Office of Inspector General

Semiannual Report to Congress

April 1, 2003 through September 30, 2003

U.S. Department of Housing and Urban Development
PROFILE OF PERFORMANCE

for the period

April 1, 2003 through September 30, 2003 

Audit and Investigation Results Audit Investigation Com

Recommendations That Funds Be Put to Better Use $26,749,669 $26,Management Decisions on Audits with Recommendations That 

Funds Be Put to Better Use $1,172,264,405 $1,17

Questioned Costs $49,455,4951 $49,Management Decisions on Audits with Questioned Costs $46,447,3352 $46,Indictments/Informations 588 Convictions/Pleas/Pre-Trial Diversions 285 Months in Prison 3,272 3Months of Probation 7,071 7Hours of Community Service 7,085 7Investigative Recoveries/Receivables $321,222,162 $321Collections from Audits $17,403,1653 $17,Administrative Sanctions 5 233 Personnel Actions 28 Arrests 8124 Search Warrants 33 Weapons Seized 3 Value of Drugs Seized $108,229 $1Subpoenas Issued 10 274 

1 Amount shown in the Profile of Performance from questioned costs shown in Table C was reduced by $400,000 for report number 2003-CH-1802 and 

1801 because the Office of Investigation has claimed this amount in their statistics. 

2 Amount shown reduced in the Profile of Performance from questioned costs in Table C was reduced by $209,470 for report number 2003-NY-1801 b

claimed this amount in their statistics. 

3 Collections reduced by $7,857 which represents collections on a court ordered settlement on report number 2000-FW-1003 which was claimed by the 4 Figures include arrests derived through Fugitive Felon and Tenant Criminal Violation Initiatives.
INSPECTOR GENERAL’S MESSAGE

As we complete our most recent Semiannual Report to the Congress, we in

the Office of Inspector General of the Department of Housing and Urban Development (HUD OIG) are marking the twenty-fifth anniversary of the Inspector

General Act. The Act, which authorized the HUD OIG as one of the original

twelve statutory Offices of Inspector General, mandated that we combat waste,

fraud, and abuse and identify ways to improve the economy and efficiency of

Departmental programs and operations. The HUD OIG, however, was established

by an administrative act of the Secretary on January 29, 1972. With the signing of

the Inspector General Act of 1978, the establishment of Offices of Inspector

General in the Executive Branch became a matter of law.

We in the HUD OIG are serving the American taxpayer by protecting the

integrity of the Federal Government in conducting audits, including financial

statement and internal control reviews, and investigations, including white collar crime and fugitive felon investigations. Allegations of Departmental employee misconduct are taken seriously and investigated by our Special Investigations Division. In addition, we assess information security efforts, report on Departmental compliance and

accountability, and identify the most significant management and performance challenges.

When I was sworn in as Inspector General in March of 2002, I stated that my primary goal was to improve the

HUD OIG while ensuring that we focused our efforts on our core mission, as mandated by the IG Act. I believe that

we have made great strides toward this goal and that this is reflected in the accomplishments highlighted in this

Report and by our own return on investment rates. During this six-month reporting period alone, we are reporting

HUD management decisions on audit recommendations with funds to be put to better use of $1.1 billion and questioned costs of $46.4 million. Also, we issued audits identifying $26.7 million in funds to be put to better use and

$49.4 million in questioned costs. Collections from audits amounted to $17.4 million. On the investigative side, our

recoveries and/or receivables totaled over $320 million; indictments and/or informations were issued against 588

individuals or entities; and convictions and pleas numbered 285. Those who violated HUD rules and regulations

were sentenced to a total of 3,272 months in prison.

Moreover, the OIG recently launched a Fugitive Felon Initiative in an effort to identify HUD housing assistance

recipients who are criminal fugitives from justice. This joint effort with the U.S. Marshals Service will serve to

apprehend fugitives and probation/parole violators. As of September 30, 2003, 134 fugitives residing in HUD assisted

housing had been arrested. The OIG has also conducted a number of investigations in order to remove tenants in

public housing who commit fraud and other criminal violations. During the last six months, 66 housing assistance

tenants were charged with criminal violations and were evicted or are in the process of being evicted.

As all of these numbers affirm, our last six months’ work clearly illustrates our productivity. As we progress to

the next reporting period, we are motivated by our current accomplishments to exceed our objectives.

The audits and investigations highlighted in this Report examine a number of continuing issues we have raised in

past Reports, including fraud and abuse in HUD’s Single Family Mortgage Insurance Programs and fraudulent

payments of rental subsidies in Public and Indian Housing Programs. In addition, we are reporting on the results of

the second in a series of reviews of the use of Community Development Block Grant Disaster Assistance Funds

provided to the State of New York following the terrorist attacks on the World Trade Center.
In our discussion of the audit resolution process, we are pleased to report that, for the fifth consecutive semiannual reporting period, we have no items to report on significant audits where a management decision had not been

reached for audits that were more than six months old. We attribute this significant accomplishment to the ongoing

support and cooperation provided by the Department and their priority on expeditiously resolving OIG audit report

recommendations. In each of our Semiannual Reports, we discuss what we have determined to be HUD’s most

serious management and performance challenges. Though we continue to report on these issues, we are encouraged

that HUD management places the highest priority on correcting these weaknesses. Recent operational changes made

by the Department represent positive steps toward addressing these challenges.

In an effort to develop productive relationships with agencies and organizations whose work assists in the

accomplishment of HUD’s mission, our office continues to participate in outreach efforts with HUD staff and outside

constituent groups, including the National Association of Housing and Redevelopment Officials and the Public

Housing Authorities Directors Association. We continue to support the Financial Crimes Enforcement Center, the

Federal Law Enforcement Training Center, and the Inspector Training General Academy by providing staff resources in order that these organizations might better support the IG community. In addition, the OIG has become an

active partner with several universities and other learning institutions in creating opportunities for students and

contributing to professional development.

Though I have had the opportunity to serve as the HUD Inspector General for only a short time in relation to the

twenty-five plus year history of this organization, I am reminded daily of the outstanding contribution and dedication

of OIG employees. In addition to striving toward excellence in fulfilling the OIG mandates, time and time again our

employees have risen above their own obligations. They manned the law enforcement hotlines during the Washington

sniper investigation, assisted the FBI in anti-terrorist activities even after our own offices were destroyed in the

World Trade Center on September 11, 2001, and initially flew as air marshals to help secure commercial airlines.

They also aided the National Aeronautics and Space Administration in recovery operations after the February 1,

2002 Shuttle disaster. We also remember and profoundly thank all our OIG employees and employees’ spouses who

have been called to military duty and pray for their safe return.

I strongly believe that the HUD OIG has had a positive impact on the Department’s performance. I thank the

dedicated men and women of the OIG for all their efforts and unfailing support not only for the mission of the OIG,

but also for the mission of the entire Department. We will continue to work with Secretary Martinez to achieve our

common goal of detecting and preventing waste, fraud, and abuse and improving government operations.

Kenneth M. Donohue

Inspector General
Information About the HUD Office of Inspector General 

 HUD’s Office of Inspector General is one of the original 12 designated by the Inspector General Act of 1978. The O

programs and operations with its audit and investigative personnel. While organizationally located within the Departme

budgetary authority. The IG’s mission is to provide independent and objective reporting to the Secretary and the Congre

3⁄4 Promote efficiency and effectiveness in programs and operations; 3⁄4 Detect and deter fraud and abuse;3⁄4 Investigate allegations of misconduct by HUD employees; and 

3⁄4 Review and make recommendations regarding existing and proposed legislation and regulations affecting HUD. 

The Executive Office and the Offices of Audit, Investigation, Counsel, and Management and Policy are located in H

Offices of Audit and Investigation have field staff located in ten regions and many field offices. 

OIG Cost of Operations 10/01/02 to 09/30/03

 - $96.7 million

$68,443,762

Personnel 

Services 

$8,637,607 

Administration

& Operations $19,631,091

Centrally 

Managed/

Funded Services

OIG Results 10/01/02 to 09/30/0

$63

Qu

$386,436,396

Investigative 

Recoveries/

Receivables 

OIG Return on Investment: $1.75 billion/$96.7 million = 18 to 1 return 
Reporting Requirements

The specific reporting requirements as prescribed by the Inspector General Act of 1978, as amended by 

the Inspector General Act Amendments of 1988, are listed below: 

Section 4(a)(2)-review of existing and proposed legislation and regulations. 

Section 5(a)(1)-description of significant problems, abuses, and deficiencies relating to the 

administration of programs and operations of the Department. 

Section 5(a)(2)-description of recommendations for corrective action with respect to significant problems, abuses, and deficiences. 

Section 5(a)(3)-identification of each significant recommendation described in previous 

Semiannual Reports on which corrective action has not been completed. 

Section 5(a)(4)-summary of matters referred to prosecutive authorities and the prosecutions 

and convictions that have resulted. 

Section 5(a)(5)-summary of reports made on instances where information 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 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. 

Section 5(a)(8)-statistical tables showing the total number of audit reports and the total dollar 

value of questioned and unsupported costs. 

Section 5(a)(9)-statistical tables showing the total number of audit 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 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 any significant revised 

management decisions made during the reporting period. 

Section 5(a)(12)-information concerning any significant management decision with which the 

Inspector General is in disagreement. 

Section 5(a)(13)-the information described under section 05(b) of the Federal Financial 

Management Improvement Act of 1996. 

Source/Requirement Pages

95-97 

1-85, 99-102 

7-85 

Appendix 2, 

Table B 

7-85 

No instances 

Appendix 1 

7-85 

Appendix 2, 

Table C 

Appendix 2, 

Table D 

Appendix 2, 

Table A 

101-102 

No instances 

102 
Table of Contents

Chapter 1 - HUD’s Management and Performance Challenges ............................................................1

Chapter 2 - HUD’s Single Family Housing Programs

Audits ..................................................................................................................... 7

Investigations............................................................................................................ 10

OIG Offices of Audit and Investigation - Joint Efforts .............................................................26

Chapter 3 - HUD’s Public and Indian Housing Programs

Audits ....................................................................................................................29

Investigations ...........................................................................................................37

OIG Offices of Audit and Investigation - Joint Efforts.............................................................54

Fugitive Felon Initiative ...............................................................................................55

Chapter 4 -HUD’s Multifamily Housing Programs

Audits ....................................................................................................................57

Investigations............................................................................................................60

Chapter 5 -HUD’s Community Planning and Development Programs

Audits ....................................................................................................................67

Investigations............................................................................................................76

OIG Offices of Audit and Investigation - Joint Efforts .............................................................80

Chapter 6 - Other Significant Audits and Investigations

Audits ....................................................................................................................83

Investigations............................................................................................................85

Chapter 7 - Outreach Efforts ...................................................................................................87

Chapter 8 - Regulations and Other Directives

Regulations ..............................................................................................................95

Notices ...................................................................................................................95

HUD Standard Forms..................................................................................................96

Testimony ................................................................................................................96

Chapter 9 - Audit Resolution

Delayed Actions.........................................................................................................99

Significant Revised Management Decisions ....................................................................... 101

Federal Financial Management Improvement Act of 1996 (FFMIA)...........................................102

Appendix 1 — Audit Reports Issued

Appendix 2 — Table A - Audit Reports Issued Prior to Start of Period with No Management Decision at

09/30/03

Table B - Significant Audit Reports Described in Previous Semiannual Reports Where Final

Action Had Not Been Completed as of 09/30/03

Table C - Inspector General Issued Reports with Questioned and Unsupported Costs at

09/30/03

Table D - Inspector General Issued Reports with Recommendations that Funds Be Put To Better

Use at 09/30/03
Chapter 1 - HUD’s Management and Performance Challenges 1

Chapter 1 — HUD’s Management and Performance Challenges 

The HUD Office of Inspector

General

This year marks the 25th anniversary of the 

Inspector General Act of 1978. The HUD Inspector 

General is one of the original 12 Inspectors General 

authorized under the Act. Over the years, our audit 

and investigative staff have forged a strong alliance 

with HUD personnel in identifying ways to improve 

Departmental programs and operations. We strongly 

believe that we have made a difference in HUD’s 

performance and accountability over the last quarter 

of a century. We are committed to our statutory 

mission of detecting and preventing waste, fraud, and 

abuse, and promoting the effectiveness and efficiency 

of government operations. While organizationally we 

are located within the Department, we operate 

independently with separate budgetary authority. This 

independence allows for clear and objective reporting 

to the Secretary and the Congress. Our activities seek 

to: 

 Promote efficiency and effectiveness in programs 

and operations. 

 Detect and deter fraud and abuse. 

 Investigate allegations of misconduct by HUD

employees. 

 Review and make recommendations regarding 

existing and proposed legislation and regulations 

affecting HUD. 

The OIG Executive Office and the Offices of 

Audit, Investigation, Counsel, and Management and 

Policy are located in Headquarters. Also, the Offices 

of Audit and Investigation have staff located in 10 

Regions and numerous Field Offices across the 

country. 

Major Issues Facing HUD

The Department’s primary mission is to expand 

housing opportunities for American families seeking 

to better their quality of life. HUD seeks to accomplish this through a wide variety of housing and 

community development grant, subsidy, and loan 

programs. HUD’s budget approximates $31 billion 

annually. Additionally, HUD assists families in obtaining housing by providing Federal Housing Administration (FHA) mortgage insurance for single family and 

multifamily properties. FHA’s outstanding mortgage 

insurance portfolio exceeds one half trillion dollars. 

Ginnie Mae, through its Mortgage-Backed Securities 

Program, gives issuers access to capital markets 

through the pooling of federally insured loans. 

While HUD is a relatively small agency in terms 

of staff, about 9,300 nationwide, it relies on the 

performance and integrity of numerous other partners 

to administer a large number of diverse programs. 

Among those administrators are hundreds of cities 

that manage HUD’s Community Development Block 

Grant funds, hundreds of Public Housing Authorities 

that manage assisted housing funds, thousands of HUD

approved lenders that originate and service FHA

insured loans, and hundreds of Ginnie Mae mortgaged-backed securities issuers. 

Achieving HUD’s mission continues to be an 

ambitious challenge for its limited staff, given the 

agency’s many distinct programs. HUD’s management 

problems have for years kept HUD on GAO’s list of 

agencies with high-risk programs. HUD’s management team, the GAO, and the OIG share the view that 

improvements in human capital, acquisitions, and 

information systems are essential in removing HUD’s 

high-risk program designations. More specifically, 

HUD must focus these improvements on Rental 

Housing Assistance Programs and Single Family 

Housing Mortgage Insurance Programs, two areas 

where financial and programmatic exposure is the 

greatest. That HUD’s reported management challenges are included as part of the President’s Management Agenda is indicative of HUD’s important role 

in the Federal Sector. HUD’s current Administration 

places a high priority on correcting those weaknesses 

that put these HUD programs on GAO’s high-risk list. 

