtohiresupportingstaff. the grantforpurchaseofahandicap- 2002, KCMHAreceived$70,230aspartof in theamountof$156,240.OnMay16, HUD SupportiveHousingProgramgrant conspiracy. California ononecounteachoftheftand Federal grandjuryintheEasternDistrictof Director ofKCMHA,wereindictedbya Edwina Jackson,former Association (KCMHA), Director ofKernCountyMentalHealth derived fromtheseillegalcontracts. personally received$1.2millioninproceeds business partners.ItisestimatedthatRobles illegal contractsRoblesarrangedwithhis 1998-2003. CBDGfundswereusedtofund and businesspartnersduringtheyears a varietyofCityprojectstofamily,friends, office andinfluencetofunnelmoneyfrom Federal funds.Roblesusedhispolitical bribery concerningprogramsreceiving fraud, moneylaundering,andtheftor indicted on39countsofmailfraud,wire Espinoza andMichaelKlistoff,were CA, andtwobusinesspartners,Edward Councilmember fortheCityofSouthGate, Robles, formerTreasurerandCity Central DistrictofCalifornia,Albert In Erma Kendrick,formerExecutive Los Angeles,CA was usedtopayforchecksthat KCMHA wastherecipientofa Assistant Executive , inFederalCourt, Fresno, CA , and Conspiracy Conspiracy Conspiracy Tampa $142,000inrestitution. probation andordered topaytheCityof Prisons and36months supervised in thecustodyofFederal Bureauof was sentencedto41monthsincarceration stealing publicmoney.McCarter(Labrake) programs receivingFederalfunds,and gratuities, theftorbriberyconcerning the UnitedStates,wirefraud,receiving defraud andcommittingoffensesagainst on 28countsincludingconspiracyto Counselor, CityofTampa,wassentenced (Labrake), formerSeniorRedevelopment in restitution. ordered topaytheCityofTampa$142,000 and 36monthssupervisedprobation the custodyofFederalBureauPrisons sentenced to60monthsincarcerationin stealing publicmoney.Labrakewas programs receivingFederalfunds,and gratuities, theftorbriberyconcerning receiving bribesaspublicofficials, against theUnitedStates,wirefraud, conspiracy todefraudandcommitoffenses District ofFlorida,on30countsincluding sentenced inU.S.DistrictCourt,Middle Development fortheCityofTampa,was Director ofBusinessandCommunity in restitution. required topaytheCityofTampa$72,000 probation thatcannotbereducedand months housearrestand5yearssupervised Government, Ryanwassentencedto6 cooperated andtestifiedonbehalfofthe a bribetopublicofficial.BecauseRyan U.S. Governmentandonecountofpaying to onecountofconspiracydefraudthe District Court,MiddleofFlorida, a generalcontractorwassentencedinU.S. Conspiracy Conspiracy Defendant PauletteLynnMcCarter Defendant SteveLabrake,former In Tampa, FL , defendantDeanRyan, Community Planning & Development Programs build their home in exchange for 15 HUD- home in exchange build their additional $3,000 with an funded contracts Ryan. Ryan was the contract for built into for of dollars to pay thousands required personal debts. Labrake’s and McCarter’s Luney to pay Ryan Labrake directed funds in furtherance $30,000 from HUD Luney, through THAP, of the scheme. funds from the City of received additional its property acquisition Tampa by padding HUD funds to pay costs. Luney used supply costs to build employees and home, valued at Labrake’s and McCarter’s $670,000. As a result of this investigation, HUD $4.5 the City of Tampa is repaying under million for funds misappropriated as a the direction of Labrake while serving expected City official. Additional funds are the sale to be repaid to HUD based upon that of properties acquired under LaBrake were deemed ineligible acquisitions. The investigation revealed that The investigation revealed Defendant Chester Luney, former Chester Luney, Defendant HUD’s Community Planning and Development Programs 93 defendants Labrake, McCarter, Luney, and defendants Labrake, McCarter, Luney, for their Ryan conspired to defraud HUD CDBG personal benefit using HOME and had Ryan funds. Labrake and McCarter Executive Director for Tampa Hillsborough Director for Tampa Executive a nonprofit Plan (THAP), Action on 19 counts, was sentenced organization, to defraud and including conspiracy against the United States, commit offenses a public official, giving wire fraud, bribing public official, theft or a gratuity to a programs receiving bribery concerning stealing public money. Federal funds, and to 33 months Luney was sentenced the custody of the Federal incarceration in and 36 months Bureau of Prisons to pay supervised probation and ordered the City of Tampa $142,000 in restitution.

Chapter 6

Other Significant HUD Audits and Investigations/OIG Hotline OtherOther Significant HUDAuditsandInvestigations/OIG Hotline Audits & Investigations/OIG Hotline 150,000,000 300,000,000 450,000,000 600,000,000 750,000,000 Audits Audits audits arediscussedbelow. information systems.Ourmoresignificant information securityprogram,and program, thepurchasecard statements; andauditedthetravelcard Administration’s (FHA)financial KPMG, LLP’sauditoftheFederalHousing Mae) financialstatements;reportedon National MortgageAssociation(Ginnie chapters. major HUDprogramsreportedinprevious (HUD) operationsthatdonotfallunder of HousingandUrbanDevelopment audit involvingareasofU.S.Department reports: 9internalauditsand1external of InspectorGeneral(OIG)issued10 Audits between reportissuanceand management decisions,thetwototalswillnotagree. reports withmanagementdecisions reachedduringthissemiannualperiod.Becausethere isatimelag this semiannualperiod.The monetary benefitsshownintheProfileofPerformancerepresent onlythose The chartcostfiguresinthis chapter representtheactualmonetarybenefitsforallreports issuedduring Audits Audits

Chart 6.1:OtherAuditReportsIssued Chart 6.1:OtherAuditReportsIssued Chart 6.1:OtherAuditReportsIssued Chart 6.1:OtherAuditReportsIssued Chart 6.1:OtherAuditReportsIssued

0 Questioned CostsFundsPuttoBetterUse OIG auditedHUDandGovernment During thisreportingperiod,theOffice

Chart 6.2:OtherAuditDollars Chart 6.2:OtherAuditDollars Chart 6.2:OtherAuditDollars Chart 6.2:OtherAuditDollars Chart 6.2:OtherAuditDollars nenlRprsExternalReports Internal Reports Internal Reports 1 External Reports 9 Report on the U. S. Department S. U. the on Report Report on the U. S. Department S. U. the on Report Report on the U. S. Department S. U. the on Report statements forthefollowingreasons: on HUD’sFY2004principalfinancial date. requiring thatwecompleteourworkby Congress byNovember15,2004,thereby submit themtothePresident,OMB,and Performance andAccountabilityReports directed agenciestocompletetheir Office ofManagementandBudget(OMB) Accountability Report.ForFY2004,The HUD’s FY2004Performanceand 2004 financialstatementsisincludedin Report on the U. S. Department S. U. the on Report Report on the U. S. Department S. U. the on Report Financial Statements Financial of Housing and Urban and Housing of Financial Statements Financial of Housing and Urban and Housing of Financial Statements Financial of Housing and Urban and Housing of Financial Statements Financial of Housing and Urban and Housing of Financial Statements Financial of Housing and Urban and Housing of Development Development Development Development Development We wereunabletoexpressanopinion Our reportonHUD’sfiscalyear(FY) addition, weexperienceddelaysin obligations inatimelymanner.In ing significantproject-basedSection8 unable toretrievedocumentssupport- documents. Departmentofficialswere were supportedbyappropriatesource obligation transactionsandbalances manner tosatisfyourselvesthatHUD’s competent evidentialmatterinatimely We wereunabletoobtainsufficient OMB-required reportingdate. render anopinionintimetomeetthe government auditingstandards all theproceduresnecessarytomeet auditors intimetoallowusapply were notpresentedtotheOIG adjustments andrelateddisclosures, reflecting allmaterialproposed Final consolidatedfinancialstatements, ’ s Fiscal Year 2004 Year Fiscal s s Fiscal Year 2004 Year Fiscal s s Fiscal Year 2004 Year Fiscal s s Fiscal Year 2004 Year Fiscal s s Fiscal Year 2004 Year Fiscal s 96 and Other Audits & Investigations/OIG Hotliine 97 government auditing or OMB Bulletin No. 01-02. HUD Most of these control weaknesses were including the need to enhance FHA the need to including systems to more technology information business and support FHA’s effectively oversight and (2) improve budget processes; subsidy calculations and monitoring of performance; and intermediaries’ program management review over (3) improve FHA’s estimation process. the credit reform in internal controls in Reportable conditions to the need to (1) improve FY 2004 related performance measures quality control over strengthen controls over data reliability; (2) environment; (3) improve HUD’s computing to the personnel security practices for access (4) Department’s critical financial systems; obligation improve processes for reviewing developing balances; (5) improve controls for for the estimates of budget authority required (6) Section 236 Interest Reduction Program; over the more effectively manage controls (7) place FHA systems’ portfolio; and lender more emphasis on monitoring early underwriting, continue to improve effective warning processes, and establish tools for loan portfolio risk assessment addition, single-family insured mortgages. In the our reportable condition on improving balances processes for reviewing obligation benefits, identified $708 million in monetary be put to which we reported as “funds to better use.” reported in prior efforts to audit HUD’s financial statements and represent long- standing problems. Our findings also include the following instance of noncompliance with applicable laws, regulations, and provisions of contracts and grant agreements that are required to under be reported standards did not substantially comply with the Federal Financial Management Improvement Act. In this regard, HUD’s financial management systems did not substantially comply with . Interim milestone dates associated with Interim milestone dates associated the accounting firm of KPMG, LLP’s audit of FHA’s financial statements late were missed because of (1) the receipt of the Mutual Mortgage Insurance Fund actuarial study, which work is critical to completion of audit relating to the Single Family Liability for Loan Guarantees, and (2) material and errors found in the calculation reporting of the FHA Multifamily Loan Liability for Loan Guarantees and Loss Reserve for its Mark-to-Market loan portfolio risk category. Missing interim milestone dates with the FHA audit contributed to the Department’s missing agreed-upon milestone dates associated with consolidating FHA’s financial statements with those of the remainder of the Department. We were unable to obtain sufficient We were unable matter in a timely competent evidential ourselves that Note manner to satisfy Subsidy Payment 17 on Rental Housing by appropriate Errors was supported Department source documents. to complete the officials were unable or provide adequate supporting studies supporting documentation in a timely the manner to allow us to apply all meet procedures necessary to government auditing standards obtaining underlying support for underlying obtaining to the balances pertaining significant reduction 236 interest Section payments. In a separate report issued by OIG, we Other Significant HUD Audits and Investigations/OIG Hotline provided additional details concerning our audit of HUD’s FY 2004 Financial Statements. The report describes three material weaknesses in internal controls related to the need to (1) comply with Federal financial management system requirements, (1) Federal Financial Management System systems to more effectively support FHA’s requirements and (2) applicable accounting business and budget processes, and (2) standards. improve FHA’s management review over the credit reform estimation process. Reportable The audit discusses each of these conditions in internal controls in FY 2004 conditions in detail, provides an assessment related to the need to (1) more effectively of actions taken by HUD to mitigate them, manage controls over the FHA systems’ and makes recommendations for corrective portfolio and (2) place more emphasis on actions. During the course of the audit, OIG monitoring lender underwriting, continue to also identified several matters that were not improve early warning processes, and material to the financial statements and were establish effective loan portfolio risk separately communicated to HUD assessment tools for single-family insured management (Audit Report: 2005-FO-0003). mortgages. The report also identifies one reportable instance of potential noncompliance with laws, regulations, Federal Housing Administration contracts, and grant agreements that KPMG Financial Statements Audit tested. During the course of the audit, KPMG also noted other internal control matters that are not material to the financial statements We reported on the results of KPMG, and are being separately communicated to LLP’s audit of FHA’s financial statements for FHA management. (Audit Report: 2005- the years ending September 30, 2004 and FO-0002) 2003.

In KPMG’s opinion, the financial Government National Mortgage statements present fairly, in all material Association Financial Statements respects, FHA’s financial position as of September 30, 2004 and 2003, and its net Audit costs, changes in net position, budgetary resources, and reconciliation of net costs to In accordance with the Government budgetary obligations for those years in Corporation Control Act, as amended, we conformity with accounting principles audited the Ginnie Mae financial statements. generally accepted in the United States of This report presents the results of our audit America. of Ginnie Mae’s principal financial statement for the year ending September 30, 2004. Also The report identifies two material provided are assessments of Ginnie Mae’s weakness and two reportable conditions on internal controls and compliance with laws, internal control, discusses each of these regulations, and provisions of contracts that conditions in detail, provides an assessment could have a direct and material effect on its of actions taken by FHA to mitigate them, financial statements. Our report includes a and makes recommendations for corrective copy of Ginnie Mae’s principal financial actions. The material weaknesses in internal statements for the years ending September controls in FY 2004 related to the need to (1) 30, 2004 and 2003. However, the objective comply with Federal financial management of our audit was to express an opinion on system requirements, including the need to the fair presentation of these financial enhance FHA information technology statements.

Other AuditsOther & Investigations/OIG Hotline Other Significant HUD Audits and Investigations/OIG Hotline 98 Other Audits & Investigations/OIG Hotliine & Investigations/OIG Other Audits

We found that Ginnie Mae’s financial program and more equitably distribute the statement is presented fairly, in all material number of cardholders assigned to each respects, in conformity with the U.S. administrative officer for monitoring. We also generally accepted accounting principles. recommended that HUD establish Our consideration of internal control over procedures to ensure that (i) travel card financial reporting would not necessarily accounts are canceled when employees disclose all matters in the internal control over separate from HUD and (ii) employees are financial reporting that might be material not issued more than one travel card. (Audit weaknesses under standards issued by the Report: 2005-DP-0002) American Institute of Certified Public Accountants. However, we noted no matters involving the internal control and its Purchase Card Program Audit operation that we considered to be material weaknesses. We noted no matters material We audited HUD’s purchase card to the financial statement that require program to determine whether actions taken recommendations in this report. (Audit on the recommendations made in a 2003 Report: 2005-FO-0001) audit report issued by the U.S. Government Accountability Office (GAO) on HUD’s Travel Card Program Audit purchase card program resulted in better program management and were effective in We audited HUD’s travel card program preventing or detecting inappropriate use. to determine whether sufficient management controls were implemented to effectively We found that the actions taken to detect inappropriate transactions. resolve the issues reported in the 2003 GAO audit report have resulted in significant HUD needs to improve management improvement in the overall management controls over the travel card program’s of the purchase card program. HUD has training and monitoring functions. Although developed and put into operation several we found that cardholders traveling on policies designed to improve card official Government business generally used transaction approval, review, monitoring, the card in accordance with governing and training procedures. While these policies, we estimated that 6.3 percent of the actions have reduced the frequency of transactions processed during the audit improper and questionable purchase card period (January 2002 through September transactions reported in the 2003 report, we 2003) were improper in that they were for still found instances of questionable activity. personal use—purchases or cash advances We also found administrative weaknesses not associated with official Government associated with documentation travel. Additionally, cardholder accounts maintenance, statement reconciliations, were not always closed in a timely manner delegations of authority, and the payment when HUD employment was terminated and of sales tax. when cardholders were issued a new travel card. We recommended that HUD improve controls over purchase card program We recommended that HUD improve administrative functions by making sure its travel card training and monitoring monitoring procedures include detailed

Other Significant HUD Audits and Investigations/OIG Hotline 99 reviews of documentation maintenance, Information Systems Review statement reconciliations, delegations of authority, and sales tax payments. (Audit We reviewed general and application Report: 2005-DP-0003) controls for selected information systems as part of the OIG’s audit of HUD’s financial Information Security Program statements for FY 2004. We found Evaluation weaknesses and deficiencies in controls. The weaknesses and deficiencies in controls are related to HUD’s noncompliance with The Federal Information Security (i) requirements for internal controls Management Act of 2002 (FISMA) requires established by OMB, (ii) guidance for the OIG to perform an annual independent securing information systems issued by the evaluation of HUD’s information security National Institute of Standards and program and practices. Our testing found Technology (NIST), and (iii) HUD’s own weaknesses in network security that we policies and procedures. We recommended reported to the Acting Director for that the Assistant Secretary for Information Technology Operations in a Administration/Chief Information Officer memorandum, dated August 6, 2004. Other ensure that OMB requirements, FISMA, weaknesses in information system security NIST guidelines, and HUD’s own internal are reported in our audit report entitled FY policies and procedures are implemented. 2004 Review of Information Systems Controls The Assistant and Deputy Assistant in Support of the Financial Statement Audit. Secretary for Administration/Chief Generally, we reported that improvements Information Officer concurred with all are needed in network security, contingency applicable recommendations. (Audit Report: planning for information systems, and the 2005-DP-0001) agencywide information system security program. In our assessment, HUD has not documented and implemented an agencywide information security program in a timely manner as specified in section 3544(b) of FISMA and has not fully established the minimum set of controls provided in appendix III to Office of Management and Budget (OMB) Circular A-130, Security of Federal Automated Information Resources. However, HUD has taken steps to improve information system security and has made commendable efforts to improve its organization for an effective information system security program. (Audit Report: 2005-DP-0801)

Other AuditsOther & Investigations/OIG Hotline Other Significant HUD Audits and Investigations/OIG Hotline 100 Other Audits & Investigations/OIG Hotliine 101 the liabilities of , was sentenced to Houston, TX The investigation disclosed that the A HUD employee, a GS-12 construction Personnel Action Personnel Action one year of confinement in a Texas Department of Corrections State jail. The employee pled guilty to two counts of felony forgery in a District Court in Houston, TX , and will serve the sentences concurrently. The guilty plea resulted from two indictments handed down in September 2003. HUD employee passed two counterfeit cashier’s checks in the amount of $10,000 each for the downpayment on a conventional home loan. The employee indicated to investigators that the checks were given to him as payment for architectural work performed during nonduty hours for an outside party. purchased have property attached and have property purchased As of March performing loans. some are written off losses Ginnie Mae has 31, 2005, has a remaining thousand and of $488 of $24.5 million. whole loan asset then be forged on the Signatures would loan documents, and altered/counterfeit use the fraudulent the subjects would lenders to draw documents to warehouse of credit. The proceeds down on their lines into accounts controlled were then wired and ultimately laundered. by the subjects funds into the The subjects laundered title Cayman Islands. They created fictitious companies, Ginnie Mae document custodians, trade and Ginnie Mae security by the tickets. FHA was victimized schemes subject’s loan origination fraud which and endorsed more than 10,000 loans, included thousands of loans not conforming GreatStone to FHA underwriting guidelines. annual provided fraudulent audited which financial statements to Ginnie Mae, accurate concealed and failed to include financial information about GreatStone. analyst, in Personnel Action Personnel Action Personnel Action defendant William Tampa, FL, GreatStone packaged and pooled more In Some of the investigations discussed During this reporting period, the OIG reporting period, During this Investigations Investigations Conspiracy and Money Laundering Conspiracy and Money Laundering than $52 million worth of loans, which it certified to Ginnie Mae met the FHA criteria. Ginnie Mae has had to purchase $38 million in loans that did not meet FHA criteria from the portfolio. All of the loans Jones was sentenced in U.S. District Court, Jones was sentenced in U.S. District months Middle District of Florida, to 108 incarceration and 24 months supervised million release and ordered to pay $77.9 guilty in restitution. Jones previously pled the to one count of conspiracy to defraud United States and two counts of making false statements to HUD. Jones was the General Manager of GreatStone Mortgage and coconspired with several other subjects in defrauding FHA, Ginnie Mae, and Warehouse Lenders, causing one of the largest schemes and financial losses involving HUD’s Streamline Refinance program in HUD’s history. Other Significant HUD Audits and Investigations/OIG Hotline Investigations in this report were conducted by OIG, in this report were conducted with while others were conducted jointly Federal, State, and local law enforcement significant agencies. The results of our more investigations are described below. opened 13 investigation cases and closed opened 13 investigation areas of HUD operations 8 cases involving under specific program that do not fall action taken on categories. Judicial the period included these cases during recoveries, $186,618 in investigative four seven indictments/informations, diversions, nine convictions/pleas/pretrial actions, six personnel administrative actions, and seven arrests. Conspiracy and Money Laundering Conspiracy and Money Laundering Investigations Investigations Conspiracy and Money Laundering OtherOther Significant HUDAuditsandInvestigations/OIG Hotline Audits & Investigations/OIG Hotline Bid Rigging and Theft and Rigging Bid Bid Rigging and Theft and Rigging Bid Bid Rigging and Theft and Rigging Bid in architecture. college diplomatoshowhereceivedadegree investigators beforeadmittinghealtereda coworkers, andmakingfalsestatementsto prohibited outsidearchitecturalworkfor “registered architect”stamp,engagingin misdemeanor byhisfraudulentuseofafalse felony forgery,committingaState unbecoming aFederalemployee,citingthe proposed hisremovalforengaginginconduct was sentamemorandumbyHUDwhich investigation 7yearsearlier. for identicalillegalactivity inanOIG Mancinelli hadbeenpreviously convicted overcharged HUDbyat least$17,000.John eventually determined thattheyhad incentive tokeepcostsdown,anditwas manipulating thebidding,therewasno excess of$200,000.Sincetheywere including cleanoutsandwinterization,in funded propertypreservationwork, nonexistent competitorstoobtainHUD- bidding documentsonbehalfof Mancinellis createdandsubmittedfalse during thelatterpartof1999, was overcharged. represents theamountofmoneythatHUD $17,000 inrestitutiontoHUD,which release. Further,theywereorderedtopay sentenced to18monthsofsupervised supervised release.RitaMancinelliwas incarceration, tobefollowedby12months Mancinelli wassentencedto6months involvement inabidriggingscheme.John their previousadmissionofguiltto Eastern DistrictofPennsylvania,basedon were sentencedinU.S.DistrictCourt, doing businessasR.A.PropertyServices, contractors JohnandRitaMancinelli, owned preservationandprotection Bid Rigging and Theft and Rigging Bid Bid Rigging and Theft and Rigging Bid Shortly beforesentencing,theemployee In The investigationdeterminedthat, Philadelphia, PA, HUD realestate- Child Exploitation Child Child Exploitation Child Child Exploitation Child SID obtainedanadmission fromtheHUD contained aphotograph ofthechildren. download afiletheemployee believed Center whileintheact ofattemptingto the HUDPhiladelphia Home Ownership caught theHUDemployeeathisdesk BCI, HUD-OIGandSIDSpecialAgents BCI undercoveragent. HUD employeewascommunicatingwitha relations withthechildren.Infact, would permittheemployeetohavesexual the fatherofthreeminorchildren,who whom theHUDemployeebelievedwas and pedophilice-mailstoanindividual, his HUDcomputertosendsexuallyexplicit identify andexposeaHUDemployeeusing (BCI), ChildSexualExploitationUnit,to General, BureauofCriminalInvestigation of Pennsylvania,OfficetheAttorney a jointinvestigationwiththeCommonwealth Division (SID), used themoneyforhispersonalbenefit. at least$43,840fromtheseindividualsand interest inanyoftheproperties.Millerstole owned property,whenhehadnofiduciary toward thepurchaseofaHUD-orVA- individuals toprovidedownpayments broker, orinvestor,inducingatleast17 himself asarealtor,lawyer,mortgage at varioustimes,falselyrepresented determined thatin2001and2002,Miller and theMarylandStateAttorneyGeneral incarceration. InvestigationbyHUD-OIG properties, wassentencedto12years Veterans Affairs(VA)foreclosed purchasers ofHUDandDepartment with theftoffundsfromprospective various felonytheftchargesinconnection Miller, whohadpreviouslypledguiltyto Court, BaltimoreCounty,defendantRobert Child Exploitation Child Child Exploitation Child In anarrangementdevisedbySIDand HUD-OIG SpecialInvestigations In Baltimore, MD, Washington, DC Maryland Circuit , conducted 102 Other Audits & Investigations/OIG Hotliine 103 Antonio Loura, former Boston, MA, The HUD employee resigned after The HUD employee In Assault Assault Other Significant HUD Audits and Investigations/OIG Hotline pleading guilty to violation of Title 18, pleading guilty Consolidated Statutes, Pennsylvania Criminal Attempt/ Section 901/6318, with Minor, a felony. In Unlawful Contact the defendant was February 2005, of imprisonment in the sentenced to a term Department custody of the Pennsylvania less than of Corrections for a period of not months, 12 months and not to exceed 120 of 10 to be followed by a term of probation to years. The defendant was also required imposing register as a sex offender. Before described the sentence, the presiding judge from his the e-mails sent by the defendant disgusting HUD computer as “the most say they thing I’ve heard a human being that the e- would do to children,” noting worse to mails “went from bad to judge disgusting to monstrous.” The “clear and described the defendant as a of the present danger to the children Commonwealth of Pennsylvania.” employee as to his involvement in the as to his involvement employee and pedophilic of sexually explicit sending computer and from his HUD e-mails forensic evidence. corroborating recovered Section 8 landlord, was indicted by a grand jury in the District of Massachusetts, Boston, MA. Loura was indicted on one count of assault on a Federal officer. Loura was indicted after he allegedly threatened two HUD-OIG Special Agents with a knife while the agents were interviewing Loura. Assault Assault Assault OtherOther Significant HUDAuditsandInvestigations/OIG Hotline Audits & Investigations/OIG Hotline OIG Hotline OIG Hotline viewed oneindividualwhovisitedHUD cent bye-mail.TheHotlinealsointer- telephone, 21percentbymail,and3per- complaints—76 percentreceivedby Hotline hasreceivedandprocessed8,998 p.m., EasternTime. through Friday,from10:00a.m.to4:30 operational 5daysaweek,Monday with HUDprogramoffices.TheHotlineis internal auditandinvestigativeunitsor public andcoordinatingreviewswith HUD employees,contractors,andthe HUD orinHUD-fundedprogramsfrom waste, fraud,abuse,ormismanagementin work, whichincludestakingallegationsof employees concentrateonHotline-related seven full-timeemployees.The Division (PID).ThePIDhasaDirectorand initiative toformtheProgramIntegrity combined withanewfraudprevention OIG Hotline OIG Hotline OIG Hotline During thisreportingperiod,the In August2004,theOIGHotlinewas Investigation OIG Audit& 14% Chart 6.2:HotlineCasesOpenedbyProgram Chart 6.2:HotlineCasesOpenedbyProgram Chart 6.2:HotlineCasesOpenedbyProgram Chart 6.2:HotlineCasesOpenedbyProgram Chart 6.2:HotlineCasesOpenedbyProgram Other HUD Offices 7% Public andIndian Housing 48% Development Community Planning & put tobetteruse. $1,824,881 inHUDfundingthatcouldbe $117,226 inrecoveriesoflossesand took 86correctiveactionsthatresultedin purchase ofahome.TheDepartmentalso investors forimproprietiesinvolvedinthe employees forpersonnelviolationsor administrative sanctionsagainstHUD substantiated allegationsresultedin13 included 99substantiatedallegations.The reporting period.TheclosedHotlinecases Hotline casereferralsbypercentage. illustration showsthedistributionof for actionandresponse.Thefollowing Investigation ortoHUDprogramoffices are referredtoOIG’sOfficesofAuditand addressed asHotlinecases.cases related tothemissionofOIGandwere database andtracked. received bytheHotlineisloggedintoa program operations.Everyallegation headquarters toregisteracomplaintabout 5% The Hotlineclosed657casesthis Of thecomplaintsreceived,883were Single Family Housing 11% Multifamily Housing 15% 104 Other Audits & Investigations/OIG Hotliine 105 7% 3% Employee Other Misconduct 4% False Statements 1,049,853 72,795 7% Violations 300,282 in which homebuyers submitted false in which homebuyers submitted purchase documentation to qualify to The homes financed by FHA loans. the issue following chart illustrates allegations breakdown of the substantiated by percentage. Owner/Occupant 44,431 7% 474,746 Mismanagement 0 Recoveries $117,226 Funds Put to Better Use $1,824,881 Recoveries $117,226 Funds Put 0 Chart 6.3: Hotline Dollar Impact from HUD Program Offices from HUD Hotline Dollar Impact Chart 6.3: Program Offices from HUD Hotline Dollar Impact Chart 6.3: Chart 6.3: Hotline Dollar Impact from HUD Program Offices from HUD Hotline Dollar Impact Chart 6.3: Chart 6.3: Hotline Dollar Impact from HUD Program Offices from HUD Hotline Dollar Impact Chart 6.3: Program Offices from HUD Hotline Dollar Impact Chart 6.3: 72% 800,000 600,000 400,000 200,000 1,200,000 1,000,000 Chart 6.4: Substantiated Cases by Type of Complaint Received by Hotline Chart 6.4: Substantiated Cases by Type of Complaint Received by Hotline Chart 6.4: Substantiated Cases by Chart 6.4: Substantiated Cases by Type of Complaint Received by Hotline Chart 6.4: Substantiated Cases by Chart 6.4: Substantiated Cases by Type of Complaint Received by Hotline Chart 6.4: Substantiated Cases by Type of Complaint Received by Hotline Chart 6.4: Substantiated Cases by Improprieties Rental Fraud & The recoveries included Section 8 The recoveries included Section Other Significant HUD Audits and Investigations/OIG Hotline tenants, who must reimburse housing tenants, who must reimburse they authorities for assistance to which improper were not entitled, based on reporting of income or household that could composition. Some of the funds of cases be put to better use were the result