Each year, in accordance with the Reports 

Consolidation Act of 2000, the HUD OIG is required to 

submit a statement to the Secretary with a summary 
Chapter 1 - HUD’s Management and Performance Challenges 2

assessment of the most serious challenges facing the 

Department. We submitted our last assessment on 

December 23, 2002. These reported challenges are 

the continued focus of our audit and investigative 

efforts. HUD is working to address these challenges 

and in some instances has made progress in correcting them. The Deputy Secretary’s Executive Management Meeting focuses on the actions taken by each 

Assistant Secretary in meeting the President’s 

Management Agenda (PMA). The PMA includes 

government-wide and HUD specific initiatives. The 

HUD specific initiatives are intended to formulate 

viable strategies and plans to address the major 

problems facing the Department. 

The Department’s management challenges and 

current efforts to address these challenges are as 

follows: 

Department-wide Organizational Changes

For more than a decade, the Department has 

struggled with organizational and management 

changes in an effort to streamline its operations. 

These changes were necessary as HUD tried to 

manage more programs and larger budgets with 

fewer staff. The former HUD Administration tried to 

realign the Department along functional lines, separating outreach from program administration. Also, 

they attempted to place greater reliance on automated 

tools, processing centers, and contracted services. As 

HUD implemented these realignments, many employees were assigned new duties and responsibilities and 

many new employees were hired. HUD also experienced a serious “brain drain” as many senior staff 

took buy-outs and left the Department. While these 

organizational changes were well intended, the 

disruptions caused by these sweeping changes further 

compounded problems in effectively managing HUD

operations. Among the problems were unclear lines 

of authority, many staff in the wrong location, staff 

not trained in new duties, and difficulty in providing 

supervision to remote staff. 

Our past Semiannual Reports to Congress noted 

that many organizational changes were slow to be put 

in place, and some of those in place were ineffective. 

For example, they lacked delegations of authority, 

written policies and procedures, and training support. 

HUD’s current management team likewise found 

problems with the organizational and operational 

changes made by the previous Administration. The 

current Administration made changes to include: 

 Placing the Departmental Enforcement Center 

(DEC) under the direction of the General Counsel 

to consolidate legal resources in support of a 

strong program enforcement effort. HUD’s 

program enforcement efforts were previously 

under the Office of General Counsel before the 

creation of a separate DEC. 

 Placing the Real Estate Assessment Center 

(REAC) under the direction of the Assistant 

Secretary for Public and Indian Housing, in order 

to improve REAC’s working relationships with 

program staff and program partners and 

strengthen accountability for resource use and 

results. 

 Placing the Office of the Chief Procurement 

Officer and Office of the Chief Information 

Officer under the direction of the Assistant 

Secretary for Administration/Chief Information 

Officer, to streamline HUD’s organizational 

structure and improve service delivery to HUD’s 

program and administrative components. 

 Establishing the Office of Field Policy and Management (FPM) as an independent office reporting 

to the Deputy Secretary, with responsibility for 

oversight of HUD’s field management and assistance to program Assistant Secretaries in meeting program goals at the field office level. 

 Redeploying staff in the outreach function to 

understaffed program delivery and oversight 

functions, where there was a critical need. 

 Creating new Regional management positions to 

give HUD’s field operations greater operational 

control over the administrative budget resources 

they need to pursue their operating and program 

goals, and to strengthen the local focus on 

workload management to meet national performance goals. 

 Revising program office delegations of authority. 

These operational changes delegate additional 

authority to the Field, and represent positive steps 

that bring HUD’s operational activities and authority 

closer to the customers it serves. However, we 

continue to see the changes as a management chal-
Chapter 1 - HUD’s Management and Performance Challenges 3

lenge until Departmental realignments become fully 

functional. Our audits will evaluate the effectiveness 

of many of these changes. For example, we are 

currently reviewing the operations of the DEC and will 

issue a report early next year. 

Financial Management Systems

HUD needs to complete the development of its 

financial management systems. The lack of an 

integrated financial system in compliance with 

federal financial system requirements has been 

reported in our financial audit as a material weakness 

in internal controls since Fiscal Year (FY) 1991. 

While progress has been made, a number of longstanding deficiencies remain. 

Because of the large volume of financial transactions, HUD relies heavily on automated information 

systems. For several years, our financial audits 

reported on security weaknesses in both HUD’s 

general processing and specific applications such that 

HUD could not be reasonably assured that assets were 

adequately safeguarded against waste, loss, and 

unauthorized use or misappropriation. Progress in 

improving these controls has been slow. The weaknesses noted in our FY 2002 Consolidated Financial 

Audit relate to the need to improve: 

 Controls over the computing environment; and 

 Administration of personnel security operations. 

We also noted the need for HUD to improve funds 

controls over public housing operating funds and 

processes for reviewing outstanding obligations to 

ensure that unneeded amounts are deobligated in a 

timely manner. Major deficiencies include: 

 The Office of Public and Indian Housing did not 

have an operational information system for monitoring 

operating subsidy eligibility requirements and obligations during six months of FY 2002. As part of our FY

2003 Consolidated Financial Audit, we are evaluating 

corrective actions taken by the Department. 

 A lack of integration between accounting systems 

and the need for accurate databases has hampered 

HUD’s ability to evaluate unexpended obligations. 

The audit of FHA’s FY 2002 financial statements 

continued to report long-standing weaknesses in FHA’s 

financial management systems environment. The FHA

general legder and its supporting subsidiary systems 

remained noncompliant with federal financial systems 

requirements. Its 19 subsidiary systems that feed 

transactions to its commercial general ledger system 

lack the capabilities to process transactions in the 

standard general ledger format. In addition, there 

continues to be an inability to support adequate funds 

control for FHA. Although FHA has made progress in 

funds control, FHA continues to lack automated 

financial systems and processes that are capable of 

fully monitoring and controlling budgetary resources. 

A key improvement made during FY 2003 was the 

implementation of the FHA subsidiary ledger, which 

automated many previously manual processes used to 

consolidate the accounting data received from the 

various FHA legacy systems. 

Adequate and Sufficiently Trained Staff

For many years, the Department has lacked a 

system for measuring work and reporting time, 

thereby making it a difficult task to determine staff 

resource needs. HUD worked with the National 

Academy of Public Administration (NAPA) to develop 

a methodology or approach for resource management 

that would allow the Department to identify and 

justify its resource requirements for effective and 

efficient program administration and management. 

HUD’s current Administration has embraced 

standards of management accountability. However, 

HUD needs to more effectively manage its limited 

staff resources. Many of the weaknesses facing HUD, 

particularly those concerning HUD’s oversight of 

program recipients, are exacerbated by HUD’s 

resource management shortcomings. Accordingly, we 

consider it critical for the Department to address 

these shortcomings through the successful completion 

of ongoing plans. To operate properly and hold 

individuals responsible for performance, HUD needs 

to know that it has the right number of staff with the 

proper skills. 

To address staffing imbalances and other human 

capital challenges, the Department has implemented 

the Resource Estimation and Allocation Process 

(REAP). The last phase of REAP (a baseline for 

staffing requirements) was completed in January 

2002. The next step in development of the 
Chapter 1 - HUD’s Management and Performance Challenges 4

Department’s resource management strategy is the 

implementation of the Total Estimation and Allocation 

Mechanism (TEAM). TEAM is the validation component of REAP and will collect actual workload accomplishments and staff usage data for comparison 

against the REAP baseline. TEAM implementation 

began in the spring of 2002. Our audit of the TEAM

process found the Department has made significant 

progress in developing and implementing the key 

components of its human resource management 

system. The next step is to apply these principles as 

decisions are made to hire new staff. 

The Congress expressed concern over HUD’s 

hiring practices. In the Conference Report for HUD’s 

FY 2003 Appropriation, the OIG was tasked to report 

to the Conference Committee by August 2003 on 

whether the Department’s hiring decisions were 

consistent with the Department’s staffing needs, 

program requirements, and personnel practices. On 

August 15, 2003, we issued a report to the Assistant 

Secretary for Administration and the Chief Financial 

Officer on our findings. Between July and September 

2002, HUD undertook a hiring effort known as “Staffing 9/30.” The goal of Staffing 9/30 was to quickly fill 

mission critical positions before the end of FY 2002. 

Staffing 9/30 was inadequately planned and directed. 

HUD did not use REAP and TEAM data in determining 

needs and hired about 300 staff over ceiling. The 

results of Staffing 9/30 were inconsistent with program requirements and staffing needs. Chapter 6 of 

this Semiannual Report discusses this audit report in 

more detail. 

FHA Single Family Origination and Real

Estate Owned (REO) Oversight

Procedures and practices in HUD’s Single Family 

Loan Origination Program have undergone considerable change, particularly in the last five years. The 

changes have been both programmatic and organizational, including significant changes in loan underwriting requirements and the transfer of virtually all 

aspects of single family production and program 

monitoring from HUD staff to lenders and contractors 

under the oversight of HUD’s Home Ownership 

Centers. 

Consistent with the GAO’s identification of Single 

Family Mortgage Insurance Programs as a high-risk 

area, the President’s Management Agenda has 

committed HUD to tackling long-standing management problems that expose FHA homebuyers to 

fraudulent practices. HUD is taking steps to protect 

homebuyers from a fraudulent practice known as 

“property flipping,” changes are underway to 

strengthen the property appraisal process, and other 

actions are being proposed to better disclose FHA

closing costs. 

The FHA financial audit reported a need to place 

more emphasis on monitoring lender underwriting 

and continuing to improve early warning and loss 

prevention for Single Family Programs. Recommendations were made to increase targeting of high-risk 

lenders to include the addition of 30- and 60-day 

delinquencies to the Default Monitoring System. A 

series of other recommendations were made to target 

lenders that would benefit from early intervention. 

FHA needs to increase its use and analysis of other 

data now available to improve lender monitoring. 

Timely identification of lenders with unacceptable 

early default rates is a key element of FHA’s efforts to 

target monitoring and enforcement resources to single 

family insured mortgages and lenders that represent 

the greatest financial risks to FHA. Potentially problem lenders must be identified before FHA can 

institute loss mitigation techniques and lender enforcement measures that can reduce eventual claims. 

During this reporting period, we issued an audit 

that covered a detailed statistical analysis of HUD/FHA

loan files to enable us to comment on the origination 

of HUD’s current portfolio of single family loans. We 

recommended ways for HUD to strengthen FHA loan 

performance through insurance endorsement policy 

changes. We also completed a review of two HUD

contractors that process insurance endorsements. 

Audit results showed that the contractors were not 

diligent in questioning the documentation that lenders 

submitted when the endorsement requests were late. 

We are currently expanding our review of HUD/FHA’s 

quality assurance process and related contractor 

services. More details on these reviews are covered 

in Chapter 2 of this Semiannual Report. 

During this reporting period, we also initiated 17 

lender audits nationwide based on a targeting strategy 

that identified lenders with poor performing FHA
Chapter 1 - HUD’s Management and Performance Challenges 5

portfolios. Results from one completed audit found 

significant lender underwriting deficiencies and 

irregularities involving mortgage brokers that were 

not FHA approved. We should complete the majority 

of these reviews early next year. 

Public and Assisted Housing Program

Administration

HUD provides housing assistance funds under 

various grant and subsidy programs to Public Housing 

Authorities (PHAs) and multifamily project owners 

(both nonprofits and for-profits). These intermediaries, in turn, provide housing assistance to benefit 

primarily low-income households. Administered by 

the Office of Public Housing, PHAs provide rental 

units to low-income families or make Section 8 

assistance payments to private owners who lease their 

rental properties to assisted families. The Office of 

Housing also administers a variety of Assisted 

Housing Programs, including parts of the Section 8 

Program and the Section 202/811 Programs. These 

subsidies are called “project-based” because the 

subsidy is tied to a particular property. Therefore, 

tenants who move from “project-based” properties 

may lose their rental assistance. HUD spent about $23 

billion in FY 2002 to provide rent and operating 

subsidies that benefited over four million households. 

Material weaknesses in the monitoring of PHAs 

and assisted multifamily projects were first reported 

in our financial audit in 1991 and continue to challenge HUD. Material monitoring weaknesses seriously impact HUD’s ability to ensure that its intermediaries are correctly calculating housing subsidies. A 

2000 HUD study found that 60 percent of all rent and 

subsidy calculations performed by administrative 

intermediaries contained some type of error. The 

Secretary has rightly made the reduction of subsidy 

overpayments a top priority of his Administration. 

HUD has set a goal for a 50 percent reduction in the 

frequency of calculation processing errors and the 

amount of subsidy overpayments by 2005. To achieve 

this goal over the next two years, HUD initiated the 

Rental Housing Integrity Improvement Project. This 

project is designed to reduce errors and improper 

payments by: (1) simplifying the payment process; (2) 

enhancing administrative capacity; and (3) establishing better controls, incentives, and sanctions. Paralleling this effort, our investigations and audits are 

concentrating on fraudulent practices in the Section 8 

Program. 

HUD continues to implement its performance 

oriented, risk based strategy for carrying out its PHA

oversight responsibilities. However, as noted in 

previous financial audits, further improvements need 

to be made in the Field Office monitoring of PHAs in 

other key areas. HUD began implementing a statutorily mandated monitoring effort of the Public Housing 

Assessment System (PHAS). PHAS provides a statistical measure of the quality of the housing stock, and 

has been successful in identifying troubled PHAs and 

helping Office of Public and Indian Housing management ensure corrective action. Likewise, a companion system, the Section 8 Management Assessment 

Program, has been able to identify problem providers 

of Section 8 assistance. However, full implementation 

of these systems has been delayed. HUD has not been 

able to establish the organizational structure and 

obtain relevant and reliable data to complete the 

monitoring process. Finally, HUD has been slow to 

implement additional strategies needed to improve 

quality control over rental assistance subsidy determinations. 

In prior years, we have also reported on longstanding weaknesses with the processing of subsidy 

payment requests under the project-based programs 

administered by the Office of Housing. Historically, 

this process has been hampered by the need for 

improved information systems to eliminate manually 

intensive review procedures that HUD has been unable 

to adequately perform. 

Housing staff or their Contract Administrators 

(CAs) are to perform management reviews to monitor 

tenant eligibility and ensure that accurate rents are 

charged at multifamily projects. The primary tool is 

to conduct on-site reviews that assess the owners’ 

compliance with HUD’s occupancy requirements. 

HUD’s continued implementation of the CA initiative 

resulted in a substantial increase in the total number 

of management reviews. However, a comprehensive 

plan needs to be developed that would result in an 

increase of on-site reviews that would assess and 

ensure that all owners of assisted multifamily projects 

comply with HUD’s occupancy requirements. 
Chapter 1 - HUD’s Management and Performance Challenges 6

HUD’s plans include a variety of continuing 

efforts. Principle among these are: continued implementation of the CA initiative; increased enforcement 

efforts; implementation of more targeted property 

inspections; increased frequency of management/ 

occupancy reviews for assisted projects; and development of an integrated risk reporting system. We 

support these efforts. 
Chapter 2 — HUD’s Single Family Housing Programs

Single Family Housing Programs are meant to provide mortgage insurance that enables individuals to

finance the purchase, rehabilitation, and/or construction of a home. 

Audits 

During this reporting period, the OIG issued eight reports; two internal audits, two internal 

memoranda, and four external audits in the Single Family Housing Program area. These reports disclosed 

nearly $360,000 in questioned costs, and almost $21 million in recommendations that funds be put to

better use. We conducted reviews of the practice of standardized credit scoring for mortgage loans, certain

Home Ownership Center activities, non-supervised mortgagee direct endorsement lender activities, HUD’s 

Asset Control Area Program, and HUD’s cash management practices for Title I loans. 