Chapter 7

Outreach Efforts OutreachOutreach Efforts Efforts signed betweenHUD-OIG,WHA,andthe initiatives. Thefirstwasanagreement Donohue announcedthreenewHUD-OIG Valley PublicHousingDevelopment.IG Authority (WHA)attheGreatBrook and residentsoftheWorcesterHousing stations, newspapers,andradiostations individuals fromthelocaltelevision Worcester, MA Donohue spokeatapressconferencein role andfunction. we alsoprovideinformationaboutOIG’s work anddiscussourgoalsobjectives; the resultsofourauditandinvestigative these outreachefforts,wenotonlypresent committees andsubcommittees.During OIGs; andvariouscongressional and locallawenforcementagencies;other regular coordinationwithFederal,State, described below,areinadditiontoour special outreachefforts.Theseefforts,as General (OIG)participatesinanumberof (HUD) mission,theOfficeofInspector of HousingandUrbanDevelopment’s the accomplishmentofU.S.Department organizations whoseintentistoassistin beneficial relationshipswithagenciesand Worcester HousingAuthority. Inspector GeneralKennethDonohue addressesthe T T Inspector General(IG)Kenneth T T T ofostercooperative, informative, andmutually , toanaudienceof60 the cooperationamongvarious Commissioners. Allthespeakerspraised Office andtheWHABoardof Worcester CountyDistrictAttorneys Gemme; andrepresentativesfrom,the WHA; WorcesterPoliceChiefGary Raymond Mariano,ExecutiveDirector, were U.S.CongressmanJamesMcGovern; the lease. resulting intheirevictionorinclusionon WHA publichousingdevelopments, the illegal/unauthorizedresidentslivingin Department, andtheWPDinaddressing HUD-OIG, theWHAPublicSafety third wasthecontinuingeffortsof has resultedinmorethan50arrests.The housing orSection8units.Theoperation arrest fugitivefelonslivingineitherpublic Violent FugitiveApprehensionsectionto the MassachusettsStatePolice(MSP) Worcester PoliceDepartment(WPD),and the WHAPublicSafetyDepartment, success oftheongoingeffortsHUD-OIG, income matching.Thesecondwasthe authority inMassachusettstobeabledo The WHAisthefirstpublichousing tenant incomeagainsttheStatewagedata. that willallowtheWHAtomatchreported Massachusetts DepartmentofRevenue Also speakingatthepressconference their efforts. wanted toofficiallyrecognize summer camplastand IG DonohuevisitedtheWPD Public HousingCommunities.” the ChildrenLivinginWorcester “Dedication andCommitmentto with aplaquetorecognizeits presented theWPDGangUnit conference, IGDonohue agencies. Afterthepress 108 Outreach Efforts 109 . SAC Emerzian discussed Police Department (BPD) On the same day, IG Donohue On the same and ASAC Valdes met with Palm Valdes met and ASAC Authority Housing Beach County Barry Director (ED) Executive additional Seaman to discuss tenant fraud in strategies to address ED Authority developments. IG Donohue for Seaman thanked addressing Section OIG’s support in fraud, and IG 8 subsidized tenant continual OIG Donohue pledged the Authority’s support through Initiative. Section 8 Fraud Special Agent In Charge (SAC) Peter Emerzian, Regional Inspector Peter Emerzian, Regional Dvorak, General for Audit (RIGA) John gave a and ASAC Maureen Nelting in Public presentation, “Tackling Fraud members Housing,” to approximately 150 of attending the midwinter conference of the the New England Council and National Association of Housing held in Redevelopment Officials being Uncasville, CT Fraud OIG’s upcoming Rental Subsidy of the IG. Initiatives, as well as the mission landlord, ASAC Nelting discussed tenant, employee and public housing authority about the fraud. RIGA Dvorak talked and Office of Audit, management controls, Web sites that may be helpful. SAC Emerzian and ASAC Diane H. DeChellis of HUD-OIG met with Boston, MA, Superintendent Paul F. Joyce, Jr., and Deputy Superintendent Paul A. Fitzgerald to discuss HUD-OIG’s authority and mission, as well as to discuss the benefits of cooperation between HUD-OIG and the BPD. During this meeting, discussions included developing a Fugitive Felon Initiative involving BPD, Boston Housing Authority (BHA) Police, MSP and HUD-OIG in Federal housing sites in Boston. Palm Beach , Sheriff Ric Bradshaw and IG Donohue, along with OIG IG Donohue, along with Additionally, IG Donohue was the Additionally, IG Donohue was Outreach Efforts Inspector General Kenneth Donohue at the Worcester Inspector General Kenneth Donohue at the police department summer camp. Assistant Special Agent in Charge (ASAC) Assistant Special Agent in Charge Ruth Valdes, met with the to Palm presented an appreciation plaque Michael Beach County Sheriff’s Colonel work as a Gauger, honoring him for his Fraud Investigator at the Palm Beach County Housing Authority over the last year. Colonel Gauger is a 33-year employee of the Sheriff’s Office who worked recently with HUD-OIG addressing Section 8 subsidized fraud as part of the Section 8 Fraud Initiative. Colonel Gauger promised continual support of OIG’s initiative through the Sheriff’s Office Community Policing program. IG Donohue addressed press issues during the presentation from the Palm Beach Post and the local Channel 9 TV station, which provided positive information relating to the national Section 8 Fraud Initiative. guest speaker on a Worcester radio talk guest speaker on a Worcester Mariano show WTAG 580 with Raymond show. IG and Jordan Levy, the host of the HUD-OIG Donohue discussed the role of in and the success of HUD-OIG initiatives Worcester and throughout the country. County, FL In Framingham, MA, SAC Emerzian was well attended with more than 150 and ASAC DeChellis met with MSP Lt. appraisers at the conference. SAC Colonel John D. Kelly, Detective Captain Emerzian provided an overview of the OIG Brian X. Lilly, and Detective Captain and presented a case study on a Michael J. Saltzman to discuss HUD-OIG’s single-family investigation involving authority and mission, as well as to discuss appraisers. RIGA Wolfe and ASAC the benefits of cooperation between HUD- Dechellis discussed the respective roles of OIG and the MSP. During this meeting, the Offices of Audit and Investigation. discussions included developing a Fugitive ASAC Nelting detailed the investigative Felon Initiative in Federal housing sites in methods and criminal schemes common in the State of Massachusetts with the MSP, single-family investigations. Ms. Shaffer HUD-OIG, and local police departments in provided guidance to program problems Massachusetts. encountered by the appraisers. At the conclusion of the presentation there was a In Boston, MA, SAC Emerzian and question and answer session with the OIG ASAC DeChellis met with BPD staff and Ms. Shaffer. The highlight was at Commissioner Kathleen O’Toole and the end of the presentation when one of Superintendent Paul F. Joyce, Jr., to discuss the appraisers thanked HUD and our staff OIG’s authority and mission, as well as to for “helping prevent America’s discuss the benefits of cooperation between neighborhoods from becoming slums.” OIG and the BPD. During this meeting, discussions included developing a Fugitive SAC Nadine Gurley made a Felon Initiative involving BPD, BHA Police, presentation in Columbia, SC, on single- MSP, and OIG in Federal housing sites in family fraud to the South Carolina Boston, MA. Appraisal Institute. SAC Gurley discussed fraud awareness regarding loan In Boston, MA, SAC Emerzian invited origination fraud and common schemes Julie Shaffer, Director, Quality Assurance used in committing mortgage fraud. Division, to meet with the Boston Office of Approximately 65 appraisers representing Investigation in an effort to generate all areas of South Carolina attended the additional single-family investigations in presentation. Region 1. As a result, Ms. Shaffer discussed single-family fraud trends in Region 1 and In Uncasville, CT, SAC Emerzian, provided training on the availability and RIGA John Dvorak, and ASAC Nelting use of the computerized single-family spoke at the New England Council of the programs. Ms. Shaffer also answered National Association of Housing and program questions relating to ongoing Redevelopment Official’s Conference on single-family investigations in New “Protecting Your Agency from Fraud.” The England. presentation briefly covered what constitutes fraud, highlighted several case SAC Emerzian, ASACs Dechellis and studies that were successfully prosecuted, Nelting, Acting RIGA Heath Wolfe, and and emphasized that in preventing fraud, Director of HUD’s Quality Assurance sound management controls are critical to Division Julie Shaffer made a joint HUD housing due to the nature of their activities and OIG presentation to the Massachusetts and the relatively large amount of HUD Board of Real Estate Appraisers’ conference funds handled. There were approximately held in Dedham, MA. The presentation 160 persons who attended this conference.

Outreach Efforts Outreach Outreach Efforts 110 investigations in public housing areas. ASAC Rosario and SA Bonano provided Lt. Garcia with a list of the fugitive felons wanted by other local and Federal authorities. An agreement was made to work jointly on this initiative. A few days later, with the assistance of Lt. Garcia’s group, OIG was able to arrest three of the most wanted fugitive felons.

In San Juan, PR, ASAC Noel Rosario and SA Bonano met with SAC Emerzian presenting at the New England Council the Commissioner of the Financial of the National Association of Housing and Redevelop- Institutions, Mr. Alfredo Padilla, and Mr. ment Official’s Conference on “Protecting Your Agency from Fraud.” Aponte Asdrubal, Director of Enforcement of the institution. During the meeting, there was a discussion of the HUD-OIG mission ASAC Lori J. Chan and Special and authority and the need for joint efforts Agents (SAs) Keith Fong and Eric Huhtala between OIG and the Commission of met with the Chief of Police for the Financial Institutions to combat the Sacramento, CA, Police Department. existing fraud scheme on the single-family During the meeting, they gave the Chief housing loan programs. The Commissioner an overview of the functions of OIG and and the Director of Enforcement agreed to informed him of various programs to provide help on this Mortgage Fraud include Section 8 and Fugitive Felon. The Initiative. Chief invited them to attend his INFOTEC meeting later that day where they gave As part of HUD-OIG’s outreach the same presentation to all of the program, ASAC George Dobrovic and SA Commanding staff of the Sacramento Patrick Jefferson provided a presentation Police Department. Approximately 30 on trends in mortgage fraud to the individuals were in attendance to include Mortgage Society of Ohio (MSO), held at Outreach Efforts the Chief, his Deputy Chiefs, Captains, the Holiday Inn, Independence, OH. The Lieutenants, and some Sergeants. The MSO is a nonprofit organization of financial presenters received positive feedback, made institutions, title companies, mortgage contacts, and exchanged business cards. companies, and credit reporting agencies, which holds monthly meetings to provide In San Juan, PR, ASAC Noel Rosario its membership with topics of interest to and SA Edwin Bonano met with Lt. Garcia, improve customer service. The issue of OIG Director of the Puerto Rico Police becoming a trusted resource and partner Extraditions and Special Arrest Unit. The in the barrier against FHA loan fraud was main purpose of this meeting was to stressed, with the association president explain and discuss OIG’s authority and requesting a return presentation in 2005. the Fugitive Felon Initiative, which Approximately 40 people were in involved the local police, and HUD-OIG attendance.

Outreach Efforts 111 Region 6 ASAC Brad Geary provided RIGA Joan Hobbs of the Pacific/ a presentation involving HUD and Hawaii Region spoke before a crowd of bankruptcy fraud to the U. S. Trustee’s about 150 certified public accountants at Office at the Department of Justice their annual Western Region Real Estate National Advocacy Center in Columbia, Conference held at Indian Wells, CA. SC. The session concentrated on the role During the conference, Joan Hobbs that HUD-OIG plays in investigating real provided information on the mission of estate schemes and how fraud and false HUD-OIG and the results of the many statements within the U.S. Bankruptcy audits performed in the area of single- Court play a role in these frauds. family loan fraud. Approximately 50 people were in attendance. Assistant Regional Inspector General for Audit (ARIGA) Cris O’Rourke and In furtherance of the HUD’s National RIGA John Dvorak from Region 1 Fugitive Felon Initiative, beginning in spoke at the Massachusetts Section 8 March of 2005, HUD-OIG Special Agents Administrators conference about the OIG implemented the Louisiana National mission. The topics included, the Inspector Fugitive Felon Initiative. Along with General Act, IG’s mission, what the IGs are members of the United States Marshals authorized to do, who oversees the IG, Service (USMS), two sweeps have been HUD management and employee conducted in New Orleans, LA, in public responsibilities, organizational structure of housing and Section 8 programs, resulting OIG, what the Office of Audit does, audit in five arrests of individuals who are plans and audit followup, and how OIG wanted either locally or nationally. These focuses on HUD’s top management individuals will be referred for eviction challenges. Approximately 100 people through the Housing Authority of New attended. Orleans. This initiative is ongoing and will be worked throughout the State of RIGA Ron Hosking served as a guest Louisiana in an effort to eradicate wanted speaker in the Performance Auditing class persons from public housing and Section 8 at the University of Kansas in Lawrence, programs. HUD-OIG, along with members KS. Performance Auditing is a graduate of USMS, led this initiative. level course designed to “introduce students to performance auditing and to Television court Judge Joe Brown was explain the relevance of performance in Indianapolis, IN, to accept honors from auditing to broader issues in public city officials and HUD-OIG for helping to administration.” RIGA Hosking provided bring attention to housing fraud. The the students with information about the Indianapolis, IN, Housing Agency history and organization of the OIGs, how presented Brown with a plaque after two OIG plans and conducts its audits, how it Indianapolis cousins (Rhonda Revere issues and resolves its audit reports, and Simmons and Pamela S. Hamler) appeared how it evaluates and measures its on his show and gave information that led performance. authorities to charge them and four others with welfare fraud and theft.

Outreach Efforts Outreach Outreach Efforts 112 In Houston, TX, Senior Auditor efforts on the Section 8 program, and the Angela Wilson of the Houston Office of results of some completed housing Audit spoke at the Public Housing authority audits. Authority Peer Group Meeting held on January 19, 2004. Auditor Wilson gave a Region 5 ARIGA Thomas Towers gave presentation on OIG’s audit efforts to a presentation on February 24, 2005, to counteract rental assistance overpayments. Michigan Brokers/Agents in HUD’s The audience included more than 50 Detroit Field Office. The presentation directors, staff members, and management covered the mission and functions of both agents of Houston area public housing OIG and the Office of Audit. There were authorities. Auditor Wilson shared approximately 40 attendees who were background information on OIG, why the interested in buying and selling HUD Inspector General is focusing its audit properties.

Outreach Efforts

Outreach Efforts 113

Chapter 8

Review of Policy Directives eviewing and making determination on who will be prosecuted recommendations on under State law is reserved to State legislation,R regulations, and policy issues is authorities. a critical part of the Office of Inspector General’s (OIG) responsibilities under the OIG has investigated many cases Inspector General Act. During this involving tenants who falsely reported their 6-month reporting period, the OIG incomes. These investigations resulted in reviewed 117 policy notices. This successful prosecutions or other remedial chapter highlights some of the OIG actions. Currently, OIG has pending recommendations on these notices as well investigations involving tenants who have as other policy directives. defrauded the Office of Public and Indian Housing assistance programs. The draft Establishment of Amnesty Programs at notice threatens to jeopardize current Public Housing Agencies Resulting investigations and to undermine the fairness of past convictions. from Income and Rent Determinations The Office of Public and Indian The following information was Housing has not issued the draft notice and included in the September 30, 2004 is reconsidering its provisions. Semiannual Report to Congress, and the U.S. Department of Housing and Urban Development (HUD) had not reached a Proposed Rules final decision on our comments. The draft Public and Indian Housing 2004 Notice of Followup on the Electronic Submission Funding Availability (NOFA) provides of Applications for Grant and Other requirements to housing agencies that plan HUD Financial Assistance to offer tenants amnesty as a result of the HUD Financial Assistance Upfront Income Verification System The following information was detecting a difference between the tenants’ included in the September 30, 2004, claims of income and the income reported Semiannual Report to Congress, and HUD by their employers or agencies providing had not reached a final decision on our income assistance. The Department comments. HUD issued a proposed rule to initiated the Upfront Income Verification inform potential applicants for HUD System to reduce subsidy errors caused by grants or other Federal financial assistance tenants who are underreporting or not about how to submit their applications to reporting their income. HUD electronically. We did not concur with this rule originally because we found We did not concur with this draft that the system was not being used to the notice because it inappropriately extent predicted and the proposed rule empowers housing agencies to decide who failed to ensure that the internal will be prosecuted. Title 28, U.S.C., mechanisms at HUD could accommodate paragraph 516, states that the Attorney the grants.gov data inflow. The Office of General of the United States is responsible Management and Budget (OMB) stated for deciding who will be prosecuted for a that only 327 grants had been processed Federal offense. In the Tenth Amendment since the system went online in March 2004 to the United States Constitution, the and it planned to receive 15,000 grant

Review of Directives Policy Review of Policy Directives 116 applications in the first year. We found that Conversion of Developments from HUD had failed to test or record the Public Stock: Methodology for process of system-to-system interfaces to ensure that data would flow directly into Comparing Costs of Public Housing HUD’s databases. Without the proper and Tenant-Based Assistance interface, HUD would not be able to use grants.gov in an efficient and effective The following information was manner. HUD also did not obtain a risk included in the September 30, 2004 assessment from system owners to mitigate Semiannual Report to Congress and HUD control weaknesses. This program is one had not reached a final decision on our of the 24 Federal cross-agency e- comments. The United States Housing Act government initiatives focused on of 1937, as amended, mandates that when improving access to services via the a development in the low-income program Internet. The vision for grants.gov is for it costs more to operate than comparable to be a simple, unified source for units in the Section 8 Housing Choice electronically applying for, funding, and Voucher (Voucher) program, the units in managing grant opportunities. the low-income program must be converted to the Section 8 Voucher We now concur with the proposed program. To implement the statute, the rule since HUD is working toward being Office of Public and Indian Housing

in full compliance with the OMB circulated a draft rule on the conversion of Policy Directives Review of requirements. In conjunction with HUD’s developments from the low-income release of this year’s “SuperNOFA,” a program: Methodology for Comparing notice that makes available $2.26 billion in Costs of Public Housing and Tenant-Based funding through an unprecedented 53 Assistance. grant opportunities. HUD’s Secretary announced that all applicants will be in HUD’s appropriations act for the last compliance with grants.gov. For fiscal year several years mandated that none of the (FY) 2005, electronic submission is funds made available through the act may mandatory unless the applicant receives a be used until a risk assessment is conducted waiver from this regulatory requirement. and any risks identified are appropriately The only other exception is for those mitigated. Further, departmental policy applying for funding through HUD’s provides that a rule may not be published Continuum of Care homeless assistance until the risk assessment has been programs. The departmental Grants completed. We did not concur with the Management and Oversight Division has issuance of the draft rule because the observed initial favorable results based on Department has not conducted a risk the limited number of calls by potential assessment on the conversion program as applicants, compared to a year ago, required by the appropriations act and regarding the application process. HUD HUD internal policy. attributes the upfront planning for the smooth transition from paper application Section 9(g)(3) of the Quality Housing to electronic. and Work Responsibility Act limits the number of units being replaced by the housing agency to the number of units in the housing agency inventory on October

Review of Policy Directives 117 1, 1999. We did not concur with the The Housing Act of 1937, as amended, proposed rule because HUD has not allows housing agencies to develop units published the number of units in each using capital funds and also limits the housing agency inventory on October 1, replacement units to the number of units 1999, as a control measure for preventing in the housing agency inventory on housing agencies from constructing new October 1, 1999. HUD has not circulated a units exceeding the amount allowed. report identifying the number of units in inventory on October 1, 1999, for each The Department’s draft rule does not housing agency. We did not concur with preclude housing agencies from the proposed rule because HUD has not constructing new units to replace units published the number of units in each converted from the low-income program housing agency inventory on October 1, to the Section 8 Voucher program. Further, 1999, as a control measure to insure the we did not concur with this decision housing agencies do not build more units because HUD’s draft rule did not mandate than allowed under the statute. that the housing agency ensure operating costs for the newly constructed units do not The Office of Public and Indian exceed those for comparable units in the Housing is considering OIG’s comments. Section 8 Voucher program. The proposed rule has not been published as of the close of this semiannual reporting The Office of Public and Indian period. Housing is currently revising the draft rule. FR-4712-01 Disposition of HUD- Public Housing Capital Fund Acquired Single Family Property-Good Neighbor Next Door This proposed rule governs public housing agencies’ use of HUD-provided The following information was funds for either the development of new included in the September 30, 2004 housing or the modernization of existing Semiannual Report to Congress and HUD housing, as well as activities to improve had not reached a final decision on our existing management. The proposed rule comments. HUD proposed a rule to was circulated to implement the provision expand the eligibility of the Officer Next in section 9 of the 1937 Housing Act, as amended. HUD’s appropriations act in FY Door and Teacher Next Door programs 2001 provided capital funds of $3 billion (OND/TND) to tribal police officers, and about $2.5 billion in FYs 2002 through firefighters, and emergency rescue workers 2004 or approximately $10.5 billion since under a “Good Neighbor Next Door” title. FY 2001. The program gives a first offer to purchase advantage and typically a 50-percent price HUD’s appropriation act in 2001 and discount to these potential buyers of HUD every act since then contain a general single-family properties that are located in provision mandating a risk assessment be urban revitalization areas. conducted before the regulation is prepared. We did not concur with the We commented that the proposed proposed rule because HUD had not changes to the OND/TND program completed the required risk assessment. appear to remain vulnerable to abuse and

Review of Directives Policy Review of Policy Directives 118 may never achieve the stated purpose of Federal laws relating to risk assessment. reducing neighborhood crime rates and The proposed rule is subject to this urban blight. OND/TND program abuses provision because development activities were documented in a previous audit must obtain environmental reviews and the report (Audit Report No. 2001-AT- 0001) statute for environmental reviews contains and individual guilty pleadings to criminal the risk assessment provision. The convictions. As to achieving the program’s Department has not conducted a risk purpose, a recent HUD study of OND/ assessment. TND in Rialto, CA, and Spokane, WA, The Housing Act of 1937, as amended concluded that there must be a sufficient in section 9(g)(3), allows housing agencies concentration of OND/TND properties in to develop units using capital funds but the revitalization zones to effectively reduce limits the development of new units to the crime rates. Many HUD properties sold number of units in the housing agency early in the program were not in the inventory on October 1, 1999. HUD has not targeted areas of greatest need and, circulated a report identifying the number therefore, contributed little to the of units in inventory on October 1, 1999, program’s goals. While program changes for each housing agency, and HUD has not have corrected this problem, HUD has not established a control method to ensure the demonstrated that a sufficient number of housing agencies do not build more units

properties can be made available in the than allowed under the statute. Policy Directives Review of targeted areas nationwide to effect measurable neighborhood change. Timely The Housing Act of 1937, as amended and sufficient property availability is a in section 33 on the conversion of distressed systemic flaw in the program design not public housing to tenant-based assistance, easily corrected, and, consequently, mandated that the low-income program expanding eligibility to other special units that cost more to operate than occupations is not warranted. comparable units in the Section 8 Voucher program must be converted to the Section The Department was reviewing our 8 Voucher program. HUD’s proposed rule comments at the end of the semiannual does not provide controls to ensure reporting period. compliance by the housing agencies. Use of Housing Capital and Operating Nineteen projects were not subject to existing controls because they were Funds for Financing Activities approved by the Office of Policy, Programs, and Legislative Initiatives before the OIG does not concur with the program was transferred to the Office of proposed rule for the following reasons: Public Housing Investments. The Office of Public Housing Investments established an Public Law 108-199, section 411, as improved control structure for processing well as HUD’s appropriations acts for the applications; however, due to the existing last several years, mandated that none of workload, the staff has not reevaluated the the funds made available through the act projects approved by Office of Policy, may be used for any program, project, or Programs, and Legislative Initiatives. OIG activity when it is known that the program, is concerned about the ratio of workload project, or activity is not in compliance with to staff capacity and the approval of

Review of Policy Directives 119 projects not subject to the improved control the authority provided to HUD in the measures. statute by authorizing the pledging of funds. The Public and Indian Housing Information Center (PIC) system was Our nonconcurrence with the evaluated in connection with the internal proposed rule is under review by the audit. The PIC system does not contain a Department. module for the bond program. OIG is concerned that there is not an adequate information system to control the workload Mortgagee Letters flow and facilitate monitoring. Premium Pricing on FHA-Insured The proposed rule states that OMB Mortgages determined this rule is a “significant regulatory action.” OMB issued new HUD drafted a mortgagee letter guidelines for regulatory analysis in to allow premium pricing of Federal Circular A-4, effective January 1, 2005. The Housing Administration (FHA)-insured proposed rule contains the statement of mortgages to fund the homebuyer’s proposed need required by OMB Circular required 3-percent cash investment or A-4; however, it does not contain an downpayment. Premium pricing may be examination of alternative approaches, an used currently to pay the homebuyer’s evaluation of the benefits and costs– closing costs and prepaid expenses. HUD quantitative and qualitative–of the believes that premium pricing will help proposed action, and the main alternatives cash-short but otherwise credit-worthy as mandated by OMB Circular A-4. borrowers buy their first homes.

The proposed rule discusses pledging We nonconcurred because the funds from the capital fund. The Housing proposed mortgagee letter places no Act of 1937, as amended, provides in obligation on the lender to use premium section 30 that the Secretary may authorize pricing for the borrower’s benefit. Based on a public housing agency to mortgage or recent mortgagee audits, premium pricing otherwise grant a security interest in any was not producing the intended benefit. public housing project or other property of Instead of helping FHA homebuyers pay the public housing agency. It is OIG’s closing costs, lenders used the monies from understanding that pledging is associated premium pricing to compensate the loan exclusively with capital assets because to officers or earn higher profits. complete the pledging transaction, the investor must perfect the security Our nonconcurrence with the instrument by having the local proposed rule is under review by the governmental entity publicly record on the Department. face of the asset ownership document that the asset is pledged and this process can only be accomplished with a physical asset. Streamline (k) Limited Repair Program Future funding can be encumbered, as opposed to pledging, through various HUD drafted a mortgagee letter to financial instruments. We did not concur reduce documentation and control with the proposed rule because it exceeds requirements governing the 203(k)

Review of Directives Policy Review of Policy Directives 120 Rehabilitation Home Mortgage Insurance We commented that relaxing controls program, an acknowledged higher risk could expose first-time purchasers with FHA insurance program. The Streamline no or limited experience in home (k) allows special treatment of purchased improvement projects to unreliable properties that qualify for eligible repairs contractors and unsatisfactory between $5,000 and $15,000. Under the workmanship. We also questioned as standard 203(k) program, lenders and excessive a proposed $500 supplemental borrowers rely primarily on consultants to loan origination fee to be paid by the ensure contractor work quality and timely borrower. completion. However, the Streamline (k) eliminates the consultant. Borrowers must Our comments on the proposed rule develop a work plan, estimate costs, are under review by the Department. identify the vendor or contractor, and inspect the work.