Single Family Reports Issued

2

2

4

Internal Audits Internal Memoranda External Reports

Single Family Housing Dollars

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

External Audits

Questioned Costs Funds Put to Better Use

Mortgage Loan Credit Scoring 

Industry use of standardized credit scoring for mortgage loans, such as those provided by Fair, Isaac 

and Co., (FICO) is widespread. However, FHA underwriting does not rely on these scores. Current

restrictions on bad credit are very flexible and often subjective. The subjective nature of the criteria can 

provide deserving families the opportunity for home ownership, but it can also be overly permissive and 

tolerant toward borrowers with bad credit histories. Credit scores provide evaluations of risk based on an

objective formula. Our observations demonstrate that lower credit scores, or loans without scores, have 

much poorer loan performance than other loans. Sub-prime lending contributes to higher mortgage

insurance premiums to the detriment of homebuyers who have maintained good credit. 

We reviewed a statistical sample of 1,180 FHA case files across the nation to assess underwriting 

practices and loan characteristics contributing to FHA loan performance. We observed a number of factors 

that correlate with performance, mostly those related to the credit worthiness of borrowers. By far the 

strongest correlation was with FICO credit scores. Although borrowers with average FICO credit scores 

under 620 made up only 24.7 percent of the sampled files with credit scores, they accounted for 47.1

percent of the defaults and 58 percent of the claims observed. 

Loans having borrower credit scores of less than 620 and loans that had no borrower credit score made up

30.1 percent of the sample. We consider these sub-prime loans. Based on these results, we are 90 percent

confident that sub-prime loans account for between 27.9 percent and 32.4 percent of the 2,840,549 single 

Chapter 2 - HUD’s Single Family Housing Programs 7
Chapter 2 - HUD’s Single Family Housing Programs 8

family FHA loans with beginning amortization dates

from October 1, 1997, to March 31, 2001. These

loans were responsible for 54.3 percent of all loans

that defaulted at least once, and 65.9 percent of all

claims observed in our sample. We did not have a

sufficient number of default occurrences in our

sample to accurately project the default rate of

specific categories of loans.

HUD has taken steps toward developing the

Technology Open To All Lenders (TOTAL)

scorecard, an automated underwriting system that

considers using credit scoring and systematic

confirmation of the borrower’s identity. FHA plans

to initiate the use of the TOTAL scorecard some time

in FY 2004.

We recommended that HUD: (1) collect and

track the credit scores in HUD systems to permit

future studies and targeting of quality assurance

activities; (2) consider streamlining the origination

and endorsement process; and (3) consider

strengthening endorsement procedures for loans

with extended delays in submission, especially

loans that have no credit scores. (Report No. 2003-

SE-0001)

Home Ownership Centers

We completed an audit of Horizon Consulting,

Inc., a Santa Ana, CA Home Ownership Center

(HOC) contractor performing insurance endorsement

reviews, and found that Horizon inappropriately

endorsed 112 of the 229 loans we reviewed. The 112

loans, valued at over $16 million, did not have the

required documentation for processing. Based on

these results, we are 90 percent confident that

Horizon Consulting improperly endorsed between

10,484 and 13,249 loans during FY 2001.

We recommended that the Assistant Secretary

for Housing-Federal Housing Commissioner seek

indemnification from the respective mortgagees for

the 83 loans, valued at over $12 million that are still

HUD insured where significant documentation was

missing. Additionally, we recommended that the

Assistant Secretary ensure that Horizon Consulting

improves its quality control procedures, and take

appropriate administrative action against Horizon.

(Report No. 2003-KC-1006)

We audited Management Solutions of America,

Inc., a Philadelphia, PA HOC contractor performing insurance endorsement reviews, and found that

Management Solutions inappropriately endorsed 51

of the 155 loans reviewed. The 51 loans, valued at

over $7 million, did not have the required documentation to insure loans submitted for endorsement

more than 60 days after closing.

We recommended that the Assistant Secretary

for Housing-Federal Housing Commissioner: (1)

seek indemnification for any of the 51 improperly

endorsed loans for which significant documentation

cannot be produced or where documentation, when

produced, indicates a deficiency according to HUD

handbook procedures; (2) ensure that Management

Solutions develops and implements procedures to

properly endorse future loans; and (3) take appropriate administrative action against Management

Solutions. (Report No. 2003-KC-1007)

During our audit of Management Solutions, we

identified an internal deficiency regarding HOC

instructions that differed from the HUD Handbook.

The HOC gave the endorsement contractor guidance

that deviated from the HUD Handbook for loans

submitted for insurance more than 60 days after

closing.

We recommended that the Director, Philadelphia HOC require its contractor(s) to follow the

requirements set forth in the HUD Handbook when

approving late loan submissions for endorsement or

request a formal waiver from Headquarters. (Report

No. 2003-KC-0802)

Non-supervised Mortgagee and

Direct Endorsement Activities

We completed an audit of Colban Funding, Inc.,

a non-supervised mortgagee in Liverpool, NY. The

review disclosed that 11 of 31 loans reviewed had at

least one significant underwriting deficiency. These

deficiencies included: (1) minimum investment not

provided; (2) not enough funds to close; (3) understated debt and underwriting ratios; (4) insufficient

gift information; (5) inaccurate closing documentation; (6) lack of verification of earnest money; and

(7) inadequate property valuation. We also found

that Colban is improperly allowing non-FHA ap-
Chapter 2 - HUD’s Single Family Housing Programs 9

proved entities to perform the loan origination

functions of FHA insured loans and has not documented actions taken to correct deficiencies cited as

a result of quality control reviews. These deficiencies could cause loans to go into default and subsequently result in mortgage assignments to HUD.

We recommended that HUD/FHA take appropriate action against Colban for not adhering to HUD’s

underwriting requirements, and require Colban to

indemnify HUD/FHA for all future losses pertaining

to the 11 loans valued at over $860,000. (Report

No. 2003-NY-1004)

In Greenwood Village, CO, we completed a

review of MortgageStream Financial Services, LLC

an FHA approved non-supervised direct endorsement lender, and found that MortgageStream did

not always exercise due diligence in the origination

and underwriting of FHA insured loans, or perform

these functions in accordance with HUD requirements and prudent lending practices.

MortgageStream did not adequately implement its

quality control process and was deficient in its

overall quality control activities. Furthermore,

MortgageStream did not administer or carry out its

non-supervised direct endorsement activities in

conformity with FHA approval requirements. Lastly,

MortgageStream was charging its borrowers an

ineligible fee and overcharging its borrowers on two

other fees. The reimbursed amount to the borrowers

and HUD for these ineligible and overcharged fees

totals nearly $142,000.

MortgageStream has shown improvement in the

areas of sending FHA insured loan packages to HUD

for endorsement in a timely manner, and making

wire transfers to HUD for up-front mortgage insurance premiums. While MortgageStream had problems in these two areas, the majority of the problems occurred within the first year of their existence. MortgageStream has taken positive corrective

action to eliminate these concerns.

We recommended that MortgageStream’s

participation in HUD’s Single Family Mortgage

Insurance Programs be closely monitored for the

next year. We also recommended that

MortgageStream indemnify HUD for the six FHA

insured loans addressed in the audit with unpaid

balances of over $940,000, and pay back all overcharged or ineligible fees associated with FHA

insured loans that MortgageStream originated and

underwrote. HUD should also take any administrative actions as deemed appropriate. (Report No.

2003-DE-1005)

HUD’s Asset Control Area Program

— Corrective Action Verification

Review

We performed a corrective action verification

review of the actions taken on the recommendations

in our nationwide audit report on HUD’s Asset

Control Area (ACA) Program, which was issued on

February 25, 2002. The review stemmed from a

Senate Committee Report that requested an audit of

HUD’s compliance with Section 1303 of Public Law

107-206. Our review disclosed that HUD has generally complied with Section 1303 of Public law 107-

206 by initiating actions on September 15, 2002, to

enter into new agreements and contracts with

program participants. Our review also disclosed

that HUD has taken required actions on the recommendations in our audit report on the ACA, with the

exception of those relating to implementing regulations and providing training on the ACA Program.

We recommended that HUD reevaluate and

adjust the final action target date for implementing

the regulations for the ACA Program and ensure that

all appropriate training is provided to HUD employees and program participants during FY 2004. We

also recommended that HUD continue to pursue

approval of its proposed legislative changes to the

ACA Program. (Report No. 2003-NY-0801)

Cash Management Practices for

Title I Loans

In Washington, DC, the OIG audited the cash

management practices used by HUD’s Cash Management Branch (CMB) to process Title I loan remittances. We evaluated CMB’s handling of Title I

remittances paid by check between October 1998

and January 2003. We found that CMB has made

significant progress in improving its cash management practices. However, during the audit period,

CMB did not ensure that Title I remittances were

properly handled, processed, and applied. Specifi-
Chapter 2 - HUD’s Single Family Housing Programs 10

cally, remittances totaling over $600,000 were not

applied to debtors’ accounts; at least $88,000 in

payments were not deposited timely; and CMB did

not adequately account for negotiable instruments

or monitor the process used by Bank of America to

process Title I payments.

We recommended that FHA’s Deputy Comptroller improve its cash management and monitoring

practices to ensure that Title I remittances are

adequately handled, processed, and applied. FHA

agreed with our recommendations and has initiated

action to correct the noted deficiencies. (Report No.

2003-AO-0003)

Investigations

During this reporting period, the OIG opened

328 investigation cases and closed 189 cases in the

Single Family Housing Program area. Final judicial

action taken on these cases during the period

included $208,308 in recoveries/receivables,

$298,808,213 in restitution, $70,760 in fines, 84

convictions, pleas, and pre-trial diversions, 135

indictments/informations, 103 administrative sanctions, 206 arrests, and 1,128 months in prison.

Some of the investigations in this report were

conducted by the OIG while others were conducted

jointly with federal, state, and local law enforcement agencies. The results of our more significant

investigations are described below.

Loan Origination

In Detroit, MI, two officers of MCA Financial

Corporation were sentenced in Federal Court for

the Eastern District of Michigan. Defendants Keith

Pietila, the former chief financial officer, and

Alexander Ajemian, the former controller, were

each sentenced to 48 months incarceration and 36

months supervised release, and ordered to pay

$256.6 million in restitution. Pietila, Ajemian and

other co-defendants will pay the restitution jointly

in this case.

Patrick Quinlan and John O’Leary are scheduled to go to trial. The other co-defendants, Cheryl

Swain, Kevin Lasky, and Lee Wells, previously pled

guilty and are awaiting sentencing. MCA Financial

Corporation owned and operated two subsidiaries,

MCA Mortgage Corporation, an FHA direct endorsement lender, and Mortgage Corporation of

America. In addition, they controlled Detroit

Revitalization, Inc., a HUD approved nonprofit. The

defendants participated in a scheme in which they

fraudulently sold investments in mortgages and land

contracts they had acquired and assembled into

investment pools. This was made possible by

misrepresenting to current and potential investors

the performance of earlier pools and fraudulently

inflating the value of the mortgages and land contracts through a series of transfers between MCA and

off-book limited partnerships. HUD was led to

believe by MCA’s annual direct endorsement certifications that the financial health of the company was

in stable condition, when in fact the certifications

were grossly inflated. This allowed the defendants

to continue originating loans and obtaining origination fees to which they otherwise should not have

been entitled.

Defendant Victor Jesus Noval, an associate of

Allstate Mortgage Company, was sentenced in Los

Angeles, CA, in Federal Court for the Central

District of California, to 57 months incarceration

and ordered to pay $20,733,000 in restitution.

Defendants Edgardo Torres Guinto and Danilo

Torres Guinto were each sentenced in the same

court to 37 months incarceration and ordered to pay

$5,863,714 in restitution to HUD. The defendants

engaged in a single family property flipping and

loan origination fraud scheme by locating multi-unit

residential properties in the $100,000-$150,000

value range. They then entered into contracts to

purchase the properties in the names of fictitious

persons. While the transactions were pending,

second sales contracts were prepared for the same

properties, purporting to transfer them to other

fictitious persons. The second sales were inflated by

approximately $100,000 per property. The defendants then prepared fraudulent loan applications in

the names of fictitious purchasers for the second

sales and submitted the documents to HUD. The

mortgage insurance applications in the names of the

fictitious purchasers contained false employment

documents, verifications that the down payments

were made with the buyers’ personal funds or were

gifts, and inflated real estate appraisals. Noval’s
Chapter 2 - HUD’s Single Family Housing Programs 11

actions caused approximately $100 million in

fraudulent loans to be funded. Of this amount,

approximately $35 million were funded with FHA

insured mortgages. The Guintos subsequently

managed the properties and collected rent payments

from the tenants.

In Chicago, IL, in Federal Court for the

Northern District of Illinois, defendants David

Guel, president, and John Wojick, office manager,

for Dollars Express, Inc., were sentenced after

pleading guilty to mail and tax fraud. Guel, a

seller/general contractor, and Wojick, a legal

representative, along with co-conspirators Dawn

Raimo, an insurance representative/mortgagor/

notary public, Arnold Gillard, a building superintendent, Steve Lucas, a maintenance engineer,

Mark Schmitt, an appraiser/inspector, and Robert

Bronke, a salesman/recruiter, spearheaded a real

estate scam involving HUD’s Section 203(k) Rehabilitation Home Mortgage Insurance Program,

which targeted the south side of Chicago. As part of

their scam, Guel, Wojick, et al, actively recruited

“investors” to participate in their scam, promising

great financial returns. Section 203(k) draw requests were made for work that was never completed, and in some cases, for homes that had

already been demolished when the draws were

made. A total of 72 HUD insured 203(k) mortgages

were involved in the scam, during which the First

Tennessee Bank was defrauded out of $6,384,678.

Guel was sentenced to 48 months incarceration

and 60 months supervised release, and was ordered

to pay $4,218,497 in restitution. This restitution

figure is joint for all subjects in this case. Wojick

was sentenced to 42 months incarceration and 60

months supervised release. The HUD Quality

Assurance Division provided a significant amount

of technical support in this case.

Defendant Mark Schmitt, an appraiser, pled

guilty in the same court to one count of mail fraud

and one count of tax fraud. Schmitt’s guilty plea

followed a 29-count indictment that outlined his

involvement in the complex fraud scheme.

In a related case, defendant Mark Carter was

sentenced in Chicago, IL, in Federal Court for the

Northern District of Illinois, to 15 months in prison

and three years probation, and was ordered to pay

$386,000 in restitution. Defendant Terry Cody was

sentenced to 24 months in prison and three years

probation. Carter and Cody, along with Maurice

Cody and Mark Schmitt, were previously indicted

for their participation in a scheme to defraud the

First Tennessee Bank and HUD by assisting an

unqualified buyer in purchasing four FHA insured

properties using fraudulent documents.