Review of Policy Directives Review of

Review of Policy Directives 121

Chapter 9

Audit Resolution AuditAudit Resolution Resolution Audits of HUD of Audits Delayed Actions Delayed Actions Audits of HUD of Audits Audits of HUD of Audits been reportedintheseaudits. Various internalcontrol weaknesseshave beginning withfiscal year(FY)1991. Chief FinancialOfficers Actfor14years, statements undertherequirementsof been preparingconsolidatedfinancial Been CompletedasofMarch31,2005.” Reports inWhichFinalActionHadNot Reports DescribedinPreviousSemiannual 2005,” andtableB,“SignificantAudit No ManagementDecisionatMarch31, Reports IssuedBeforeStartofPeriodwith resolution, seeappendix2,tableA,“Audit In additiontothischapteronaudit 6 monthsoldtobereportedCongress. decisions onauditrecommendationsover there arenooutstandingmanagement eighth consecutivesemiannualperiod, of 1996. Financial ManagementImprovementAct HUD’s implementationoftheFederal delayed. Italsocontainsastatusreporton issues onwhichresolutionactionhasbeen This chapterdescribessignificantpending implemented restswithHUDmanagers. assuring thattheagreed-uponchangesare operations. Theoverallresponsibilityfor improvements inHUDprogramsand we hopetoachievemeasurable recommendations. Throughthisprocess, actions andtimeframesforresolvingaudit management agreeupontheneeded and UrbanDevelopment(HUD) (OIG) andU.S.DepartmentofHousing Delayed Actions Audits of HUD of Audits Audits of HUD of Audits Delayed Actions Delayed Actions 2004 Financial Statements Financial 2004 2004 Financial Statements Financial 2004 2004 Financial Statements Financial 2004 2004 Financial Statements Financial 2004 2004 Financial Statements Financial 2004 I I First IssuedJune30,1992 I We areproudtonotethatforthe I I OfficeofInspectorGeneral n theauditresolutionprocess, ’ s FY 1991 through 1991 FY s s FY 1991 through 1991 FY s s FY 1991 through 1991 FY s s FY 1991 through 1991 FY s s FY 1991 through 1991 FY s . HUDhas Audits of FHA of Audits Audits of FHA of Audits Audits of FHA of Audits continue toimproveearly warningandloss business andbudgetprocesses and(2) systems) tomoreeffectively supportFHA’s accounting andfinancial management its informationtechnology(primarily recognize thatFHAneedsto(1)improve calculations. Theauditcontinuesto guarantee claimprojectionsand loan lossreserveandtheliabilityfor material errorsintheFHAmarktomarket functionality models.Thisresultedin assumptions intheestimationcashflowor review theunderlyingdatasupporting that FHAmanagementdidnotadequately a materialweakness.Thefindingrevealed of thecreditreformestimationprocessas discussed FHA’sneedtoimproveitsreview FHA’s FY2004financialstatements beginning withFY1991.Theauditof under theChiefFinancialOfficersAct, prepared financialstatementsfor14years end ofcalendaryear2006. to change,withfinalactiontargetedbythe plans toresolvetheseissueshavecontinued program performance.Correctiveaction subsidy calculationsandintermediaries’ improve oversightandmonitoringof improvements tofinancialsystemsand(2) with respecttotheneed(1)complete progress, materialweaknessescontinue estimation process.Whiletherehasbeen management reviewofthecreditreform budget processesandimproveFHA’s effectively supportFHA’sbusinessand information technologysystemstomore Housing Administration’s(FHA) including theneedtoenhanceFederal Management Systemrequirements, comply withFederalFinancial audit process,wereportedHUD’sneedto Audits of FHA of Audits Audits of FHA of Audits 2004 Financial Statements Financial 2004 2004 Financial Statements Financial 2004 2004 Financial Statements Financial 2004 2004 Financial Statements Financial 2004 2004 Financial Statements Financial 2004 First IssuedMarch27,1992 As aresultoftheFY2004financial ’ s FY 1991 through 1991 FY s s FY 1991 through 1991 FY s s FY 1991 through 1991 FY s s FY 1991 through 1991 FY s s FY 1991 through 1991 FY s . FHAhas 124 Audit Resolution 125 The audit recommended that the The audit recommended In January 2005, following several risk of losing almost all of the $5.8 million almost all risk of losing fund the project. committed to originally a road the City was considering Further, that may have project construction from constructing prevented the HACMB planned site or recovering the center on the in the site. The HACMB’s its full investment the project deprived the failure to complete community of needed City’s low-income services. housing and social complete the HACMB immediately for its fair planned sale of the existing site to market value and use the proceeds bond reimburse the Section 8 and to the construction funds in proportion fund. In share of costs paid from each agreed February 2001, the Office of Housing an to require the HACMB to obtain to appraisal of the site that is acceptable recorded HUD and to provide a copy of the bona fide deed conveying the site to a HACMB purchaser for the full value. The closing was also to provide a copy of the price and statement, showing the sale to support for distribution of the proceeds funds. the Section 8 and bond construction the sale At that time, HUD expected that 2002, of the site would occur by February by with full implementation of solutions March 2002. target completion date extensions, HUD requested a revised management decision. HUD believes that, under the current administration, the HACMB will be successful with its development plans. Therefore, HUD officials recommended a revised management decision to no longer require the sale of the site (appraised at more than $2 million). HUD, however, will require the HACMB to use a portion of the development loan to reimburse the Section 8 program for the $980,000 used to Due to sued October 20, 2000. Is Section 5(a)(11) of the Inspector Housing Programs Housing Programs Housing Programs Housing Programs Housing Programs Miami Beach, Section 8 and Public Miami Beach, Section 8 and Public Miami Beach, Section 8 and Public Miami Beach, Section 8 and Public Miami Beach, Section 8 and Public Significant Revised Significant Revised Management Decisions Management Decisions Housing Authority of the City of Housing Authority of the City of inadequate planning and management of human and financial resources, the Housing Authority of the City of Miami Beach (HACMB) wasted more than $2 million in a failed effort to provide housing and social services. The HACMB had not broken ground or developed final plans to fund, construct, and operate a women and children’s housing and resource center. The center had been delayed for more than 5 years, and the HACMB had lost or was at Audit Resolution Significant Revised Management Decisions prevention for single-family insured for single-family prevention on emphasis through more mortgages and more lender underwriting monitoring portfolio risk use of loan effective A weakness reported assessment tools. financial statement audit since the FY 1992 need for FHA to more relates to the controls over its effectively manage systems’ general and information security controls. FHA’s application level continues to report latest action plan resolving these remaining progress toward with final actions long-standing issues, targeted over the next 1 to 3 years. General Act, as amended, requires that General Act, as amended, requires the OIG report information concerning revised reasons for any significant the management decisions made during current reporting period. During the significant reporting period, there were on four revised management decisions audits. Housing Authority of the City of Housing Authority of the City of Significant Revised Significant Revised Management Decisions Management Decisions Housing Authority of the City of purchase the land. A nonprofit arm of the agreed with the revised management HACMB will be established to develop the decision. While OIG did not obtain recovery site, and the site will remain under the of the $220,000 identified as ineligible and ownership of the HACMB. OIG agreed unsupported, we recorded the $1,005,578 with the revised management decision, in sale proceeds as funds to be put to better and final action was taken on March 31, use. (Report No. 2003-FW-1801) 2005. (Report No. 2001-AT-1001) Section 8 Housing Program, Wood Hollow Place Apartments, Kankakee County Housing Program Texas City, TX Issued November 26, 2003. An audit of Issued November 18, 2002. Our audit the Kankakee County Housing Authority’s memorandum found the management (Authority) Section 8 housing program agent of Wood Hollow Apartments, Texas found that the Authority’s management City, TX, had improperly paid advances, controls over its program were very weak. loans, and other fees totaling more than The Authority lacked adequate procedures $220,000. The improper payments and controls over housing quality occurred because the project experienced standards and administrative processes. cash flow problems and the management The Authority’s Section 8 units contained agent did not follow the regulatory health and safety violations. We found a agreement and other HUD regulations. The total of 873 housing quality standards improper payments weakened the project’s violations in 47 of the 50 units inspected. financial condition and put the project at The Authority failed to properly enforce its the risk of default. ordinance governing the licensing of housing units occupied by persons other The audit recommended that HUD than the owners. Further, the Authority did require the management agent to cease not maintain adequate controls over its use making improper distributions and repay of Section 8 funds. We recommended that the ineligible and unsupported amounts. HUD’s Acting Director, Recovery and In December 2002, HUD multifamily Prevention Corps, Cleveland Field Office, housing officials agreed that the assure that the Authority implements management agent should repay the procedures and controls to correct the ineligible and unsupported funds and weaknesses cited in this report. began action to seek civil recovery of the Additionally, we recommended that the funds. In August 2004, HUD informed OIG Acting Director (1) take administrative that recovery of the funds was not possible actions against the Authority’s former and civil and criminal avenues for recovery Executive Directors and its Board of had been exhausted. However, to protect Commissioners for failing to administer the its interests, HUD foreclosed on the Authority according to Federal, City of property and took actions to sanction Kankakee, and its own requirements; (2) responsible parties. In October 2004, HUD provide training and technical assistance notified OIG that the note had been sold to the Authority’s staff and its Board of on September 15, 2004, for $1,005,578. On Commissioners regarding their duties and January 6, 2005, HUD revised the responsibilities; and (3) issue a notice of management decision and corrective default to the Authority as permitted by actions to allow the alternative actions section 15 of the consolidated annual taken to satisfy the recommendations. OIG contributions contract. OIG believed that

Audit Resolution Audit Resolution 126 HUD’s default notice would help ensure Spanish Village Community Development that the Authority used its $2.2 million in Corporation (SVCDC), Houston, TX, found Section 8 program funds appropriately. that SVCDC had not completed HUD- funded renovations on the Spanish Village In March 2004, HUD’s Acting Apartments in more than 4 years after it Director, Recovery and Prevention Corps, was required to by agreements between agreed to implement the following HUD and SVCDC. The upfront grant corrective actions: agreement, sales contract, and special warranty deed required SVCDC to Issue a notice of substantial default complete the renovations by September of the Authority’s consolidated 1998. Due to the lack of administrative annual contributions contract. capacity to carry out the requirements, SVCDC only completed the first phase of Require the Authority to contract the renovations, and these renovations did out administration of its Section not meet HUD standards. As a result, 8 program to an alternate residents of the property continued to live management entity for a period of in substandard conditions. On March 12, 2 years. 2003, the Fort Worth HUD office declared a default under the upfront grant At that time, HUD expected that the agreement and gave SVCDC the option to Authority would be able to obtain an either (1) sell the property to a nonprofit alternate management entity. However, entity with the capacity and experience to after two unsuccessful attempts, the complete the rehabilitation and assign the Authority was unable to find an entity to remaining grant funds to that entity within administer its program. 60 days or (2) deed the property back to HUD as required by the special warrant In January 2005, HUD revised the deed. management decision and corrective actions, and we agreed to the revisions. The audit recommended that the HUD will not issue a notice of substantial Director of Multifamily Housing Property default and will allow the Authority to Disposition continue with the remedial Audit Resolution continue to administer its program for 1 action he started by establishing an year. HUD agreed to evaluate the acceptable plan of action if SVCDC did not Authority’s program by December 31, comply with HUD’s options as stated in 2005, to determine whether the Authority the default letter of March 12, 2003. should continue to administer its program. (Report No. 2004-CH-1001) On August 27, 2003, the Director, Multifamily Housing Division, stated that Citizen’s Complaint Upfront Grant and he had referred the matter to the Regional HOME Loan Spanish Village Community Office of General Counsel (OGC) to attempt to acquire title to the property Development Corporation, Houston, through the courts. If the SVCDC could TX transfer the property to a new ownership entity acceptable to HUD before the matter Issued April 28, 2003. In response to a was referred to the Department of Justice citizen’s complaint, our audit of the upfront for affirmative litigation, he would cancel grant and HOME loan provided to the his request and allow assignment of the

Audit Resolution 127 remaining upfront grant funds to the new United States Veterans Initiative, entity to rehabilitate the property. He said Inc. - Supportive Housing Program the Regional OGC would make a litigation referral to Headquarters OGC by December Grantee 31, 2003, and OGC would review the referral, consult with the Assistant Issued September 27, 2004. U.S. Secretary for Housing, and decide by Veterans Initiative, Inc., a Supportive March 31, 2004, as to whether the matter Housing Program grantee based in would be referred to the Department of Inglewood, CA, did not meet cash- Justice for litigation. matching fund requirements for $7.2 million in Supportive Housing Program On February 7, 2005, the Director, funds expended. Our recommendations for Multifamily Housing Division, revised the addressing the deficiencies included management decision and deobligated the requiring U.S. Veterans Initiative and/or remaining grant funds of almost $1.5 its continuums, the Los Angeles Homeless million. He said the project will continue Services Authority (LAHSA) and the City to provide affordable housing, but the of Long Beach, to repay HUD from Department does not wish to pursue legal nonfederal funds for the Supportive action to reacquire the project because of Housing Program grant expenditures that the potential increased cost burden to the did not have the required matching funds. Government. Also, the legal action would impede future repairs to the complex and In an effort to reach a management probably result in more deterioration. decision on this report, we agreed that the Therefore, HUD requested this finding be Office of Community Planning and closed. We agreed with the revised Development (CPD) could seek guidance management decision. Despite numerous and clarification from other Federal attempts, neither the SVCDC nor any of agencies involved, HUD’s OGC, and the the proposed owners provided Office of Management and Budget (OMB). documentation to support the assignment The issues revolve around (1) a of the upfront grant funds. (Report No. determination of what constitutes 2003-FW-1004) matching funds under the Supportive Housing Program; (2) what level of support is needed from the grantee, and whether Significant Management failure to meet matching requirements invokes the Debt Collection Act; and (3) Decision with Which OIG what action HUD will take if it is Disagrees determined that the grantee has not fulfilled the requirements of the grant agreement. We worked with CPD and Section 5(a)(12) of the Inspector agreed that it could seek clarification from General Act, as amended, requires that other Federal agencies that are supplying OIG report information concerning any matching funds as to whether their funds significant management decision with can be used as the match. Further, we which it is in disagreement. During the agreed that CPD would seek guidance current reporting period, there was one from HUD-OGC on questions relating to significant management decision with what constitutes matching funds under the which we disagreed. Supportive Housing Program and defining

Audit Resolution Audit Resolution 128 what level of support is required by the may compromise a claim of the Gov- grantee. ernment of not more than $100,000 (excluding interest) or such higher OIG and CPD could not agree as to amount as the Attorney General whether OMB is the appropriate agency may from time to time prescribe that to determine whether a failure to comply has not been referred to another with the matching requirements constitutes executive or legislative agency for a Federal debt. A precondition to the further collection action, except that application of the Debt Collection Act is only the Comptroller General may the existence of a “debt” or “claim,” which compromise a claim arising out of for purposes of the Debt Collection Act, an exception the Comptroller Gen- eral makes in the account of an ac- …means any amount of funds or countable official…. [31 U.S.C. § property that has been determined by 3711(a)(2)] an appropriate official of the Federal Government to be owed to the United Regarding the latter authority to States by a person, organization, or compromise “debts” and “claims” in entity other than another Federal excess of $100,000, the Debt Collection agency. A claim includes, without Act is not explicit, but—with respect to limitation...the unpaid share of any HUD debts—it appears to reserve that non-Federal partner in a program authority to OMB. [see 31 U.S.C. § involving a Federal payment and a 3702(a)(4)]. matching, or cost-sharing, payment by the non-Federal partner.... [31 U.S.C. OIG believed that either CPD must § 3701(b)(1)(E)] seek guidance from OMB or HUD-OGC must coordinate with OMB on this Thus, pertinent to this matter, a matter. If OMB or HUD-OGC with “debt” or a “claim” has two aspects: (1) OMB’s concurrence determines the a determination by a Federal official with failure to provide the excess match is a debt, appropriate jurisdiction, and (2) that then, pursuant to statute, CPD should there is an unpaid share of a matching attempt to collect the debt and defer to Audit Resolution or cost-sharing obligation by a nonfederal OMB’s instructions if the debt exceeds entity. $100,000. CPD did not agree to seek guidance from or to coordinate the issue with If the Debt Collection Act is OMB. applicable, then two main obligations control Federal agency action, as follows: On March 30, 2005, OIG referred the disagreement to the Deputy Secretary. On The head of an executive, judicial, or April 4, 2005, the Deputy Secretary made a legislative agency— final decision on the actions for which an agreement could not be made. The Deputy shall try to collect a claim of the Secretary concluded that the failure to United States Government for provide a budgeted match over the statutory money or property arising out of the requirement is not a debt to HUD under 31 activities of, or referred to, the U.S.C. § 3701(b)(1). agency; [31 U.S.C. § 3711(a)(1)]