Specifically, Carter admitted to signing false

verifications of employment enabling an unqualified

buyer to qualify for the loans. Carter and Cody also

acted as contractors, and falsely certified affidavits,

lien waivers, and draw requests that rehabilitation

work was completed when in fact no work had been

done. As a result of their false certifications,

rehabilitation money for these properties was

released. After the properties went into foreclosure,

they were demolished by the City of Chicago.

HUD’s losses in this case exceed $250,000.

Defendant William Otto Schmidbauer, a real

estate broker doing business as Schmidbauer Realty,

was sentenced in Baltimore, MD, in Federal Court

for the District of Maryland, to one year incarceration and three years probation, was fined $10,000,

and ordered to pay $2,513,882 in restitution to HUD

for his role in a property flipping scheme.

Schmidbauer also agreed to forfeit $690,000 in

gross profits that he realized from the home sales.

An investigation disclosed that, from 1998 through

2000, Schmidbauer prepared and caused others to

prepare and/or submit numerous false and fraudulent documents to various lenders in connection

with applications for FHA insured loans under the

First-Time Homebuyers Program. Among the

fraudulent documents were verifications of employment and rent, drivers’ licenses, Social Security

cards, pay records, W-2 forms, and letters evidencing credit accounts of the purchasers with various

companies. Donald Hanson, Jr., a licensed real

estate broker, was also sentenced in the same court

to four months home detention and three years

probation, and ordered to pay $147,000 in restitution to HUD for his role in assisting in the scheme.

Hanson was the loan officer in a series of FHA loan

transactions in which he certified that he met buyers

face-to-face as part of the mortgage application

process when in fact he did not. Schmidbauer often

bought properties in poor condition at low prices
Chapter 2 - HUD’s Single Family Housing Programs 12

and quickly sold them at much higher prices. The

effect on neighborhoods preyed upon by

Schmidbauer has been devastating and has accelerated their decline.

Eighteen individuals have already pled guilty

and been sentenced in this case, including loan

officers, real estate agents, and straw purchasers. At

least 48 of the 58 FHA insured mortgages involving

Schmidbauer have gone into foreclosure with losses

to the FHA insurance fund of approximately $3

million. This investigation received considerable

media attention and was closely followed by Members of Congress.

In Newark, NJ, defendants Robert Jordan,

Peter Tortorelli, Marlene Schill, Philip Noce, and

Raul Torres were each sentenced in Federal Court,

District of New Jersey, for mail fraud and conspiracy. Jordan and Tortorelli, principals and

underwriters of County Mortgage Company, Inc.,

and Torres, a real estate broker, were each sentenced to three years supervised release, each

by: John B. O’Donnell, The Baltimore Sun, April 25, 2003

ordered to pay $2,408,614 in restitution, and fined

a total of $10,100. Schill, a loan officer, and Noce,

a closing attorney, were each sentenced to nine

months home arrest and five years probation. They

were also ordered to pay $2,408,614 each in restitution. All five defendants were ordered not to engage

in any real estate or mortgage business for various

periods of time. An investigation disclosed that the

individuals engaged in a scheme to fraudulently

obtain over 40 FHA insured loans for ineligible

borrowers. The scheme, which resulted in over $2.4

million in losses to HUD, involved the falsification

of federal income tax returns, gift letters, attorney

gift certifications, verification of employment and

rent documents, and credit explanation letters.

Properties were flipped and the proceeds of the

sales were divided among the conspirators.

In Chicago, IL, in Federal Court for the

Northern District of Illinois, defendant Michael

Weathersby, an investor/property rehabilitation

specialist, was sentenced to 42 months in prison

and three years supervised release, and ordered to

pay a $200 special assessment and $2,078,177 in

restitution to various mortgage companies for his

involvement in a mortgage fraud scheme.

Weathersby previously pled guilty to one count of

wire fraud and one count of money laundering. He

masterminded and participated in a scheme to

defraud mortgage lenders of approximately $2

million in mortgage loan proceeds by false and

fraudulent misrepresentations. Specifically,

Weathersby located properties in Chicago that

appeared to be abandoned, illegally transferred

ownership of the properties by filing fraudulent

deeds, and then sold the properties to various

strawbuyers. He continued the scheme by directing

title companies to issue the proceeds of the loan

closings in various aliases and his company’s name

in order to launder the profits. In one instance, he

purchased a luxury vehicle with the proceeds.

Weathersby later devised a scheme to defraud the

Chicago Housing Authority Corporation, a housing

authority in Chicago, out of approximately $28,000

in rent subsidy payments for tenants living in two of

the properties he illegally obtained.

Defendants Christopher Woods, former president, and Matt Amento, former loan officer, of
Chapter 2 - HUD’s Single Family Housing Programs 13

Main Street Mortgage Services in Saddlebrook,

NJ, were sentenced in Federal Court, District of

New Jersey. Woods received one year and one day

in prison and three years probation, and was ordered to pay $774,806 in restitution and a $200

special assessment fee. Amento received five

months incarceration, five months home detention,

and three years probation, and was ordered to pay

$774,806 in restitution and a $100 special assessment fee.

Defendant Tameka Watson, also known as

Temeko Watson, Tameko Sylvester, and Tameka

Sylvester, also a former loan officer for Main Street

Mortgage Services, was sentenced in the same

court. Watson received 15 months incarceration and

three years probation, and was ordered to pay

$389,881 in restitution and a $1,100 special assessment fee.

These individuals, along with co-conspirators

Ralph Pena, Axel Bonilla, and Laura Barlow, set up

phony businesses that purchased dozens of properties that were later flipped at inflated values to

borrowers. The borrowers’ real income and assets

were not sufficient for them to qualify for FHA

insured mortgages; therefore, Woods and his coconspirators created fraudulent mortgage credit

documents that showed inflated income and assets.

In Chicago, IL, in Federal Court for the

Northern District of Illinois, defendants Kay Elliott,

John Simmons, and Dante D. Samson, borrowers,

were sentenced on one count of mail fraud after

pleading guilty to their participation in a fraud

scheme involving 100 properties with $5.7 million

in loans. Elliot was sentenced to 12 months and one

day in prison and two years probation, and was

ordered to pay $706,099 in restitution. Simmons

was sentenced to four months home confinement

and three years probation, and was ordered to pay

$241,950 in restitution.

The scheme involved Theresa Holt, a current

fugitive and former employee of North East Austin

(a HUD approved nonprofit), who started her own

business known as Share Development Corporation.

Share acquired numerous properties, some of which

were obtained through HUD’s Direct Sales Program

and North East Austin, and resold them. Many of

the mortgage loan applications contained inflated

employment information, including information that

some buyers worked for Share Development and

North East Austin. In addition, buyers and loan

officers were paid $3,000 to $4,000 outside of

closing for purchasing these properties.

In Chicago, IL, in Federal Court for the

Northern District of Illinois, three individuals were

sentenced and another pled guilty to activities in a

mortgage fraud scheme. Joyce Primous, a notary

public, was sentenced to three years probation and

ordered to pay $614,462 in restitution to various

mortgage companies. Defendant Cathleen Smith, a

strawbuyer and strawseller, was sentenced to five

years probation and ordered to pay $174,356 in

restitution to various mortgage companies.

Defendant Richard Thomas, a real estate

broker, was also sentenced to three years probation

and 200 hours of community service for his role in

fraudulently originating FHA insured loans. Specifically, Thomas falsified verifications of employment

for a buyer at the request of the loan officer, Anthony Culpepper. Defendant Brodge Hurst, a

strawseller, pled guilty to one count of wire fraud.

Primous conspired with co-defendants Michael

Weathersby and Jermaine Weathersby, her nephews,

to defraud mortgage lenders out of approximately

$2 million in mortgage loan proceeds by false and

fraudulent misrepresentations. Specifically, the codefendants located properties in Chicago that

appeared to be abandoned, illegally transferred

ownership of the properties by filing fraudulent

deeds, and then sold the properties to various

strawbuyers. Primous improperly notarized the

signatures of the co-defendants, who signed the

deeds by using multiple aliases.

Defendant Edward Lamborin was sentenced in

Santa Ana, CA, in Federal Court for the Central

District of California, after pleading guilty to wire

fraud. He was sentenced to two years probation,

fined $5,000, and ordered to pay a $200 special

assessment fee. Lamborin’s co-conspirators, defendants Valencia Bray and Keith Taylor, were also

sentenced for wire fraud. Bray received two years

probation, was fined $2,000, and was ordered to

pay a $100 special assessment fee. Taylor received

three years probation, was fined $5,000, and was
Chapter 2 - HUD’s Single Family Housing Programs 14

ordered to pay a $100 special assessment. Lamborin

and Bray assisted unqualified borrowers in obtaining FHA insured loans. They contacted forgers to

prepare false income and credit related documentation for the buyers, and used these documents to

prepare fraudulent loan applications. These applications were ultimately submitted to FHA.

In a related scheme, defendant Charles Sims

was sentenced in U.S. District Court, Santa Ana,

following a plea of guilty to one count of HUD loan

fraud. Sims was sentenced to two years probation,

fined $500, and ordered to pay a $100 special

assessment. Defendant Jose Cotero was sentenced

in the same court following a plea of guilty to one

count of wire fraud. Cotero was sentenced to one

year and one day in prison; three years supervised

release, and a $100 special assessment. He was also

ordered to pay $276,071 in restitution.

In this same case, three additional defendants

were sentenced on wire fraud charges. Defendant

James Frost was ordered to pay $336,500 in restitution to HUD and a $100 special assessment, and was

fined $20,000. Defendant Daniel Flores was

ordered to pay a $2,500 fine and a $100 special

assessment. Defendant Anthony Ponce was sentenced to three years probation, including 50 hours

of community service, and a $1,000 fine. Defendant Roger Alvarez also pled guilty to two counts of

wire fraud.

Defendants John Dancy and Anthony Zapien

were sentenced in the same court following pleas of

guilty to two counts each of wire fraud in connection with a scheme to defraud HUD. Dancy was

sentenced to two years probation on each count,

with sentences to run concurrently. He was also

fined $2,250 and ordered to pay a $100 special

assessment. Zapien was sentenced to five months

imprisonment followed by three years supervised

release, and was ordered to pay $36,714 in restitution and a $200 special assessment. Zapien and

Dancy, licensed real estate agents in the State of

California, assisted unqualified borrowers to obtain

FHA insured home loans. They contacted forgers to

prepare false and fabricated income and credit

related documentation for buyers whom they

represented. The defendants then prepared fraudulent loan applications, which were ultimately

submitted to HUD.

Defendants Christine Neal and Rondal Rollin

pled guilty in the same court to one and two counts

of wire fraud, respectively, in connection with a

scheme to defraud HUD. Neal and Rollin, licensed

real estate agents in the State of California, were

previously indicted on charges of assisting unqualified buyers to obtain FHA insured home loans. The

defendants contacted forgers to prepare false and

fabricated income and credit related documentation

for the buyers, and then prepared fraudulent loan

applications which were submitted to HUD.

In Seattle, WA, in U.S. District Court for the

Western District of Washington, defendant Mario

Figueroa was sentenced to 151 months imprisonment and five years supervised release, and ordered

to pay $330,147 in restitution. Also sentenced was

defendant Jaime Abrego, who received 12 months

imprisonment and three years supervised release,

and was ordered to pay $231,010 in restitution. A

third defendant, Leslie Reisig, was previously

sentenced. These sentencings followed a two-week

jury trial in which the three subjects, Reisig,

Figueroa, and Abrego, were convicted of conspiracy, mail fraud, wire fraud, and bank fraud in a

scheme to defraud HUD, lending institutions, and

vulnerable Spanish speaking individuals. The

defendants arranged sham sales of single family

residences using strawbuyers to obtain homes for

their personal benefit and/or to obtain a portion of

the mortgage proceeds. Reisig and Figueroa pled

guilty to an additional count of mail fraud in March

2003 committed in the Eastern District of California, where the subjects had relocated to continue

their scheme.

In Atlanta, GA, defendants Glenn Melvin

Allen and Sandra R. Rice were sentenced in Federal

Court, Northern District of Georgia, for conspiracy

to commit mortgage fraud. Allen was sentenced to

one and one-half years in prison and three years

supervised release, and was ordered to pay

$142,378 in restitution. Rice, who was also charged

with wire fraud, was sentenced to one year and

three months in prison and three years supervised

release, and was ordered to pay $357,624 in restitution. Allen, a former Atlanta based manager of

Banker’s Financial Group, a Greenbelt, MD

mortgage brokerage firm, submitted false qualifying
Chapter 2 - HUD’s Single Family Housing Programs 15

documentation for borrowers to obtain FHA insured

home loans. Rice was a real estate agent with Re/

Max of Atlanta who was recruited to assist in a

widespread flipping scheme. Rice assisted unqualified strawbuyers by finding properties for them in

the Atlanta area, realizing a sales commission on

each sale. She attended the closings for these sales

in order to generate more sales from the same

homes at a later time with other unqualified buyers.

A criminal complaint was filed in the same

court against defendants Reginald B. Harris and

Alicia M. Goens for identity theft, bank fraud, wire

fraud, and use of false Social Security numbers.

The complaint includes allegations against Harris

for his involvement in executing a scheme to defraud mortgage lenders and federally insured

financial institutions, and causing false borrower

qualifying information to be submitted, including

names, Social Security numbers, and other identification.

In Federal Court, Eastern District of Missouri,

defendant B.C. Witt of St. Louis, MO, was sentenced to 22 months in prison and ordered to pay

$441,045 in restitution. Witt previously pled guilty

to an information charging him with conspiracy to

commit mail fraud. He admitted providing false tax

returns and other false documents to Preston

Randall, who owned and operated a company called

HyRizing Investments. HyRizing Investments purchased dilapidated homes and sold them to

strawbuyers, using the identities of individuals with

good credit without their knowledge. Randall paid

Witt, who worked as a car salesman, to provide

false tax returns and other false documents to make

sure the strawbuyers qualified for the loans. This

mortgage fraud conspiracy caused losses to mortgage companies in excess of $650,000. Along with

false income documents, Witt also provided a false

Social Security card to an FHA loan recipient;

however, there was no loss incurred on this loan.

Along with Witt and Randall, Latina Randall and

Jessie Gator were previously sentenced in this case.

Defendant Pedro Leon Palemon Sanchez was

sentenced in Los Angeles, CA, in Federal Court for

the Central District of California, to five months in

prison, five months home detention with a monitor,

and three years supervised released, and was

ordered to pay $427,000 in restitution. Defendant

Francisco Arana, a loan officer for Progressive

Loan Funding, pled guilty in the same court to one

count of wire fraud for his part in the scheme.

Sanchez, along with Alejandro Morales, a loan

officer associated with Trinity Mortgage in Covina,

CA, conspired to defraud HUD by recruiting and

selling FHA insured properties to unqualified

buyers. Since the purchasers did not have adequate

income or sufficient down payments to purchase the

properties, fraudulent mortgage applications were

completed and submitted in the names of buyers

and co-signers that contained false employment

documents, false verifications that the down payments were either made from the buyers’ personal

funds or were gifts from relatives, false explanation

letters concerning the relationships of the co-signers

to the buyers, and false notarizations of the signatures of the buyers and co-signers. These fraudulent

documents resulted in a loss to HUD of $892,000

and caused at least $2 million in fraudulent loans to

be funded with FHA insured mortgage loans.