Audit Resolution 129 We disagree with this determination and determined that 38 of its systems were not in stand by our conclusion that HUD should substantial compliance with FFMIA. At the seek guidance from OMB to determine end of FY 2004, the Department continued whether the matching funds are subject to to report that 4 of its 46 financial provisions of the Debt Collection Act. (Report management systems were not in substantial No. 2004-LA-1008). compliance with FFMIA. Our supplemental report regarding HUD’s FY 2004 financial Federal Financial Management statements cites additional financial management system weaknesses, addressing Improvement Act of 1996 how HUD’s financial management systems remain substantially noncompliant with The Federal Management Improvement Federal financial management requirements. Act of 1996 (FFMIA) requires that HUD We also cited weaknesses regarding HUD/ implement a remediation plan that will bring FHA’s limited ability to effectively monitor financial systems into compliance with budget execution related to certain funds Federal Financial Management System control processes. With the implementation requirements within 3 years or obtain OMB of the FHA Subsidiary System, the concurrence if more time is needed. FFMIA Department became substantially compliant requires us to report in our semiannual with the FFMIA Standard General Ledger reports to the Congress instances and reasons provision. The FHA Subsidiary General when an agency has not met the intermediate Ledger Project is a multiphase project to be target dates established in its mediation plan completed by FY 2007. required by FFMIA. In April 1998, HUD

Audit Resolution Audit Resolution 130 Appendix 1

Audit Reports Issued Internal Reports 10 Audit Reports Administration (2 Reports) 2005-DP-0001 Fiscal Year 2004 Review of Information Systems Controls in Support of the Financial Statements Audit, 10/19/2004. 2005-DP-0003 Control Over HUD’s Purchase Card Program Needs Improvement To Ensure Documentation and Monitoring Requirements are Met, 02/02/2005. Chief Financial Officer (3 Reports) 2005-DP-0002 Control Over HUD’s Travel Card Program Needs Improvement, 12/01/2004. 2005-DP-0004 HUD’s Compliance with Joint Financial Management Improvement Program Core Financial System Management and General Ledger Management Requirements, 03/04/2005. 2005-FO-0003 Additional Details to Supplement Our Report on HUD’s Fiscal Year 2004 Financial Statements, 11/15/2004. Better Use: $708,000,000. Federal Housing Oversight (1 Report) 2005-KC-0001 The Office of Federal Housing Oversight is Comparable to Other Federal Financial Regulators in Its Allocation of Resources and Staffing, 03/16/2005. Government National MortgageAssociation (1 Report) 2005-FO-0001 Audit of the Government National Mortgage Associations Fiscal Year 2004 Financial Statements, 11/12/2004. Housing (2 Reports) 2005-FO-0002 Audit of the Federal Housing Administration’s Financial Statements for Fiscal Year 2003-2004, 11/15/2004. 2005-PH-0001 Criteria Governing Local Government Participation in HUD’s Single Family Property Disposition Discount Sales Program, 03/29/2005. Public and Indian Housing (1 Report) 2005-FW-0001 Housing Authority Employee Pension Plan Forfeiture, Public and Indian Housing, 10/08/2004. Better Use: $5,300,000. Audit-Related Memorandums* Chief Financial Officer (1 Report) 2005-DP-0801 Annual Evaluation of HUD’s Information Security Program, 10/01/2004

* The memorandum format is used to communicate the results of reviews not performed in accordance with generally accepted government auditing standards, to close out assignments with no findings and recommendations, to respond to requests for information, to report on the results of a survey, to report results, or to report the results of civil actions or settlements.

Audit Reports Issued Audit Reports Issued 132 External Reports 48 Audit Reports Community Planning and Development (4 Reports) 2005-CH-1008 City of Decatur, IL, Neighborhood Renewal Program, 03/30/2005. 2005-FW-1001 City of New Orleans, LA, Section 108 Program, Louisiana ArtWorks, 11/05/2004. Questioned: $22,382; Unsupported: $17,723. 2005-FW-1005 The New Orleans African-American Museum, New Orleans, LA, 02/25/2005. Questioned: $1,073,044; Unsupported: $298,434; Better Use: $859,684. 2005-NY-1003 Lower Manhattan Development Corporation, Community Development Block Grant Disaster Assistance Funds, New York, NY, 03/23/2005. Questioned: $141,347. Housing (24 Reports) 2005-AT-1003 American Mortgage Express Corporation d.b.a. American Residential Mortgage Corporation, Mt Laurel, NJ, 11/18/2004. Questioned: $103,794; Better Use: $307,544. 2005-AT-1005 Pan American Financial Corporation, Nonsupervised Direct Endorsement Lender, Guaynabo, PR, 01/27/2005. Questioned: $209,889; Better Use: $1,391,208. 2005-AT-1007 Interstate Financial Mortgage Group Corporation, Nonsupervised Direct Endorsement Lender, Miami, FL, 03/15/2005. Questioned: $147,817; Better Use: $1,057,905. Audit Reports Issue Audit Reports 2005-AT-1008 Trust America Mortgage, Inc., Nonsupervised Direct Endorsement Lender, Cape Coral, FL, 03/25/2005. Questioned: $130,504; Better Use: $977,709. 2005-CH-1001 Prestige Mortgage Group, Inc., Nonsupervised Loan Correspondent, Springfield, OH, 10/27/2004. Questioned: $13,543; Unsupported: $13,543; Better Use: $1,890,739. 2005-CH-1002 Washington Mutual Bank, Underwriting of Federal Housing Administration-Insured Loans, Downers Grove, IL, 11/29/2004. Questioned: $456,164; Unsupported: $393,801. 2005-CH-1004 Lakewood Care Center, Multifamily Equity Skimming, Milwaukee, WI, 12/22/2004. Questioned: $1,021,056. 2005-CH-1005 Wood Hills Assisted Living Facility, Multifamily Equity Skimming, Kalamazoo, MI, 01/12/2005. Questioned: $518,633. 2005-CH-1006 Flagstar Bank FSB, Supervised Direct Endorsement Lender, Troy, MI, 03/07/2005. Better Use: $251,103. 2005-CH-1007 RBC Mortgage Company, Nonsupervised Mortgagee, Houston, TX, 03/29/2005. Questioned: $50,576; Unsupported: $24,510; Better Use: $16,282,212. 2005-DE-1001 First Source Financial USA, HUD Approved Nonsupervised Loan Correspondent, Midvale, UT, 10/13/2004. Questioned: $410,188; Better Use: $2,205,329. d

Audit Reports Issued 133 2005-FW-1002 Domicile Property Management, Inc., Multifamily Management Agent, San Antonio, TX, 11/19/2004. Questioned: $2,290,291; Unsupported: $1,469,926; Better Use: $352,053. 2005-FW-1003 Heartland Health Care Center of Bethany, OK, 12/10/2004. Questioned: $18,728,748; Unsupported: $16,418,588. 2005-FW-1004 American Property Financial, Nonsupervised Loan Correspondent, San Antonio, TX, 01/28/2005. Questioned: $175,970; Unsupported: $10,812; Better Use: $3,300,991. 2005-KC-1001 Karim Enterprises, DBA Prime Mortgage, St. Charles, MO, 10/04/2004. Better Use: $376,102. 2005-KC-1003 Leader Mortgage Company, Lenexa, KS, 01/25/2005. Questioned: $3,896; Better Use: $911,738. 2005-LA-1803 Wachovia Mortgage Corporation, Direct Endorsement Mortgagee, Scottsdale, AZ, 11/22/2004. Questioned: $150,264; Unsupported: $112,092; Better Use: $2,331,795. 2005-NY-1002 First United Mortgage Company, Inc., Nonsupervised Mortgagee, Cranford, NJ, 12/28/2004. Questioned: $6,277; Unsupported: $2,504; Better Use: $2,482,438. 2005-PH-1003 The Town of Clifton, VA’s Participation in the Single Family Property Disposition Discount Sales Program, 12/21/2004. Questioned: $355,470; Unsupported: $242,965. 2005-PH-1005 Fleet National Bank, Mortgagee Review, Philadelphia, PA, 01/20/2005. Better Use: $659,049. 2005-PH-1006 Mortgagee Review of the Peoples National Bank Branch Office, Towson, MD, 02/16/2005. Better Use: $2,369,959. 2005-SE-1002 National City Mortgage, Federal Way, WA, Branch, 12/16/2004. Questioned: $5,506; Better Use: $235,660. 2005-SE-1003 Oregon Housing and Community Services, Salem, OR, 02/09/2005. Questioned: $3,375,047; Unsupported: $1,982,052; Better Use: $286,318. 2005-SE-1004 Wells Fargo Bank, NA, Fife, WA, Branch, Supervised Mortgagee Loan Underwriting, 03/24/2005. Questioned: $667,181; Unsupported: $600,726; Better Use: $882,319. Public and Indian Housing (20 Reports) 2005-AT-1001 The Housing Authority of the City of Carrollton, GA, 11/01/2004. Questioned: $1,242,264; Unsupported: $1,183,839; Better Use: $1,489,819. 2005-AT-1002 The Housing Authority of the City of Charleston, SC, 11/15/2004. Questioned: $15,637,414; Unsupported: $15,637,414; Better Use: $400,000. 2005-AT-1004 The Housing Authority of the City of Durham, NC, 11/19/2004. Questioned: $7,808,748; Unsupported: $953,477; Better Use: $8,287,142.

Audit Reports Issued Audit Reports Issued 134 Audit Reports Issued 135 ferson County Housing Authority, Birmingham, AL, Authority, Birmingham, Housing ferson County ousing Authority of the County of San Joaquin, Stockton, CA, ousing Authority of the County of 02/24/2005. Questioned: $3,757,802; Unsupported: $3,361,785; $3,757,802; Unsupported: Questioned: 02/24/2005. $771,076. Better Use: of Selected Programs, Authority, Audit CT, Housing Waterbury, $850,049; $1,526,890; Unsupported: 10/13/2004. Questioned: Better Use: $2,512,565. Housing Housing Commission, Public Royal Oak Township $416,076; Better MI, 11/29/2004. Questioned: Program, Ferndale, Use: $435,372. 03/09/2005. Housing Authority, Boulder, CO, Boulder County Unsupported: $123,784. Questioned: $556,923; Houston, of the City of Houston’s Contractor, Housing Authority Unsupported: TX, 03/25/2005. Questioned: $1,154,142; $1,140,915; Better Use: $1,180,720. Houston’s Contractor, Houston, Housing Authority of the City of TX, 03/29/2005. Better Use: $26,132,380. County, St. Louis, MO, The Housing Authority of St. Louis 11/15/2004. Unsupported: $4,201; Better 11/18/2004. Questioned: $518,559; Use: $2,980,328. County, Mixed-Finance The Housing Authority of Maricopa AZ, 03/14/2005. Questioned: Development Activities, Phoenix, $7,723,035; Unsupported: $6,470,775. of Los Angeles, CA, Resident The Housing Authority of the City Advisory Councils, Management Corporations/Resident Unsupported: $894,592. 01/21/2005. Questioned: $1,785,450; Low-Rent Public Housing and Glens Falls, NY, Housing Authority, Programs, 11/10/2004. Section 8 Housing Choice Voucher Questioned: $384,085; Unsupported: $384,085; Better Use: $745,352. Lehigh County Housing Authority, Emmaus, PA, 10/15/2004. Questioned: $93,834; Better Use: $3,079,345. The Huntington, WV, Housing Authority, 12/02/2004. Questioned: $320,524; Better Use: $46,371. of Corrective Action Verification Review of the Housing Authority Baltimore City, MD, Section 8 Certificate and Voucher Programs, Audit Report Number 2001-PH-1003, 12/21/2004. Questioned: $70,430; Better Use: $30,610,264. Lehigh County Housing Authority, Emmaus, PA, 03/09/2005. Questioned: $4,755,323; Unsupported: $4,028,698; Better Use: $1,585,107. The Housing Authority of the City of Pittsburgh, PA, Moving to Work Demonstration Program, 03/24/2005. Better Use: 102,600,000. Audit Reports Issued 2005-AT-1006 Jef The 2005-BO-1001 2005-CH-1003 2005-DE-1002 2005-FW-1006 2005-FW-1007 2005-KC-1002 2005-LA-1001 H The 2005-LA-1002 2005-LA-1805 2005-NY-1001 2005-PH-1001 2005-PH-1002 2005-PH-1004 2005-PH-1007 2005-PH-1008 AuditAudit ReportsIssued Reports Issued Audit-Related Memorandums* Audit-Related Memorandums* Audit-Related Memorandums* 05L-81The 2005-LA-1801 2005-FW-1801 RVAPropertiesInc.,MultifamilyEquitySkimming,Farmington 2005-CH-1801 MassachusettsHousingFinanceAgency,MultifamilyProperty 2005-BO-1002 Housing (6Reports) 2005-CH-1802 General Counsel(1Report) 2005-SE-1001 results, ortoreporttheresults ofcivilactionsorsettlements. recommendations, torespond torequestsforinformation,reportontheresultsofasurvey, toreport with generallyacceptedgovernment auditingstandards,tocloseoutassignmentswithno findingsand * Thememorandumformatis usedtocommunicatetheresultsofreviewsnotperformed inaccordance 2005-NY-1801 The 2005-LA-1802 Public andIndianHousing(2Reports) 2005-NY-1802 2005-LA-1804 Audit-Related Memorandums* Audit-Related Memorandums* 11/02/2004. Questioned:$124,426. Highland MeadowsApartments,FHA112-11106,Dallas,TX, $248,701. Hills, MI,12/22/2004.Questioned:$271,940;Unsupported: Demonstration DispositionProgram,Boston,MA,01/19/2005. MI, 03/31/2005.Questioned:$35,000. Program FraudCivilRemediesAct,AIMFinancial,Inc.,Kentwood, Questioned: $5,178,314;Unsupported:$5,178,314. Tulalip TribesHousingAuthority,Marysville,WA,10/21/2004. Program, 12/14/2004. City ofNiagraFalls,NY,Section8HousingChoiceVoucher Organizations, 11/05/2004. NJ, 01/21/2005.Questioned:$11,799. Arlington Arms,MultifamilyProjectNo.031-35237,JerseyCity, $3,321,917. Canoga CareCenter,Park,CA,01/03/2005.BetterUse: Questioned: $4,093,215. Administration ProjectNumber136-43061,11/04/2004. Carmichael, CA,RehabilitationCenter,FederalHousing Housing AuthorityoftheCityLosAngeles,CA,Nonprofit 136 Appendix 2