Sanchez was previously convicted on conspiracy

and wire fraud. Morales pled guilty to his part in

the scheme.

Defendant Ala Tabatabai pled guilty in the same

court to one count of conspiracy and one count of

wire fraud. Tabatabai was the owner of the Performance Funding Group, and as a loan representative

for First Prestige Funding, he assisted Sanchez in

submitting fraudulent loan applications to HUD. In

this part of the scheme, Sanchez purchased residential properties for the purpose of resale. Sanchez,

with the assistance of David Garcia and Salvador

Silva, recruited potential buyers who often did not

qualify for FHA insured mortgage loans. Sanchez

and Tabatabai caused fraudulent mortgage applications to be completed and submitted for FHA loan

approval. Tabatabai’s actions resulted in a loss to

HUD of $443,680.

Defendant James Thomas Patterson, a former

loan officer for Central Pacific Mortgage Corporation, was sentenced in Atlanta, GA, in U.S.

District Court for the Northern District of Georgia,

to five months in prison and five months home

confinement, and was ordered to pay $369,000 in

restitution for his role in flipping seven properties.

Patterson recruited borrowers who purchased the
Chapter 2 - HUD’s Single Family Housing Programs 16

properties with mortgages obtained from Central

Pacific that were grossly inflated. Each property

had an inflated appraisal that valued it for approximately twice the fair market value. Patterson also

conspired with Chalana McFarland, the closing

attorney, in helping her launder the ill-gotten gains

by setting up a shell corporation to disburse funds

to the co-conspirators.

In Philadelphia, PA, defendants Shawn

Huntzinger, a former Avstar Mortgage Corporation

(AMC) loan officer, and Philip Horvath, a former

HUD official and AMC underwriter, were both

sentenced in U.S. District Court, Eastern District

of Pennsylvania, to six months electronic monitoring/home detention and 60 months supervised

release, and were each ordered to pay $204,822 in

restitution to HUD. Defendant Twila Nazario, a

former real estate investor, was sentenced to three

months electronic monitoring/home detention and

60 months supervised release, and was ordered to

pay $107,037 in restitution to HUD.

An investigation disclosed that Huntzinger,

Horvath, and Nazario illegally issued FHA insured

loans valued at more than $2 million. To date, HUD

has paid over $500,000 on default claims as a result

of the scheme. The investigation also found that the

defendants used three bogus companies to purchase

residential properties in Reading, PA, and then

renovated the properties before reselling them, at

substantially increased prices, to buyers with FHA

insured mortgages. The homebuyers were Hispanic,

low-income, first time buyers, some of whom were

not even aware they had purchased properties but

thought they were renting. The unsuspecting buyers

were supplied with fictitious loan origination

documents, including verifications of employment,

credit histories, gift letters, and down payment

information, in order to give the appearance that

they were qualified. This investigation is particularly significant because Horvath is a former HUD

employee.

In Phoenix, AZ, in Federal Court for the

District of Arizona, defendant Marco A. Vasquez, a

former American Financial Resources, Inc. (AFR)

loan officer and branch manager, was sentenced to

33 months in prison and three years probation, and

was ordered to pay $180,363 in restitution to HUD.

Vasquez was also prohibited from working with

government insured home loans upon his release

from prison. Vasquez previously pled guilty to one

count of conspiracy for his part in a scheme to

submit false statements to HUD. An investigation

disclosed that, from mid 1999 through early 2001,

Vasquez prepared 53 FHA insured home loan

packages, with insured mortgages totaling $4.9

million, which contained falsified wage documents.

The investigation further disclosed that, while he

was a branch manager, Vasquez prepared false wage

documents and obtained falsified credit reports for

loan officers in his AFR branch office. These documents were used to qualify the loan officers’ clients

for FHA insured loans. There were a total of 138

FHA insured loans involved in the scheme with

insured mortgages totaling $11.9 million. Nine

loans have gone into foreclosure with a loss to HUD

of $180,363.

Defendants Enrique Estrada Recendiz and

Maria Elena De La Riva, real estate agents, were

also sentenced in the same court. Recendiz was

sentenced to six months home confinement and five

years probation, and was fined $1,000. De La Riva

was sentenced to five years probation. Recendiz and

De La Riva were ordered to make joint restitution

to HUD in the amount of $35,216. The defendants

previously pled guilty to one count each of submitting false statements to HUD. An investigation

disclosed that Recendiz and De La Riva, with the

assistance of former AFR loan officer José Alvarado,

submitted a falsified loan application and wage

documents to HUD, which enabled Recendiz to

obtain a $120,903 FHA insured mortgage under the

name Enrique Estrada and an assumed Social

Security number. The mortgage subsequently went

into foreclosure, resulting in a loss to HUD of

$35,216.

Defendant Amelia Arias was sentenced in Los

Angeles, CA, in Federal Court for the Central

District of California, after pleading guilty to five

counts of wire fraud and five counts of making false

statements to HUD. Arias was sentenced to 10

months incarceration and three years supervised

release, and was ordered to pay $142,000 in restitution to HUD. Arias, a real estate agent for CR

Homes Realty and Sunrise Realty & Investments in

San Bernardino, CA, caused false documents to
Chapter 2 - HUD’s Single Family Housing Programs 17

be submitted to HUD concerning FHA insured loans.

The loans were originated based on this false

documentation. The loans have a total value of

approximately $1.6 million, and the loss to HUD is

more than $206,000. Arias’ sentencing was part of

a larger investigation which revealed that the

owners of April 8 Realty in La Puente, CA, fabricated and sold thousands of false loan support

documents to numerous real estate agents.

Defendant Hector Rosales Contreras pled guilty

to two counts of wire fraud. Contreras caused

$2,763,294 in fraudulent FHA insured loans to be

submitted to various commercial lending institutions and HUD. The total loss to HUD in this case

was $1,360,676. Contreras’ plea was part of the

larger investigation.

Defendant Hector Flores was indicted on four

counts of wire fraud and four counts of false statements. Flores worked as a loan processor/loan

officer for Omega Financial Services and Greenback Funding. He allegedly caused false documentation to be submitted to HUD concerning FHA

insured loans. The loans, valued at $431,211, were

based on this false documentation. The loss to HUD

is approximately $202,000. Flores is the 26th

person charged in this investigation. To date, 24

defendants have pled guilty, and one is awaiting

trial.

In Dallas, TX, in Federal Court for the Northern District of Texas, defendant Lawrence Holste,

also known as Jeffie L. Miller, Jr., owner and

president of Infinity National Mortgage Corporation, was the first of three loan officers sentenced

after pleading guilty to one count of making false

statements to HUD. Holste was sentenced to 15

months in prison and three years supervised release, and was ordered to pay $93,701 in restitution

to HUD and a $100 special assessment fee. Defendants Shirley Miller, Infinity’s office manager, and

Barbara Ann Jackson, a loan officer with Infinity,

pled guilty in the same court.

These actions are the result of an investigation

into single family loan origination fraud during

which loan officers of Infinity caused false documents to be submitted in order to obtain FHA

insured loans for unqualified borrowers. The loan

officers provided buyers with false pay stubs, W2’s, verification of employment forms, and wage

and income verification statements. Infinity acted as

a loan correspondent for various sponsoring lenders. These lenders provided the underwriting and

the actual funding of the loans. Infinity originated

over $11 million in loans; the total loss, to date, is

in excess of $700,000. The three individuals have

also been suspended from future participation in

procurement and non-procurement activities with

HUD and the Executive Branch as of July 29, 2003.

Defendant Richard Craig Saxton pled guilty in

Los Angeles, CA, in Federal Court for the Central

District of California, to conspiracy, aiding and

abetting, causing an act to be done, and submitting

false statements. Saxton worked as a real estate

investor and escrow officer, doing business as

Golden State Escrow. He flipped properties, provided down payments for borrowers, falsely certified documents, conspired to defraud the government, and caused the loss of over $1 million to

HUD. At the time of Saxton’s plea, restitution was

set at approximately $712,000.

In Greenbelt, MD, in Federal Court for the

District of Maryland, defendant Richard Boetang, a

property speculator, was sentenced to 15 months

incarceration and one year probation for his role in

a property flipping scam. From March 1998 to

early 2000, Boetang purchased properties and then

sold them within a short period of time to third

parties at a profit. Most of the properties had FHA

insured mortgages. Boetang also assisted third-party

buyers to purchase their homes by creating false

documents to support the loans. Boetang was able

to create, sometimes with the assistance of others,

false verifications of employment, pay stubs, W-2’s,

and gift letters purporting to show a sum of money

designated as a gift from buyers’ relatives when in

fact the money was supplied by Boetang. The loss

to the government in this scheme is approximately

$1.5 million.

In New York, NY, defendant Jean Rudolph

Lavanture, also known as Rudy Lavanture, of

Intrust Investment Realty and Garden State Investment, was convicted in Federal Court, Southern

District of New York, and sentenced to 12 months

in prison for false advertising or misuse of names to
Chapter 2 - HUD’s Single Family Housing Programs 18

indicate a federal agency. Lavanture also received

12 months probation and was ordered to pay

$77,200 in restitution to his victims. Among other

ventures, Lavanture operated an unlicensed real

estate business as a speculator and used these

entities to scam investors out of over $1 million. He

advertised his investment schemes in the New York

Times and other newspapers with the promise of 30

to 70 percent returns within three months on “risk

free” opportunities. Lavanture assured the potential

investors that he had a special relationship with

HUD and was able to acquire foreclosed properties

at reduced prices and then flip them for large gains.

In order to support his claims of being associated

with and authorized by HUD, Lavanture filed a

Certificate of Assumed Name with the State of New

York, listing his business as DBA HUD, and opened a

bank account under the business initials H.U.D. The

duped investors made checks out to H.U.D. for the

properties that Lavanture acquired for them.

Lavanture used these funds for his personal benefit.

Lavanture is currently serving a two- to six-year

sentence in the State of New York for real estate

securities fraud as well as grand larceny (second

degree) for his part in the real estate fraud. Additionally, Lavanture will follow up the State sentence

with two years in federal custody for violating his

federal probation on an earlier conviction for credit

card fraud.

In Chicago, IL, in Federal Court for the

Northern District of Illinois, defendant Harrison

Jeffries was sentenced to three years probation, the

first four months of which are to be served as home

confinement with electronic monitoring. Jeffries

was also ordered to pay $9,718 in restitution and a

$100 special assessment. As a condition of his

probation, Jeffries must undergo a mental heath

evaluation and cannot file for bankruptcy or participate in a real estate transaction without approval

from the Court. From 1990 to 2000, Jeffries was

part of a scheme to defraud HUD by obtaining two

FHA insured loans for the same property under two

different names and subsequently filing 16 bankruptcy petitions. He was able to file the bankruptcy

petitions by using four different aliases and Social

Security numbers in an attempt to forestall the

foreclosure process regarding one of his properties.

Defendant Twannette Holland, a real estate

agent, was sentenced in Norfolk, VA, in Federal

Court for the Eastern District of Virginia, to 21

months in prison and one year supervised release,

and was ordered to pay $9,071 in restitution to HUD

and a $100 special assessment fee. The total loss to

HUD was $81,872.

Holland was involved in at least seven fraudulent real estate transactions. The total value of the

loans involved was $898,136. Each transaction

contained numerous false statements in the FHA

case binder, including false pay statements, W-2

forms, tax returns, bank statements, credit documents, and gift letters. To qualify for FHA insured

mortgages, Holland created fictitious identities for

some of her home purchases. On at least one

purchase, Holland used the name and Social Security number of a minor. In another case, she used

the identity of her deceased mother-in-law. To

execute the schemes, Holland created fraudulent

power of attorney documents. In some instances,

she assisted homebuyers who were unable to

purchase a home because of their poor credit

standing. In other instances, Holland resided in the

properties she purchased but failed to make the

mortgage payments. To forestall foreclosure proceedings and to allow her or others to live in the

properties for a longer period of time, Holland

fraudulently filed for bankruptcy under the names

of the minor and the fictitious identities, including

the name of her deceased mother-in-law. Holland

resold one property to another fraudulent identity in

a pre-foreclosure sale and continued living in the

property.

Defendants Timothy W. Burke and Paul Ligas

were sentenced in Newark, NJ, in Federal Court

for the District of New Jersey, after pleading guilty

to one count of conspiracy to commit equity skimming and mail fraud. Burke was sentenced to 60

months incarceration, three years probation, a

$10,000 fine, and a $100 special assessment fee.

Ligas was sentenced to 57 months incarceration,

two years probation, and a $100 special assessment

fee. The defendants admitted that between 1993 and

1999, they participated in a conspiracy to defraud

homeowners who had defaulted on their FHA

insured mortgages or had fallen behind on payments. More than 100 homeowners deeded their
Chapter 2 - HUD’s Single Family Housing Programs 19

homes to Burke and Ligas, who began collecting

rents from the persons living in the properties,

failed to make the mortgage payments, and allowed

the properties to go into foreclosure. The scheme

netted the two over $1.4 million.

A Federal Judge in the Northern District of

Illinois ordered a judgment of forfeiture of six

Chicago, IL properties belonging to attorney

Robert Voltl to partially satisfy a forfeiture judgment amount of $1,658,073. In addition, the Judge

imposed Voltl’s final sentencing order consisting of

63 months imprisonment and three years supervised

release. Voltl is also ordered to pay restitution in the

amount of $3,862,844.

In Voltl’s capacity as a real estate attorney, he

participated in approximately 80 fraudulent property flip deals between late 1995 and early 1998.

Of the 80 deals, 30 properties were FHA insured. In

total, 49 properties went into foreclosure. HUD

suffered losses on 15 of these properties. As a

result of the investigation, 20 subjects were federally convicted. Voltl is the last subject to be sentenced.

Marvis “Swamp Dog” Bownes pled guilty in

East St. Louis, IL, in Federal Court for the Southern District of Illinois, to an information charging

him with one count of mail fraud and one count of

money laundering. Bownes, owner of The Property

Management Company in East St. Louis, engaged

in a property flipping scheme. From 1997 through

2002, Bownes purchased dilapidated homes in and

around East St. Louis and sold them to unqualified

buyers after obtaining falsely inflated appraisals.

Bownes admitted to defrauding numerous mortgage

companies by providing false gift letters, appraisals,

W-2s, verifications of employment, and backdated

bonds for deeds. He generated approximately $4

million in revenue from his illegal property investment activities. In the plea agreement, Bownes

agreed to forfeit to the United States $939,000 in

cashiers’ checks previously seized, 21 investment

properties, and his property management office

building. Previously, Bownes also pled guilty to a

two-count indictment charging him with making two

death threats via interstate communications to a

newspaper reporter. Bownes will be sentenced for

the death threats along with mail fraud and money

laundering in the same sentencing hearing.

A settlement of Program Fraud Civil Remedies

Act (PFCRA) violations was reached with defendant

George Schiaffino, a real estate agent and speculator. OIG referred this case to the Enforcement

Center subsequent to Schiaffino’s pleading guilty to

making false statements in a property flipping case.

In the criminal case, Schiaffino was sentenced in

Baltimore, MD, in U.S. District Court for the

District of Maryland, to six months incarceration

and five years probation, and paid $342,341 in

restitution to HUD. He was also debarred from

participation in HUD programs for six years. The

PFCRA complaint focused on 30 out of 92 loans

identified in the criminal case for which Schiaffino

paid borrowers’ down payments, closing costs, and

gift funds. A settlement was reached with

Schiaffino in which he paid $225,000 to settle all

potential claims on the 92 HUD insured loans.

According to the Office of General Counsel, this is

the largest recovery in any PFCRA case brought to

date by the Department.

Defendant Kelli Davis, a loan officer at RE

Mortgage Group, Inc., in Los Angeles, CA, was

convicted in Federal Court, Central District of

California, on six counts of wire fraud for her

involvement in a single family loan origination

fraud scheme. Davis and other real estate professionals purchased fraudulently prepared employment, income, and credit documents from Maggie

Quevas, a forger who was previously convicted in

Federal Court in August 2002. She then packaged

the fraudulent documentation into mortgage loan

applications for unqualified borrowers for approximately 80 FHA insured loans valued at more than

$11.4 million. The resulting loss to HUD exceeds

$5.2 million.

In Los Angeles, CA, in Federal Court for the

Central District of California, defendant David B.

Finzi, a real estate investor, pled guilty to three

counts of wire fraud and aiding and abetting. Finzi

engaged in a single family property flipping and

loan origination fraud scheme by locating multi-unit

residential properties in the $50,000 - $150,000

value range. He then entered into contracts to
Chapter 2 - HUD’s Single Family Housing Programs 20

purchase the properties, and while the transactions

were pending, he and others prepared second

contracts for the sale of the same properties, purporting to transfer them to other fictitious persons.

The second sales were inflated by approximately

$100,000 per property. Finzi and others then

prepared fraudulent loan applications in the names

of fictitious purchasers for the second sales and

submitted the documents to HUD. The mortgage

insurance applications in the names of the fictitious

purchasers contained false employment documents,

verifications that the down payments were made

from either the buyers’ personal funds or were

gifts, when in fact Finzi had made the down payments, and inflated real estate appraisals. Finzi’s

actions caused approximately $12,500,000 in

fraudulent loans to be funded with FHA insured

mortgages, and resulted in losses to HUD of

$3,161,942.

Defendant Alma Vidal pled guilty in the same

court to conspiracy and wire fraud. Vidal, a notary

public, falsely notarized loan documents indicating

that she had met with borrowers when in fact she

had not. Vidal also facilitated the submission of

false W-2’s and pay stubs to qualify borrowers. She

caused $455,738 in fraudulent FHA insured loans to

be submitted to various commercial lending institutions. Defendant Sandra Duran was charged with

wire fraud, aiding and abetting, and causing an act

to be done. Duran allegedly engaged in a scheme to

purchase false loan documents and include them in

loan files that were submitted to FHA.

In Philadelphia, PA, defendants Gary Sweitzer,

a developer, Michael Sedor, a closing attorney,

Brian Hoch, sales manager of Barwood Estates, and

Louis Fierro, a loan officer, pled guilty in Federal

Court for the Middle District of Pennsylvania, to

conspiring to defraud HUD. An investigation disclosed that the defendants allowed Gary Sweitzer to

use fraudulent gift letters and sweat equity to

provide mortgagors in his Barwood Estates development with most or all of the funding required to

purchase FHA insured homes, including funds for

the down payments and funds to pay off debts to

ensure that they qualified for the mortgages.

Additionally, appraiser Thomas D. Meagher

was removed from the FHA Appraisal Roster for a

period of twelve months after an investigation found

evidence that Meagher’s appraisals contained

inflated property values and inaccurate

comparables. Meagher appraised properties involved in this scheme that led to the issuance of

over $16.6 million in FHA insured mortgages. To

date, HUD has paid claims totaling $2.5 million.

Defendant Morteza Eghbal, a real estate investor, pled guilty in Los Angeles, CA, in Federal

Court for the Central District of California, to one

count of conspiracy and three counts of false

statements. Eghbal, owner of Morry’s Investments,

engaged in a property flipping scheme. From 1994

through at least 2001, he purchased numerous HUD

foreclosed homes and later sold them to buyers who

did not qualify for FHA insured loans. Eghbal

purchased cashiers’ checks and provided the funds

used for the buyers’ down payments. He acted as

the seller of the properties and signed HUD forms

fraudulently stating that he did not provide any of

the funds for the buyers’ down payments. In total,

Eghbal paid, or caused to be paid, the down payments for approximately 62 loans. This has caused

approximately $5,542,000 in fraudulent loans to be

funded with FHA insured mortgages, and has caused

an approximate loss of $2,056,000 to HUD. As part

of the plea agreement, Eghbal agreed to pay applicable special assessments and restitution at or

before the time of sentencing.

Defendant Arturo Aranda pled guilty to three

counts of wire fraud. As part of the scheme,

Aranda recruited several unqualified buyers to

purchase properties with FHA insured loans. In

order to make the buyers appear qualified, Aranda

purchased fraudulent employment and credit information such as W-2 forms and pay stubs from

forgers. The fraudulent information was submitted

to other co-conspirators, who in turn forwarded it

to HUD for insurance. Defendant Art Tapia, a

former loan officer at CTX Mortgage Company and a

recruiter, was indicted in Federal Court for the

Central District of California, on eight counts of

wire fraud and aiding and abetting, and one count

of false statements. Tapia, along with Aranda,

recruited non-qualified buyers to purchase FHA

insured properties.
Chapter 2 - HUD’s Single Family Housing Programs 21

For her part in the scheme, defendant Virginia

Montenegro, owner of Desert View Realty, was

indicted in the same court on five counts of wire

fraud and one count of false statements.

Montenegro recruited non-qualified buyers to

purchase FHA insured properties. To facilitate the

scheme, she purchased fraudulent documents from

known forgers and provided the funds used for the

buyers’ down payments to enable them to qualify

for the loans.

Defendant Marilyn Sylvia Trujillo pled guilty in

the same court to one count of conspiracy and two

counts of false statements. From 1994 to at least

September 2001, Trujillo purchased foreclosed

homes from HUD and later sold the homes to

individuals who did not qualify for the FHA insured

mortgages.

Defendant William Dunn, a property speculator

in Baltimore, MD, pled guilty in Federal Court,

District of Maryland, to conspiracy to make false

statements. He admitted that he used fraudulent

documents to obtain government backed mortgages

for buyers of houses sold by his company. On at

least seven occasions, Dunn and partner Michael

Dronet bought houses, refurbished them, and sold

them at sometimes inflated prices to buyers who

were not qualified for the FHA insured mortgages.

Further, Dunn assisted in the creation of fraudulent

gift letters, tax returns, and W-2’s to qualify individuals to purchase his properties. In some instances, Dunn would falsely state that he had met

with purchasers in face-to-face interviews to take

the loan applications when in fact he had not. A

number of purchasers defaulted on the properties,

resulting in a loss to FHA totaling $1.5 million.

Defendant Delores Lewis Jones, a former real

estate agent, pled guilty in Camden, NJ, in Federal

Court for the District of New Jersey, to one count

of conspiracy to commit mail fraud. Jones admitted

that between 1997 and 2001, she participated in a

conspiracy to defraud HUD, the Department of

Veterans Affairs, and private lending institutions by

providing falsified documents to unqualified

homebuyers who submitted those documents to

obtain their mortgages. The loss, plus Jones’

commissions, totaled over $392,000 on 14 properties.

Defendants William E. Fallon and Michael

Henschel, doing business as Homeowner Services

of Arizona, pled guilty in Mesa, AZ, in Federal

Court for the District of Arizona, to wire fraud and

aiding and abetting. The defendants, doing business

as Proserve in Van Nuys, CA, were previously

indicted on five counts of wire fraud. An investigation disclosed a scheme in which homeowners

whose mortgages were in default and facing foreclosure were contacted by Fallon and told that Homeowner Services could buy them some time. During

this time period, Fallon collected rent and fees from

the homeowners, while Henschel filed fraudulent

bankruptcies in California to delay the foreclosure

process. Henschel originated the same scheme in

California and Fallon moved to Arizona to continue

the fraud. Over 1,000 property owners in California

signed deeds and paid fees to Proserve, which

included about 120 FHA insured properties and 40

Department of Veteran Affairs (DVA) guaranteed

properties. In addition, Henschel caused over 200

fraudulent bankruptcies to be filed in California

using fictitious names and Social Security numbers.

Fallon secured deeds from 39 homeowners in

Arizona, 18 of which involved FHA insured properties. Fallon then collected about $51,000 in fees/

rent from the homeowners during the period he

operated Homeowner Services in Arizona. Losses

to the government total about $390,000 based on

claims submitted to HUD and DVA.

Four Portland, OR individuals pled guilty in

Federal Court for the District of Oregon to charges

including conspiracy and fraud for their part in

originating 24 fraudulent mortgages worth an

estimated $10 million and involving multiple loan

origination schemes. Loan officers Ryan Bonneau

and Misty Byrd pled guilty to three counts of wire

fraud, money laundering, and bank fraud, and one

count of making false statements on a loan application, respectively.

Defendant Mack James Gentry, a former loan

officer assistant and loan processor, pled guilty to

making false statements on a HUD loan application

and aiding and abetting. Gentry stipulated to a total

HUD loss of between $120,000 and $200,000 and

restitution of $24,600. Todd Mikal Troen, an

associate of Bonneau and Byrd and a strawbuyer,

pled guilty to wire fraud and stipulated to a total
Chapter 2 - HUD’s Single Family Housing Programs 22

monetary loss not to exceed $200,000. As part of

his plea negotiation, Troen voluntarily gave up his

appraisal license regulated by the State of Oregon.

In Los Angeles, CA, defendant Patricia

Ledesma, a strawbuyer, was convicted in Federal

Court, Central District of California, on one count

of wire fraud for her involvement in a single family

loan origination scheme. Ledesma persuaded

mortgage brokers to falsely verify employment

information and certifications of face-to-face interviews for herself and other co-borrowers who

applied for an FHA insured mortgage with Countrywide Home Loans, Inc. The fraudulently obtained

loan resulted in a loss to HUD exceeding $154,000.

Defendant Tanya Stephenson-First pled guilty in

St. Louis, MO, in U.S. District Court for the

Eastern District of Missouri, to one count of

conspiracy to commit bank fraud. Stephenson-First,

a former mortgage broker for Prism Mortgage,

Paradigm Mortgage, and Accent Mortgage, admitted to engaging in an illegal property flipping

scheme between October 1999 and January 2002.

She used false documentation and Social Security

numbers to qualify herself and other potential

homebuyers for conventional and FHA insured

loans. The investigation also disclosed that

Stephenson-First filed for bankruptcy protection

using her true Social Security number, and three

days after the filing, purchased additional real estate

using a different Social Security number.

Stephenson-First’s real estate activity, which involved approximately $450,000 in fraudulently

originated loans, resulted in $90,000 in losses.

Defendant Edwin Billones, a Whittier real

estate agent, pled guilty in Los Angeles, CA, in

Federal Court for the Central District of California,

to one count of wire fraud. Billones worked as a

real estate investor, doing business as E.B. and

Associates, Holding L.L.C., Rising L.L.C., and

South Central L.A. Properties. As an investor,

Billones was responsible for obtaining loans for the

purchase of his real properties. He allegedly caused

fraudulently prepared employment, income, and

credit documents to be submitted to HUD along with

loan applications for funding and approval by FHA.

As a result of this fraud, Billones caused over $8.6

million in fraudulent FHA insured loans to be

submitted to various lending institutions and HUD.

In New York, NY, defendant Francine Sweet,

an outside contractor working with American

International Mortgage Bankers (AIMB) in Lake

Success, NY, pled guilty in Federal Court for the

Eastern District of New York to conspiracy to

commit equity skimming and mail fraud, and

submitting false statements to HUD. Several employees and outside contractors involved with AIMB

assisted in obtaining FHA insured loans from

questionable homebuyers located in the New York

metropolitan area, including Nassau and Suffolk

Counties. Over 90 percent of the FHA insured loans

from AIMB contained one or a variety of altered

documents, including false pay stubs, bank statements, W-2s, rent verifications, verifications of

employment and deposit, credit worthiness letters,

gift letters, and credit reports.

Defendant Anthony Cocomello, a real estate

appraiser, pled guilty in Central Islip, NY, in

Federal Court for the Eastern District of New York,

to loan origination fraud. Cocomello prepared

fraudulent appraisals that were included in mortgage loan applications submitted to HUD for insurance. More than 60 false appraisals were submitted

to HUD through three separate mortgage banking

institutions.

In Philadelphia, PA, defendants Ronald Banks

and Denea Langston, creators of the fictitious

nonprofit organization called Unity Foundation,

each pled guilty to theft by deception, forgery, and

criminal conspiracy, all of which are felony Pennsylvania State Crime Code violations. These

charges stem from the defendants’ scheme to

illegally solicit approximately $125,000 from at

least five victims. As part of the scheme, victims

were told they were investing money by purchasing

lots or abandoned properties that were going to be

developed into low-income housing with a grant

from HUD. The defendants created fake documents,

such as deeds and real estate tax statements, to back

up their claims. They even created a letter with the

forged signature of former HUD Secretary Henry

Cisneros to support their scheme.
Chapter 2 - HUD’s Single Family Housing Programs 23

In Charlotte, NC, in Federal Court for the

Western District of North Carolina, defendant

Theodore Peterson, a former certified public

accountant (CPA), was indicted on four counts of

submitting false statements and four counts of

submitting false statements to HUD. Peterson allegedly submitted false and fraudulent annual financial

statements to GNMA/HUD for FY 1999. According to

the indictment, Peterson made false statements to

HUD in a 1999 audit letter and reports, in which he

claimed he was a CPA and had performed certain

audits of First Beneficial Mortgage Corporation’s

(FBMC) financial statements in compliance with

HUD program requirements. Peterson, however, was

not a CPA as his certification had been suspended,

and he did not perform the tests and verifications as

he represented. The indictment further alleges that

GNMA/HUD relied on Peterson’s audit letter and

reports in extending FBMC’s authority to issue up to

$50 million in government guaranteed mortgagebacked securities. Had Peterson conducted the

necessary tests and verifications, he would have

discovered that FBMC engaged in a massive fraud by

creating fictitious mortgages that it sold on the

secondary mortgage market. During the time that

GNMA/HUD relied on Peterson’s audit letter and

reports, FBMC issued approximately $10 million in

government guaranteed securities backed by fictitious and fraudulent mortgages.

Defendant John Acevedo, former real estate

agent at Exclusive Right Realty, was indicted in Los

Angeles, CA, in Federal Court for the Central

District of California, on one count of aiding and

abetting and one count of wire fraud. On the same

date, defendant Sofia Fernandez, an unlicensed loan

processor at Consorcio Lending, was indicted on

one count of aiding and abetting and three counts of

wire fraud. Acevedo and Fernandez participated in

a fraudulent loan origination scheme wherein

Acevedo recruited several unqualified strawbuyers

to purchase FHA insured properties. Fernandez

provided the strawbuyers with fraudulent credit and

employment information to make them appear

qualified for the loans. She also provided false

verifications of employment. In total, the scheme

caused about $8.5 million in fraudulent loans to be

funded with FHA insured loans. Both defendants

have been arrested.