Tables Table A Audit Reports Issued Prior to Start of Period with No Management Decision at 03/31/2005 * Significant Audit Reports Described in Previous Semiannual Reports

Report Number & Title Reason for Lack of Issue Date/Target Management Decision for Management Decision

Nothing to Report

Tables Tables 138 Table B Significant Audit Reports Described in Previous Semiannual Reports Where Final Action Had Not Been Completed as of 03/31/2005

Report Report Title Issue Decision Final Number Date Date Action

1997-CH-1010 Major Mortgage Corporation, 09/17/1997 01/06/1998 06/01/2005 Section 203(K) Rehabilitation Home Mortgage Insurance Program, Livonia, MI 1999-FO-0003 HUD Fiscal Year 1998 Financial 03/29/1999 09/30/1999 Note 1 Statements 2000-FO-0002 Federal Housing Administration,02/29/2000 08/09/2000 12/31/2005 Audit of FY 1999 Financial Statements 2000-FO-0003 Attempt to Audit the FY 1999 03/01/2000 09/29/2000 Note 1 Financial Statements, HUD 2000-KC-0002 Housing Subsidy Payments 09/29/2000 02/21/2001 09/30/2005 2001-SF-1802 Audit of HUD Earthquake Loan 02/08/2001 06/14/2001 Note 1 Program (HELP) Funds, Woodland Hills, CA 2001-FO-0002 Federal Housing Administration,03/01/2001 07/24/2001 12/21/2006 Audit of Fiscal Year 2000 Financial Statements 2001-FO-0003 Audit of HUD Fiscal Year 2000 03/01/2001 07/18/2001 Note 2 Financial Statements 2001-SF-1803 Supportive Housing Program 03/23/2001 07/24/2001 Note 1 Grant, Los Angeles, CA 2001-CH-1007 Detroit, MI, Housing 05/16/2001 09/13/2001 06/30/2011 Commission, Hope VI Program 2001-PH-0803 Philadelphia, PA, 06/14/2001 06/14/2001 10/11/2005 Homeownership Center, Single Family Disposition Activities 2001-AT-0001 Nationwide Audit Results on 06/29/2001 01/29/2002 02/15/2006 the Officer/Teacher Next Door Program

2002-SF-0001 Nonprofit Participation, HUD 11/05/2001 08/30/2002 Note 1 Tables Single Family Program 2002-CH-1801 Housing Authority of the City 01/29/2002 05/18/2002 05/15/2005 of Evansville, IN

Tables 139 Report Report Title Issue Decision Final Number Date Date Action

2002-FO-0002 Federal Housing Administration,02/22/2002 05/30/2002 12/31/2006 Audit of FY 2001 and 2000 Financial Statements 2002-NY-0001 Nationwide Audit Asset Control 02/25/2002 06/17/2002 Note 2 Area Program, Single Family Housing 2002-FO-0003 HUD, Audit of Fiscal Years 02/27/2002 08/16/2002 Note 1 2001 and 2000 Financial Statements 2002-PH-1001 Williamsport, PA, Community 03/19/2002 08/27/2002 11/15/2005 Development Block Grant and Home Investment Partnership Programs 2002-BO-1001 City of Worcester, MA, CDBG 03/27/2002 08/29/2002 07/01/2005 Program 2002-BO-1003 Newport, RI, Resident 04/30/2002 09/16/2002 01/15/2008 Council, Inc. 2002-AT-1002 City of Tupelo, MS, Housing 07/03/2002 10/31/2002 04/30/2010 Authority Housing Programs Operations 2002-KC-0002 Nationwide Survey of HUD’s 07/31/2002 11/22/2002 Note 2 Office of Housing Section 232 Nursing Home Program 2002-AT-1808 Homeless and Housing Coalition 09/20/2002 03/31/2003 Note 2 of Kentucky, Inc., Frankfort, KY, Outreach and Training Assistance Grant 2002-NY-1005 The Legal Aid Society, New York, 09/23/2002 03/31/2003 Note 2 NY, Outreach and Training Assistance Grant and Public Entity Grant 2002-DE-1005 Crossroads Urban Center, Salt 09/25/2002 03/31/2003 Note 2 Lake City, UT, Outreach and Training Assistance Grants 2002-DE-1002 Affordable Housing and 09/30/2002 03/31/2003 Note 2 Homeless Alliance, Honolulu, HI, Outreach and Training Assistance Grant and Intermediary Outreach and Training Assistance Grant

Tables Tables 140 Report Report Title Issue Decision Final Number Date Date Action

2002-FW-1003 New Mexico Public Interest 09/30/2002 03/31/2003 Note 2 Education Fund, Albuquerque, NM, Outreach and Training Assistance Grant and Public Entity Grant 2002-PH-1002 Virginia Poverty Law Center, 09/30/2002 03/31/2003 Note 2 Richmond, VA, Outreach and Training Assistance Grant 2002-PH-1003 Delaware Housing Coalition, 09/30/2002 03/31/2003 Note 2 Dover, DE, Outreach and Training Assistance Grant and Intermediary Outreach and Training Assistance Grant 2002-PH-1004 Tenants’ Action Group of 09/30/2002 03/31/2003 Note 2 Philadelphia, PA, Outreach and Training Assistance Grant 2002-PH-1006 Legal Aid Bureau, Inc., 09/30/2002 03/31/2003 Note 2 Baltimore, MD, Outreach and Training Assistance Grant Number FFOT0020MD 2002-PH-1007 Legal Aid Bureau, Inc., 09/30/2002 03/31/2003 Note 2 Baltimore, MD, Outreach and Training Assistance Grant Number FFOT98012MD 2002-SF-1006 Legal Aid Society of Honolulu, 09/30/2002 03/31/2003 Note 2 HI, Outreach and Training Assistance Grant 2003-DE-1001 Sicangu Wicoti Awanyakepe 10/08/2002 02/28/2003 07/31/2005 Corp, Rosebud, SD, Indian Housing Block Grant Program 2003-AT-1801 South Carolina Regional 10/09/2002 02/06/2003 10/31/2005 Housing Authority No. 3, Barnwell, SC 2003-CH-1003 Tenants United for Housing, 10/29/2002 03/31/2003 Note 2 Inc., Chicago, IL, Outreach and Training Assistance Grants 2003-SE-1001 Community Alliance of Tenants, 10/31/2002 03/31/2003 Note 2 Tables Portland, OR, Outreach and Training Assistance Grant

Tables 141 Report Report Title Issue Decision Final Number Date Date Action

2003-KC-1801 University Forest Nursing Care 11/14/2002 02/24/2003 Note 1 Center, University City, MO 2003-SE-1002 Tenants Union, Seattle, WA, 12/02/2002 03/31/2003 Note 2 Outreach and Training Assistance Grant and Intermediary Training Assistance Grant 2003-AT-1001 Northwestern Regional Housing 01/09/2003 06/02/2003 01/09/2006 Authority Public Housing Programs, Boone, NC 2003-FO-0002 Federal Housing Administration 01/21/2003 05/22/2003 12/31/2006 Audit of Fiscal Year 2002 and 2001 Financial Statements 2003-PH-1002 Philadelphia, PA, Housing 01/27/2003 06/11/2003 04/30/2005 Authority, Contracting and Purchasing Activity 2003-FO-0004 Audit of HUD’s Financial 01/31/2003 05/22/2003 10/31/2005 Statements Fiscal Years 2002 and 2001 2003-NY-1001 Marion Scott Real Estate, Inc., 02/12/2003 06/13/2003 Note 2 Management Agent, New York, NY 2003-FW-1001 Housing Authority of the City 02/21/2003 06/20/2003 12/31/2005 of Morgan City, LA, Low-Rent Program 2003-KC-1803 Richmond Terrace Retirement 03/24/2003 06/19/2003 10/01/2005 Center, Richmond Heights, MO 2003-NY-1003 Empire State Development 03/25/2003 07/16/2003 Note 2 Corporation, New York, NY, CDBG Disaster Assistance Funds 2003-CH-1014 Coshocton, OH, Metropolitan 03/28/2003 07/28/2003 04/30/2047 Housing Authority, Public Housing Program 2003-DE-0001 HUD Office of Multifamily 03/31/2003 03/31/2003 Note 2 Housing Assistance Restructuring’s Oversight of the Sec 514 Program Activities 2003-FW-1004 Spanish Village Community 04/28/2003 08/18/2003 Note 2 Development Corporation, Houston, TX, Upfront Grant & HOME Loan

Tables Tables 142 Report Report Title Issue Decision Final Number Date Date Action

2003-CH-0001 HUD’s Oversight of 05/07/2003 09/11/2003 09/30/2005 Empowerment Zone Program 2003-BO-1003 City Of Bridgeport, CT, Home 05/16/2003 09/16/2003 07/31/2005 Investment Partnership Program 2003-CH-1017 Housing Continuum, Inc., 06/13/2003 10/10/2003 Note 2 Homebuyers Assistance Program, Geneva, IL 2003-KC-0001 Survey of HUD’s Administration 06/24/2003 07/10/2003 Note 2 of Section 3 of the HUD Act of 1968 2003-AO-0002 HUD Training Academy 07/15/2003 10/24/2003 Note 2 2003-BO-1004 Brockton, MA, Housing 07/17/2003 10/16/2003 04/30/2005 Authority, Portability Features of the Section 8 Housing Choice Voucher Program 2003-CH-1018 Chicago, IL, Housing 07/18/2003 01/14/2004 12/31/2005 Authority, Outsourced Property Management Contracts Review 2003-NY-1005 Empire State Development 09/30/2003 01/28/2004 03/31/2007 Corporation, New York, NY, CDBG Disaster Assistance Funds 2004-KC-1001 East Meyer Community 11/24/2003 03/29/2004 11/30/2005 Association, Use of HUD Grant Funds, Kansas City, MO 2004-FO-0001 Federal Housing 11/25/2003 02/25/2004 Note 2 Administration Audit of Fiscal Year 2003 and 2002 Financial Statements 2004-CH-1001 Kankakee, IL, County Housing 11/26/2003 03/24/2004 12/31/2005 Authority, Section 8 Housing Program 2004-CH-1002 Waukesha County CDBG and 11/26/2003 04/29/2004 06/30/2005 HOME Investment Partnership Programs, Waukesha, WI 2004-PH-0001 Procedures for Filing Uniform 11/26/2003 04/14/2004 04/14/2005 Commercial Code Continuation Statements Tables 2004-DP-0001 Fiscal Year 2003 Review of 12/01/2003 05/28/2004 06/30/2005 Information Systems Controls in Support of the Financial Statements Audit

Tables 143 Report Report Title Issue Decision Final Number Date Date Action

2004-BO-1004 Danbury, CT, Housing 12/05/2003 04/05/2004 12/01/2008 Authority, Capital Fund Program 2004-BO-1005 Springfield, MA, Housing 12/10/2003 04/23/2004 02/28/2007 Authority 2004-DE-0001 Nationwide Review of 12/15/2003 04/13/2004 04/15/2005 Indemnification for Claims on Single-Family Insured Loans 2004-FO-0003 HUD Audit of Fiscal Year 12/19/2003 07/20/2004 09/30/2005 2003 and 2002 Financial Financial Statements 2004-SE-1002 Scheller-Hess-Yoder and 01/09/2004 05/05/2004 05/31/2005 Associates, Nonsupervised Loan Correspondent, Portland, OR 2004-AT-0001 Public Housing Authority 01/13/2004 05/20/2004 05/13/2005 Development Activities 2004-AT-1001 Housing Authority of 01/15/2004 05/14/2004 12/31/2006 the City of Cuthbert, GA, Administration of Housing Development Activities 2004-BO-0006 Portability Features of the 01/15/2004 05/14/2004 04/30/2005 Section 8 Housing Choice Voucher Program 2004-PH-1002 Allegheny County Housing 01/16/2004 05/14/2004 05/14/2005 Authority, Public Housing Drug Elimination Grant Program, Pittsburgh, PA 2004-FW-1001 City of Little Rock, AR, 01/26/2004 05/25/2004 05/19/2005 Housing Authority, Procurement and Asset Control 2004-AO-0001 Award and Administration of 02/06/2004 06/30/2004 07/01/2005 Lead-Based Paint Hazard Reduction Grants 2004-BO-1006 Nuestra Casa: Project 02/18/2004 05/24/2004 05/24/2005 Management Operations, Boston, MA 2004-DP-0002 Application Control Review of 02/25/2004 07/14/2004 03/31/2006 the Tenant Rental Assistance Certification System

Tables Tables 144 Report Report Title Issue Decision Final Number Date Date Action

2004-FW-1002 Jester Trails Apartment, 02/26/2004 05/18/2004 05/16/2005 Multifamily Project, Houston, TX 2004-KC-1002 Timberlake Care Center, Use 03/10/2004 07/08/2004 07/08/2005 of Project Funds, Kansas City, MO 2004-DE-1002 Treehouse Mortgage, LLC, 03/11/2004 07/07/2004 10/31/2005 Nonsupervised Loan Correspondent, Denver, CO 2004-FW-1003 City of New Orleans, LA, 03/15/2004 09/07/2004 05/13/2005 Section 108 Loan Program, Jazzland Theme Park 2004-PH-0003 HUD’s Oversight of the 03/17/2004 08/16/2004 08/16/2005 Philadelphia, PA, Housing Authority’s Moving to Work Program 2004-LA-1001 Keystone Mortgage and 03/24/2004 06/25/2004 09/15/2005 Investment Company, Nonsupervised Loan Correspondent, Phoenix, AZ 2004-NY-1001 Empire State Development 03/25/2004 06/30/2004 05/31/2005 Corporation, CDBG Disaster Assistance Funds, New York, NY 2004-PH-1004 Carbondale Nursing Home, 03/25/2004 07/23/2004 07/22/2005 Section 232 Project Operations, Carbondale, PA 2004-PH-1005 Petersburg, VA, Redevelopment 03/25/2004 06/01/2004 04/01/2005 and Housing Authority, Nonfederal Entities 2004-FW-1004 Housing Authority of the City 03/26/2004 07/23/2004 10/15/2009 of Corpus Christi, TX, Financial Management of HUD Programs 2004-SE-1003 Uptown Towers Apartments, 03/26/2004 06/10/2004 05/01/2005 Portland, OR 2004-AT-1006 Puerto Rico Public Housing 04/22/2004 07/12/2004 07/11/2005