Defendant Dora Medrano, a real estate agent,

was indicted in Los Angeles, CA, in Federal Court

for the Central District of California, on charges of

wire fraud and false statements. While working as a

real estate agent for Sunset Investments, Medrano

acquired false employment, credit, and income

documents that were submitted to lenders for FHA

insured loans. Medrano’s actions caused $6.4

million in fraudulently insured loans to be submitted to HUD and various lending institutions.

Defendants Marcelo Giglio, Elias Zepeda, and

Ruth Chacon were charged in the same court with

wire fraud, aiding and abetting, and causing an act

to be done. The defendants allegedly engaged in a

scheme to purchase false loan documents and

include them in loan files that were submitted to

HUD.

In Los Angeles, CA, in Federal Court for the

Central District of California, defendants Paul

Peterson, president of Peterson Land and Development, and William Peterson, a real estate agent who

worked for Peterson Land and Development, were

each indicted on one count of conspiracy and four

counts of false statements. Peterson Land and

Development developed residential properties, some

of which were sold with FHA insured mortgage

loans. Allegedly, the defendants knowingly conspired and agreed to make materially false, fictitious, and fraudulent statements in their dealings

with HUD. The loss to HUD is $4,020,883.

Mortgage brokers and speculators Ronald

Burger and Sage Gibbons, doing business as Century Mortgage; real estate agent Sally Gibson; real

estate appraiser John Hansen; and escrow officer

Cathy Patrick were indicted in Spokane, WA, in

U.S. District Court for the Eastern District of

Washington, on one count of conspiracy and 16

counts of wire fraud for their role in a scheme to

defraud lenders. An investigation revealed that from

July 1997 through November 2000, Burger and

Gibbons purchased and then flipped numerous

homes, including HUD real estate owned properties,

at inflated prices to individuals whom they made

appear qualified by using a variety of falsified

documents. The fraudulent loans were then sold on

the secondary market; buyers of the loans included

Ginnie Mae and Freddie Mac. Since the homes
Chapter 2 - HUD’s Single Family Housing Programs 24

were sold at inflated prices, and the loans were at

high interest rates, many buyers were forced into

foreclosure because they were unable to make the

payments, refinance the loans, or sell the properties. It is anticipated that losses could exceed $1.4

million.

Theft of Funds

Defendant Carrie Wilson was arraigned in State

Court, Suffolk County, NY, on a four-count

indictment. She was charged with one count of

second degree grand larceny and three counts of

offering to file a false instrument. Reverend Wilson

and her nonprofit organization, New Life Christian

Ministries, are charged with defrauding the FHA

Insurance Program by wrongfully taking over

$500,000 from the County of Suffolk for expenses

that were either not incurred or were unrelated to

the nonprofit homeless shelters.

Defendant Wendy Elder was charged with

felony theft and uttering in a superseding 16-count

indictment issued in the Circuit Court for Montgomery County, MD. From 1998 through 2001,

while employed at Shapiro and Shapiro as a settlement agent and an assistant to Mitchell Shapiro,

Elder allegedly fraudulently generated and negotiated 28 checks. The checks were drawn from the

business escrow account of Shapiro and Shapiro,

which handled both FHA insured and conventional

loans. Elder falsely recorded 25 different reasons

for issuance of the checks to mislead Shapiro and

Shapiro and conceal the fact that she made the

checks payable to her own personal bank account at

Potomac Valley Bank. She stole a total of $212,674,

most of which she used to pay her mortgage and

purchase cars. Elder was on probation for another

theft conviction when she was stealing from

Shapiro and Shapiro. A bench warrant has been

issued for Elder’s arrest.

The Federal Court for the Western District of

Michigan indicted defendants Terrance Hansen,

former real estate owned supervisor for HUD in

Grand Rapids, MI, Judy Hansen, former multifamily specialist for HUD in Grand Rapids, and

Chad and Dawn Elve, Judy Hansen’s son and

daughter. The defendants were indicted on multiple

counts of wire fraud, theft of government property,

bank fraud, and theft of government funds over

$1,000. Terrance Hansen allegedly used his position at HUD to sell HUD owned properties to his

family for $600 when their appraised value was

between $70,000 and $100,000. Later, Hansen

family members refinanced and cashed out equity,

totaling approximately $70,000. Chad Elve, Dawn

Elve, and Judy Hansen each bought a property

while Terrance Hansen was in his position of

responsibility at HUD.

Defendant Dennie Washington was indicted in

St. Louis, MO, in Federal Court for the Eastern

District of Missouri, on two counts of bank fraud

for allegedly manufacturing counterfeit checks

drawn on the St. Louis City and St. Louis County

Housing Authorities. The indictment alleges that

Washington engaged in a scheme beginning in

October 2002 and continuing until April 2003 to

obtain moneys by means of material false and

fraudulent pretenses. During that time period,

Washington created and transacted over $80,000 in

fraudulent Housing Authority checks. Along with

losses incurred by financial institutions, the St.

Louis County Housing Authority lost over $28,000

from its Section 8 account.

Officer/Teacher Next Door Program

Defendant Ismael Rodriquez was sentenced in

Newark, NJ, in Federal Court for the District of

New Jersey, for making false statements. Rodriquez

was sentenced to six months home arrest and five

years probation, and was ordered to pay $63,600 in

restitution and a $100 special assessment fee. The

prosecution of Rodriquez included the successful

imposition of a two-point upward adjustment in

Rodriquez’s base offense level to reflect his abuse

of a position of public trust. This successful imposition of the adjustment is the first of its kind in an

Officer Next Door (OND) Program criminal investigation. The investigation disclosed that in December 1999, Rodriquez, who had been employed as a

Sheriff’s Officer by the Essex County Sheriff’s

Department, purchased a home via the OND Program at a 50 percent discount of $13,600. In May

2000, approximately nine months later, Rodriquez
Chapter 2 - HUD’s Single Family Housing Programs 25

purchased another house via the OND Program at a

50 percent discount, realizing a savings of $50,000.

In Chicago, IL, defendant Terrance Tabb, a

Police Officer with the Cook County Sheriff’s

Department, paid $65,000 to the U.S. Attorney’s

Office, Civil Division, for the Northern District of

Illinois, which was essentially double damages for

the $32,500 discount he received on his purchase of

an Officer Next Door Program property. Tabb

rented the property to Section 8 tenants following

his June 1999 purchase, instead of occupying the

property as required by HUD regulations.

In Pittsburgh, PA, the Real Estate Owned

Branch (REO) of the Philadelphia Home Ownership

Center, received a certified check in the amount of

$10,400. The REO ordered Carolyn D. Lewis to

repay $10,400 to HUD as a result of her submitting

false statements in order to purchase a discounted

property under HUD’s Officer Next Door/Teacher

Next Door Program (OND/TND) in January 2001.

Lewis, a teacher, was identified as one of 10 OND/

TND recipients in the greater Pittsburgh area to

purchase a home within the past three years. She

previously certified that she would maintain the

TND property as her primary residence and that she

would not own any other property. An investigation

found that Lewis was still the owner of two properties in Philadelphia.

The U.S. Attorney’s Office in the Northern

District of Illinois filed a suit seeking treble damages amounting to $185,000 against defendant

Robert Mohedano, a former Chicago, IL Police

Officer. Mohedano purchased a HUD property for

$61,500 through OND and agreed to live in the

house, located in an economically distressed area,

for a minimum of three years in return for a 50

percent discount of the sale price. Instead of living

in the home, Mohedano allegedly rented the OND

property to a market rate tenant while he lived

elsewhere. Two months after he purchased the

property, Mohedano refinanced the house using a

fictitious lease agreement between him and his

girlfriend and received about $70,000 in cash

proceeds. While still bound by the OND three-year

commitment to live in the HUD property, Mohedano

refinanced his other two properties and purchased

an additional two properties, one of which was an

FHA insured property in Puerto Rico. He indicated

on all the loan applications that he would occupy

the properties as his primary residence.

In Miami, FL, in Federal Court for the Southern District of Florida, three law enforcement

officers who purchased homes through HUD’s OND

Program were indicted on charges of making false

statements to HUD and to federal law enforcement

officers. Gwendolyn Okotogbo, a Corrections

Officer for the Metro-Dade Department of Corrections, and Torris Cooper, a Police Officer for the

South Miami Police Department, were charged with

falsely claiming that they used/intended to use their

HUD OND homes as their sole residences during the

three-year occupancy requirement. Charles

Brunson, a police officer for the City of Opa Locka

Police Department, was charged with making a

false statement to federal law enforcement officers

and using a false document in order to support his

false statement to the officers.

Defendant Stacey L. Orr, a former Police

Officer, was indicted in Milwaukee, WI, in U.S.

District Court for the Eastern District of Wisconsin,

on two counts of making false statements to the

Department of Veterans Affairs (DVA) in connection

with two uniform residential loan applications used

to obtain guarantees on two mortgages for two

separate properties located in Kenosha, WI. The

indictment charges that Orr failed to disclose the

existence of loans from the Kenosha Police and Fire

Credit Union on which he was making payments.

On the dates of the alleged false statements, the

unpaid balances were identified as $35,688 and

$29,183, respectively. The second count of the

indictment charges that the false statement therein

related to the refinancing of a property obtained

through HUD’s OND Program. The indictment states

that both mortgages subsequently went into foreclosure and as a result, Orr failed to complete his

required three-year residency under the OND, and

the DVA paid out $27,183 due to the guaranty.

A five-count False Claims Act civil complaint

was filed in the Southern District of Texas by the

Houston, TX U.S. Attorney’s Office against

Charles Anthony, a deputy with the Harris County

Sheriff’s Department. An investigation disclosed
Chapter 2 - HUD’s Single Family Housing Programs 26

that Anthony violated OND Program regulations by

failing to live in a home that he purchased at a

discounted price. Under the False Claims Act, the

government is entitled to recover three times the

amount of actual damages plus civil penalties and

other fees.

In Buffalo, NY, defendant Deborah Floyd, a

New York State Corrections Officer, entered into a

Program Fraud Civil Remedies Act settlement with

HUD whereby she agreed to repay $15,000 in

monthly installments after an initial payment of

$1,000. In 1998, Floyd falsely certified to HUD that

she would use a home purchased under the OND

Program as her primary residence for a period of

three years from the date of closing, but instead

rented the property to a Section 8 tenant. Floyd

received a $17,000 discount on the property.

Debarments

Albert R. Coccia, former general manager of

Arco Redevelopment Corporation in Philadelphia,

PA, was notified of his immediate debarment from

procurement and non-procurement transactions with

HUD and throughout the Executive Branch of the

Federal Government. The debarment is pursuant to

Coccia’s guilty plea to a multiple count indictment,

including false statements to HUD and money

laundering. He was sentenced to 27 months in

prison and three years supervised release, and was

fined $900. Coccia was also ordered to forfeit

$5,157 in property and pay $14,421 in restitution to

HUD.

Defendant John W. Carson, a former loan

officer for the now closed Bensalem, PA branch of

Market Street Mortgage Corporation, Inc., has

agreed to an 18-month debarment from participation in primary covered transactions and lower-tier

covered transactions, including procurement contracts, as a participant, principal, or contractor with

HUD and throughout the Executive Branch of the

Federal Government. Carson’s debarment was

based on his facilitating and allowing false documents to be submitted to HUD. These documents

were used in the origination and endorsement of

three FHA insured loans.

OIG Offices of Audit and

Investigation – Joint Efforts

The joint effort, in which both HUD OIG Investigators and Auditors bring to a case their respective

areas of expertise, is an effective means of completing an investigation, and is often the only way to

put together the necessary pieces of an investigative

case.

Two defendants were sentenced in Phoenix,

AZ, in U.S. District Court for the District of

Arizona. Julio Hidalgo, Sr., a real estate broker at

Julio and Associates in Mesa, AZ, was sentenced

to six months home confinement, three years

probation, 80 hours of community service, fines

totaling $5,100, and restitution of $24,552 to HUD.

Julio Hidalgo, Jr., also a real estate agent at Julio

and Associates, was sentenced to six months in

prison, one year probation, and restitution of

$24,552 to HUD, and was ordered to pay $25,785 to

former real estate clients. Both Hidalgos previously

pled guilty to one count of submitting false statements to HUD. They were indicted on one count of

conspiracy, 12 counts of submitting false statements

to HUD, and five counts of mail fraud. An investigation disclosed that the Hidalgos stole money from

homebuyers claiming additional funds were needed

for closing, and produced numerous false W-2’s,

pay stubs, letters of credit, and verification of

employment forms for the purchase of homes with

FHA insured mortgages. About 72 loans originated

by the Hidalgos were identified as fraudulent, with

FHA insurance totaling over $6.1 million.

In Chicago, IL, defendant Craig Hendrick,

former loan officer for Challenge Mortgage in Oak

Forest, IL, pled guilty in Cook County Court in

two separate investigations. The conviction for

forgery stemmed from a State of Illinois/Attorney

General investigation which disclosed that Hendrick

was responsible for stealing the identities of deceased individuals and paying strawbuyers to

assume those identities and obtain FHA insured

mortgages at grossly inflated rates. Six different

FHA insured loans were involved in this scheme.

HUD’s losses were in excess of $300,000.
Chapter 2 - HUD’s Single Family Housing Programs 27

The other conviction stemmed from a Cook

County State Attorney’s Office investigation which

disclosed that Hendrick falsified deeds in order to

sell properties he did not own, and again stole the

identities of deceased individuals and paid

strawbuyers to use these identities to obtain FHA

insured loans. Specifically, Hendrick admitted to

selling two properties he did not own through the

fraudulent deed scheme, while on five occasions he

participated in the stolen identity/strawbuyer/FHA

loan scheme.

In each of the cases, Hendrick acted as the

seller and loan officer, but failed to disclose this

through the use of an alias in his role as seller. In

total, Hendrick was sentenced to four years incarceration for the State of Illinois investigation and

six years incarceration for the Cook County case.

He was ordered to serve those sentences concurrently. Hendrick’s co-defendants in the Attorney

General case, Tom Fazy and Ruben Walden, have

been convicted and sentenced. Relative to the Cook

County case, Stacey Johnson has been convicted

and sentenced, while Tom and Julie Fazy have yet

to plead guilty.

Homestead Financial Services of Syracuse, NY,

was fined $50,000 by HUD’s Mortgagee Review

Board. Tim Ward, president of Homestead Financial Services, illegally diverted a portion of the

closing costs associated with FHA mortgages from

homebuyers to his personal bank account. In

addition, Homestead used non-approved mortgage

brokers to process FHA loans.

In Mesquite, TX, Darlyn Lawson was debarred

from future participation in procurement and nonprocurement activities with HUD and the Executive

Branch for a period of three years from the time of

her suspension (January 15, 2002). This investigation stemmed from a project to identify mortgage

companies with a high rate of defaults on FHA

loans. American Investment Mortgage (AIM), as well

as Royal Lending, a net branch of AIM, were both

reviewed because of their high default rates. An

examination of Royal Lending’s files revealed that,

in some cases, false documents were relied on to

approve FHA insured loans.