Administration, San Juan, PR Tables 2004-FW-1006 San Antonio, TX, Housing 04/26/2004 12/08/2004 07/31/2005 Authority, HOPE VI Program

Tables 145 Report Report Title Issue Decision Final Number Date Date Action

2004-AT-1007 Housing Authority of the City 04/28/2004 07/01/2004 04/28/2005 of Asheville, NC 2004-LA-1003 Homewide Lending Corporation, 05/19/2004 09/01/2004 09/30/2005 Nonsupervised Mortgagee, Los Angeles, CA 2004-AT-1009 Housing Authority of the City 05/20/2004 09/13/2004 09/13/2005 of Northport, AL 2004-SE-1004 Seattle, WA, Housing Authority, 05/21/2004 09/20/2004 12/31/2005 Moving to Work Demonstration Program 2004-PH-1007 City of McKeesport, PA, 05/28/2004 09/24/2004 03/31/2009 CommunityDevelopment Block Grant Program 2004-PH-1008 Safe Haven Outreach Ministry, 06/30/2004 08/31/2004 04/22/2005 Incorporated, Washington, DC 2004-CH-1005 Connexions Enterprise, Inc., 06/17/2004 09/21/2004 09/08/2005 Supportive Housing Program, Chicago, IL 2004-FW-0001 Management Controls over 06/18/2004 10/14/2004 10/27/2005 Grantee and Subgrantee Capacity, Community Planning and Development, Washington, DC 2004-DE-1003 Housing Authority of the City 06/22/2004 10/20/2004 10/31/2005 of Greeley, CO, and Weld County Housing Authority Tenant Selection and Continued Occupancy Activities 2004-FW-1007 City of New Orleans, LA, 06/22/2004 09/20/2004 04/30/2005 Desire Community Housing Corporation 2004-CH-1006 Housing Authority of the City 06/23/2004 08/26/2004 06/30/2008 of Evansville, IN, Housing Assistance Payment Savings Refunding Agreements 2004-PH-1009 First Funding, Incorporated, 06/29/2004 10/25/2004 10/31/2005 Nonsupervised Loan Correspondent, Largo, MD 2004-LA-1005 Guild Mortgage Company DBA, 07/09/2004 11/06/2004 12/31/2005 Residential Mortgage Bankers, San Diego, CA

Tables Tables 146 Report Report Title Issue Decision Final Number Date Date Action

2004-AT-0002 Effectiveness of the 07/12/2004 12/13/2004 12/31/2005 Departmental Enforcement Center 2004-KC-1003 Wells Fargo Home Mortgage, 07/16/2004 03/25/2005 01/31/2006 Nonsupervised Direct Endorsement Lender, Des Moines, IA 2004-AT-1011 Opelika, AL, Housing Authority, 07/23/2004 07/23/2004 04/30/2005 Public Housing Programs 2004-KC-1004 Gershman Investment 07/28/2004 11/12/2004 11/30/2005 Corporation, Nonsupervised Direct Endorsement Lender, Clayton, MO 2004-AT-1012 Housing Authority of the City 08/02/2004 11/29/2004 12/31/2020 of Durham, NC 2004-PH-1010 Lambeth Apartments, Section 08/04/2004 10/02/2004 08/01/2005 236/Section 8, Multifamily Housing Review, Pittsburgh, PA 2004-KC-1005 The City’s Housing Program and 08/11/2004 08/17/2004 10/31/2005 The Role of the Housing and Economic Development Finance Agency, Kansas City, MO 2004-AT-1013 Housing Authority of the City 08/19/2004 12/15/2004 11/30/2005 of Lakeland, FL 2004-SE-1006 Apreva, Inc., Nonsupervised 08/19/2004 01/11/2005 07/31/2006 Mortgagee, Bellevue, WA 2004-CH-1008 Cornerstone Mortgage Group, 09/10/2004 01/05/2005 01/31/2006 Limited Nonsupervised Loan Correspondent, Inverness, IL 2004-PH-1012 Mortgage America Bankers, LLC, 09/10/2004 01/06/2005 09/30/2006 Nonsupervised Loan Correspondent, Kensington, MD 2004-FW-1008 United Properties Management, 09/14/2004 01/13/2005 11/30/2005 Inc., Multifamily Management Agent, Little Rock, AR 2004-NY-1004 Lower Manhattan Development 09/15/2004 01/12/2005 06/30/2005 Tables Corporation, Community Development Block Grant Disaster Assistance Funds, New York, NY

Tables 147 Report Report Title Issue Decision Final Number Date Date Action

2004-NY-1804 Buffalo, NY, Municipal Housing 09/15/2004 01/04/2005 12/10/2005 Authority, Micro Loan Program 2004-FW-1009 Mays Property Management, Inc., 09/17/2004 02/23/2005 06/30/2005 Multifamily Management Agent, Little Rock, AR 2004-LA-1007 Housing Authority of Maricopa 09/22/2004 01/14/2005 01/20/2006 County, Phoenix, AZ 2004-CH-1009 Decatur Mortgage Company, 09/23/2004 02/24/2005 12/09/2005 LLC, Nonsupervised Loan Correspondent, Indianapolis, IN 2004-LA-1008 United States Veterans Initiative, 09/27/2004 03/31/2005 01/04/2006 Inc., Inglewood, CA 2004-NY-1005 Jersey City, NJ, Housing 09/27/2004 12/17/2004 04/29/2005 Authority, Section 8 Contract Administrator 2004-DE-1004 New Freedom Mortgage 09/29/2004 01/28/2005 06/30/2005 Corporation, Single Family Direct Endorsement Mortgagee, Salt Lake City, UT 2004-FW-1010 Housing Authority of the City of 09/29/2004 12/17/2004 10/31/2005 Houston, TX, Housing Choice Voucher Subsidy Standards 2004-KC-0001 The Office of Federal Housing 09/30/2004 01/27/2005 09/01/2005 Oversight Exceeds its 60 Percent Statutory Requirement, but Has Cost Weaknesses in its Controls Over Allocating Costs for that Requirement

AUDITS EXCLUDED: NOTES: 26 audits under repayment plans 1 Management did not meet the target date. Target date is over 1 year old. 27 audits under formal judicial review, 2 Management did not meet the investigation, or legislative solution target date. Target date is under 1 year old.

Tables Tables 148 Table C Inspector General Issued Report with Questioned and Unsupported Costs at 03/31/2005 (Thousands) Reports Number of Questioned Unsupported Audit Reports Costs Costs

A1 For which no management 28 62,366 16,236 decision had been made by the commencement of the reporting period A2 For which litigation, legislation, 10 15,915 5,066 or investigation was pending at the commencement of the reporting period A3 For which additional costs were - 1,604 473 added to reports in beginning inventory A4 For which costs were added to 1 861 0 noncost reports B1 Which were issued during the 45 87,524 62,048 reporting period B2 Which were reopened during the 0 0 0 reporting period

Subtotals (A + B) 84 168,270 83,823

C For which a management 461 119,367 55,844 decision was made during the reporting period (1) Dollar value of disallowed costs Due HUD 232 66,273 21,939 Due program participants 27 43,355 26,951 (2) Dollar value of costs not 143 9,738 6,954 disallowed D For which management decision 16 20,700 8,794 had been made not to determine costs until completion of litigation, legislation, or investigation E For which no management 22 28,204 19,184 decision had been made by <55>4 <28,105>4 <19,180>4 the end of the reporting period

1 29 audit reports also contain recommendations with funds to be put to better use. 2 6 audit reports also contain recommendations with funds due program participants. Tables 3 12 audit reports also contain recommendations with funds agreed to by management. 4 The figures in brackets represent data at the recommendation level as compared to the report level. See Explanations of Tables C and D.

Tables 149 Table D Inspector General Issued Report with Recommendations That Funds Be Put to Better Use at 03/31/2005 (Thousands) Reports Number of Dollar Value Audit Reports

A1 For which no management decision had been 19 468,753 made by the commencement of the reporting period A2 For which litigation, legislation, or investigation 5 14,126 was pending at the commencement of the reporting period A3 For which additional costs were added to reports - 1,982 in beginning inventory A4 For which costs were added to noncost reports 0 0 B1 Which were issued during the reporting period 38 938,890 B2 Which were reopened during the reporting period 0 0

Subtotals (A + B) 62 1,423,751

C For which a management decision was made 351 1,207,900 during the reporting period (1) Dollar value of recommendations that were agreed to by management Due HUD 192 1,142,390 Due program participants 17 59,342 (2) Dollar value of recommendations that were 43 6,167 not agreed to by management D For which management decision had been made 7 17,438 not to determine costs until completion of litigation, legislation, or investigation E For which no management decision had been 20 198,412 made by the end of the reporting period <31>4 <198,412>4

1 29 audit reports also contain recommendations with questioned costs. 2 1 audit report also contains recommendations with funds due program participants. 3 4 audit reports also contain recommendations with funds agreed to by management. 4 The figures in brackets represent data at the recommendation level as compared to the report level. See Explanations of Tables C and D.

Tables Tables 150 Explanations of Tables C and D

The Inspector General Act Amendments of 1988 require Inspectors General and agency heads to report cost data on management decisions and final actions on audit reports. The current method of reporting at the “report” level rather than at the individual audit “recommendation” level results in misleading reporting of cost data. Under the Act, an audit “report” does not have a management decision or final action until all questioned cost items or other recommendations have a management decision or final action. Under these circumstances, the use of the “report” based rather than the “recommendation” based method of reporting distorts the actual agency efforts to resolve and complete action on audit recommendations. For example, certain cost items or recommendations could have a management decision and repayment (final action) in a short period of time. Other cost items or nonmonetary recommendation issues in the same audit report may be more complex, requiring a longer period of time for management’s decision or final action. Although management may have taken timely action on all but one of many recommendations in an audit report, the current “all or nothing” reporting format does recognize of their efforts.

The closing inventory for items with no management decision on tables C and D (line E) reflects figures at the report level as well as the recommendation level.

Tables

Tables 151 HUD OIG Operations Telephone Listing Office of Audit

Headquarters Office of Audit, Washington, DC 202-708-0364

Region I, Boston, MA 617-994-8380 Hartford, CT 860-240-4800

Region II, New York, NY 212-264-4174 Albany, NY 518-464-4200 Buffalo, NY 716-551-5755 Newark, NJ 973-622-7900

Region III, Philadelphia, PA 215-656-3401 Baltimore, MD 410-962-2520 Pittsburgh, PA 412-644-6372 Richmond, VA 804-771-2100

Region IV, Atlanta, GA 404-331-3369 Birmingham, AL 205-731-2630 Miami, FL 305-536-5387 Greensboro, NC 336-547-4001 Jacksonville, FL 904-232-1226 Knoxville, TN 865-545-4369 San Juan, PR 787-765-5202

Region V, Chicago, IL 312-353-6236 Columbus, OH 614-469-5737 Detroit, MI 313-226-6190

Region VI, Fort Worth, TX 817-978-9309 Houston, TX 713-718-3199 New Orleans, LA 504-589-7267 Oklahoma City, OK 405-609-8606 San Antonio, TX 210-475-6895

Region VII, Kansas City, KS 913-551-5870 St. Louis, MO 314-539-6339 Denver, CO 303-672-5452

Region IX, Los Angeles, CA 213-894-8016 Phoenix, AZ 602-379-7250 San Francisco, CA 415-489-6400

Region X, Seattle, WA 206-220-5360

Operations Telephone Listing HUD OIG Operations Telephone Listing 152 Operations Telephone Listing 202-708-0390 617-994-8450 603-666-7988 203-639-2810 212-264-8062 716-551-5755 973-622-7900 215-656-3410 410-962-4502 412-644-6598 804-771-2100 404-331-3359 305-536-3087 336-547-4000 904-232-1226 901-544-0644 615-736-7000 787-766-5868 813-228-2026 312-353-4196 216-522-4421 614-469-6677 313-226-6280 317-226-5427 612-370-3106 817-652-6980 713-718-3197 501-324-5409 504-589-6847 405-609-8601 210-475-6894 913-551-5866 314-539-6559 303-672-5350 406-247-4080 801-524-6090 153 Manchester, NH Meriden, CT Buffalo, NY Newark, NJ Baltimore, MD Pittsburgh, PA Richmond, VA Miami, FL Greensboro, NC Jacksonville, FL Memphis, TN Nashville, TN San Juan, PR Tampa, FL Cleveland, OH Columbus, OH Detroit, MI Indianapolis, IN Minneapolis-St. Paul, MN Houston, TX Little Rock, AR New Orleans, LA Oklahoma City, OK San Antonio, TX St. Louis, MO Denver, CO Billings, MT Salt Lake City, UT Office of Investigation Office of Investigation HUD OIG Operations Telephone Listing Region I, Boston, MA Region I, Boston, York, NY Region II, New PA Region III, Philadelphia, Region IV, Atlanta, GA Region V, Chicago, IL Region VI, Arlington, TX Region VII, Kansas City, KS Headquarters Office of Investigation, Washington, DC Investigation, Washington, Office of Headquarters Office of Investigation Office of Investigation Office of Investigation Region IX, Los Angeles, CA 213-894-0219 San Francisco, CA 415-489-6683 Phoenix, AZ 602-379-7255 Sacramento, CA 916-498-5220 Las Vegas, NV 702-366-2144 Seattle, WA 206-220-5380

Operations Telephone Listing HUD OIG Operations Telephone Listing 154 Report fraud, waste, and mismanagement in HUD programs and operations by:

Calling the OIG Hotline: 1-800-347-3735

Faxing the OIG Hotline: 202-708-4829

Sending written information to: Department of Housing and Urban Development Inspector General Hotline (GFI) 451 7th Street, SW Washington, DC 20410

Emailing the OIG Hotline: [email protected]

Internet: http://www.hud.gov/complaints/fraud_waste.cfm

All information is confidential, and you may remain anonymous. Semiannual Report to Congress Semiannual Report to Congress as of March 31, 2005

www.hud.gov/offices/oig

No. 53 HUD-2005-13-OIG

Office of Inspector General