In Riverhead, NY, defendants Brian Bass, S.

Charles Buschemi, Michael Capasso, Thomas

Capasso, Ronald Davies, Ronald Farr, Michael

Grunfast, Irwin Izen, William Porter, Eric

Sackstein, Barry Segal, Gary Smith, and Alan

Wolinsky, all Long Island real estate attorneys, and

Covenant Abstract Company, Inc., a title abstract

company, have agreed to a civil settlement with HUD

and the U.S. Attorney’s Office for alleged violations of the anti-kickback statutes of the Real Estate

Settlement Procedures Act (RESPA). The individual

defendants referred title business to Covenant

Abstract, and in direct violation of Section 8(a) of

RESPA, Covenant compensated them for such

referrals based solely on the volume of business

each referred to Covenant. The defendants have

agreed to pay HUD a $200,000 penalty. In addition,

the attorneys and the title company agreed to be

barred from title work for a three-year period.

In Philadelphia, PA, a removal letter was

issued to a HUD employee in the Real Estate Owned

(REO) Division, Mid-Atlantic Region, after an

investigation found evidence that the employee used

a strawbuyer to purchase an REO property. The

employee admitted to obtaining a personal loan and

providing the proceeds to the strawbuyer for the

purchase of the property. The investigation revealed

that she referred to the strawbuyer as her spouse in

documents she submitted to HUD to become a

Voluntary Leave Transfer Program recipient. The

“spouse” quit-claimed the property for $1.00 to the

employee, who failed to disclose ownership of the

property on her Financial Disclosure Report. In

addition, HUD requires its employees to provide, in

writing, a request for approval to bid on HUD owned

properties. The employee failed to do so, and

evidence of her knowledge of the requirement was

determined when she requested this approval when

her brother purchased an REO property prior to this

incident. HUD charged the employee with a violation of the Standards of Ethical Conduct and falsification of a Financial Disclosure Report. A Merit

Systems Protection Board judge reversed the removal of this employee; however, HUD submitted an

appeal to the full Board who will return a decision

within 120 days.
Chapter 2 - HUD’s Single Family Housing Programs 28

In Washington, DC, the HUD Enforcement

Center filed a three-count complaint charging an

Officer Next Door (OND) Program recipient under

the Program Fraud Civil Remedies Act (PFCRA).

This matter was the result of an investigation that

disclosed that defendant Michael Pinto provided

false certifications on his Sections 203(k) and

203(b) FHA mortgage loan applications, certifying

that the property for which he was receiving a

mortgage would be his primary residence. He also

provided a false certification on his OND certification in which he certified that he did not own any

other residential real property, when in fact he

owned an investment property for which he obtained the 203(k) and 203(b) mortgages. The

complaint sought $98,000 from the defendant under

PFCRA for the FHA and OND matters.

Jerald Leonard Bohannon was notified by the

HUD Enforcement Center in Washington, DC, that

he has been immediately suspended from participation in transactions with the Executive Branch of

the Federal Government, and that HUD has proposed his debarment from any involvement with the

Federal Government for a period of three years.

Bohannon was suspended after pleading guilty in

Federal Court for the Northern District of Georgia

to using a false Social Security number to obtain a

Title I HUD insured property improvement loan.

The false Social Security number was used to hide

his true credit situation. Additionally, Lynda Elaine

Bohannon, his wife, entered into a pre-trial diversion agreement for her part in making the false

statements.

In Denver, CO, defendant Elena Romero

received notification of her proposed debarment

from participation in procurement and non-procurement transactions as a participant or principal with

HUD and throughout the Executive Branch of the

Federal Government for a three-year period. At the

same time, Romero, Torres and Associates was

notified of their proposed debarment. Defendant

Andres Torres was notified of his proposed debarment for an indefinite period. The parties previously pled guilty to conspiracy in a real estate

scheme involving Andres Torres, his former wife,

Elena Romero, Michael Slavens, and other

strawbuyers. Torres acquired properties in the

Denver metro area using Romero as the real estate

agent. Together they obtained strawbuyers to

purchase properties while providing them with false

information so they would qualify for the loans.

Slavens and Martinez acted as strawbuyers on a

number of the properties. Martinez also provided

false income tax returns/W-2 forms, and both

Slavens and Martinez provided false income information for the strawbuyers.
Chapter 3 — HUD’s Public and Indian Housing Programs

HUD provides grants and subsidies to approximately 4,200 public housing authorities (HAs) nationwide. 

About 3,200 HAs manage public housing units and another 1,000 HAs, with no public housing, manage 

units under Section 8 Programs. (Many HAs administer both Public Housing and Section 8 Programs.) 

HUD also provides assistance directly to HAs’ resident organizations to encourage increased resident

management of public housing developments and to promote the formation and development of resident

management entities and resident skills. Programs administered by HAs are designed to enable low-income

families, the elderly, and persons with disabilities to obtain and reside in housing that is safe, decent, 

sanitary and in good repair. 

Audits 

During this reporting period, the OIG issued 21 reports; one internal audit, one internal memorandum, 

twelve external audits, and seven external memoranda in the Public and Indian Housing Program area.

These reports disclosed over $24 million in questioned costs, and almost $1.9 million in recommendations 

that funds be put to better use. We conducted reviews of HUD’s Public and Indian Housing Information

Center, property management contracts, various activities in Section 8, Low-Income Housing Programs, 

and the general administrative activities of some HAs. 

Public and Indian Housing Reports Issued

1 1

12

7

Internal Audit Internal Memorandum

External Reports External Memoranda

Public and Indian Housing Dollars

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

External Audits External Memoranda

Questioned Costs Funds Put to Better Use

PIH Information Center 

In Washington, DC, we completed an audit of the management, operational, and technical controls 

over the security of HUD’s Public and Indian Housing Information Center (PIC). PIC is a technologically 

advanced web-based information system designed to facilitate a more timely and accurate exchange of data 

between public housing agencies (PHAs) and local HUD offices by allowing PHAs to electronically submit

information to HUD. We found deficiencies and weaknesses in controls including: (1) inadequate queries 

and reports for monitoring and controlling user access to PIC; (2) lack of a comprehensive process for 

monitoring and controlling PIC user access; (3) inadequate access controls over the PIC Security

Administration Sub-Module; (4) no segregation of duties over the Security System Administration 

function; (5) inadequate controls for safeguarding confidential and sensitive PIC data; (6) weak access 

controls for identifying and authenticating PIC users; and (7) not using system and application audit logs for 

security and system maintenance purposes. 

Chapter 3 - HUD’s Public and Indian Housing Programs 29
Chapter 3 - HUD’s Public and Indian Housing Programs 30

A comprehensive assessment of vulnerabilities

and risks was not performed during the initiation or

development/acquisition phases of the PIC system

life cycle. Furthermore, a comprehensive security

policy was not prepared before security aspects of

the PIC system were developed.

These deficiencies and weaknesses expose PIC

data to unnecessary risk of loss of confidentiality,

integrity, and availability. HUD’s Office of Public

and Indian Housing (PIH) has taken action to

correct several control weaknesses. However, more

remains to be done. Risks of system disruption,

exploitation of data for identity theft and fraud, and

destruction of data by malicious hackers or disgruntled employees remain.

We recommended that PIH conduct a comprehensive vulnerability and risk assessment, develop a

comprehensive security plan for PIC, and correct

deficiencies and weaknesses in operational and

technical controls. (Report No. 2003-DP-0001)

Property Management Contracts

An OIG audit of the Chicago, IL Housing

Authority’s outsourced property management

contracts found that the Authority failed to properly

monitor and administer its management agreements

with nine private management firms and two resident management corporations. The Authority did

not properly monitor its contractors’ compliance

with requirements of the Minority, Women, and

Disadvantaged Business Enterprises and Section 3

Programs. The management contractors also failed

to adhere to their management agreements and

other requirements for maintenance, work orders,

unit inspections, and tenant recertifications.

We recommended that HUD ensure that the

Authority: (1) imposes all available remedies

against the contractors for their noncompliance or

obtains all necessary documentation to support

unsupported program expenses of over $11 million;

(2) implements policies and procedures to monitor

the performance of its contractors and maintains the

required documents to support the contractors’

compliance; (3) provides training and refresher

courses for the management contractors to assure

that contractors are fully aware of federal requirements and standards; (4) implements policies and

procedures to correctly perform and document unit

inspections at housing developments, and to generate and address repair work orders timely; and (5)

implements policies and controls to recertify

tenants on their move-in anniversary dates and

maintains signed documentation for all tenants at

the housing sites. (Report No. 2003-CH-1018)

Section 8 Programs

In response to a request from HUD’s Public

Housing Program Center Coordinator, Indianapolis

Field Office, we audited the Fayette County, IN

Housing Authority’s Section 8 Housing Program

and found that the Authority did not administer its

Section 8 Program in an efficient and effective

manner, and failed to comply with HUD’s housing

quality standards for its rental units. Contrary to

HUD directives, the Authority requested over

$538,000 in excess Section 8 funds from HUD over

a four-year period to cover prior operating losses.

HUD ordered the Authority to cease this practice in

February 2000. The Authority did not have adequate cash to repay the funds to HUD, and will take

over 27 years to return the over-claimed subsidy at

the current repayment rate of $20,000 per year.

We also found that the Authority did not adequately control its receipt and use of cash and did

not adequately maintain 15 units it rented to Section

8 tenants. A March 2002 OIG inspection of the units

identified 240 housing quality standards violations.

The Authority’s former housing inspector failed to

identify 113 of these existing deficiencies at the time

of his inspections between 1998 and 2001. The

Authority had identified 40 of the 240 violations,

but failed to correct them.

We recommended that HUD: (1) take administrative action against the Authority’s former executive

director and board members for the excessive

Section 8 fund requests, improper use of Section 8

funds, and their failure to properly maintain Section

8 rental units; (2) require the Authority to provide

adequate supporting documentation for expenditures

cited in the report and repay its Section 8 Voucher

Program from non-federal funds for ineligible and

unsupported items; and (3) require the Authority to

repay its Section 8 Voucher Program from nonfederal funds for the Section 8 subsidies it received
Chapter 3 - HUD’s Public and Indian Housing Programs 31

for rental properties that it owned but did not

properly maintain. (Report No. 2003-CH-1019)

We audited the Philadelphia, PA Housing

Authority’s Tenant-Based Section 8 Program to

determine why the Authority was not fully utilizing

its tenant-based Section 8 funding to assist the

maximum number of families under the program.

Although the Authority has steadily increased the

number of vouchers it issued since March 2000, it

has consistently and significantly underutilized its

available Section 8 funding from HUD. For example,

for its fiscal year ending March 2000, the Authority

did not use $24.7 million of its available budget

authority of $96.6 million, and $23.9 million of its

available budget authority of $107.6 million for its

fiscal year ending March 2001. Since the Authority

was not able to fully utilize its available funding,

HUD recaptured $47.9 million of Section 8 funds

from the Authority in August 2001. However, about

18,000 families remained on the Authority’s Section 8 waiting list as of January 2002. We estimate

that the Authority could have assisted an additional

3,200 families.

In our audit, we identified a number of weaknesses in the Authority’s Section 8 administration

that adversely impacted its ability to fully utilize its

Section 8 funding. Specifically, we found the

Authority needed to more effectively implement

required procedures to improve utilization; supervise employees; collect, maintain, and analyze key

program data; follow up on its landlord and voucher

holder outreach efforts; and address external factors

it believed contributed to low utilization. Further,

we noted the Authority requested and received more

than 3,700 additional vouchers, from April 1999

through April 2001, that it could not reasonably

accommodate; this only exacerbated its utilization

problem.

In February 2002, HUD signed an agreement

with the Authority accepting it into a new flexible

housing demonstration program known as Moving

to Work. Although the Authority’s Moving to Work

agreement included a Section 8 component, it

marked the end of the Authority’s traditional

Section 8 Program until April 2008. Under Moving

to Work, HUD exempted the Authority from many

Public Housing and Section 8 Program rules, and

the Authority now has the flexibility to allocate

Section 8 funds not used on vouchers for other

housing activities, including capital programs. Even

though the Authority is now under the demonstration program, the operational issues identified in

this report are still pertinent and need to be addressed to improve operations. The Authority

recognized this and took corrective action to address a number of the issues during the audit.

However, further actions need to be taken to address the remaining issues.

We recommended, among other things, that the

Authority be directed to implement measures

required by its Administrative Plan to analyze the

adequacy of its payment standards annually; develop supervisory procedures to ensure that Section

8 employees enter complete management data into

the Authority’s computer system and adequately

maintain client files; and collect and analyze data

recommended in HUD’s Housing Choice Voucher

Program Guidebook to include response rates from

waiting lists, voucher success rates, and staffing

required for lease-up, and use the results to develop

a strategy to improve utilization. (Report No. 2003-

PH-1803)

In Belmont, CA, in response to concerns of the

Director of Public Housing in the HUD San Francisco Office, we completed an audit of the Housing

Authority of the County of San Mateo’s (HACSM)

Conventional Low-Rent Housing and Section 8

Subsidy Programs. The objective of the review was

to determine if HACSM could improve the effectiveness of operations and compliance with federal

requirements over its procurement and contracting

practices.

We identified serious problems relating to

HACSM’s procurement and contracting practices.

This included the continued use of a vendor/

contractor for rehabilitation without following

appropriate procurement, bidding, and contracting

practices as required by the Codes of Federal

Regulations and HUD handbooks. HACSM also

contracted with the County of San Mateo, a related

party, without following procurement practices or

maintaining records to substantiate expenses. In

addition, HACSM failed to follow appropriate purchase order procedures. As a result, HACSM in-
Chapter 3 - HUD’s Public and Indian Housing Programs 32

curred over $230,000 in excessive and unreasonable

costs and $90,000 in questionable and unsupported

expenditures charged to federally funded programs.

We recommended that HUD require HACSM to

revise its procurement policies to ensure they

comply with appropriate requirements, return

excessive unit turnover maintenance costs of over

$230,000 to the project’s operating account, develop procedures and controls to ensure it only

reimburses the County of San Mateo for actual

expenses, and provide support for all questionable

costs. (Report No. 2003-LA-1002)

We reviewed the Union County, NJ Division of

Community Development to determine: (1) the

cause of a misappropriation of Section 8 funds; (2)

the total amount of Section 8 funds misappropriated; (3) if Community Development Block Grant

(CDBG) rehabilitation funds were misappropriated;

and (4) whether the County has procedures in place

to monitor the activities of a consultant that is

currently administering the County’s Section 8

Program. The review disclosed that an employee of

a former consulting firm, which administered a

portion of the County’s Section 8 Program, embezzled over $209,000 of program funds, and that

the existence of various program participants is

questionable. The review also disclosed that the

County did not submit the required Section 8 yearend settlement forms to HUD for the years ended

December 31, 2000, and 2001. This occurred

because the County completely relied on consultants to administer its Section 8 Program, and

because one consultant did not maintain adequate

program records. As such, the County failed to

properly monitor the consultants to ensure adherence with program requirements, and to obtain

assurances that funds were being properly safeguarded. We questioned housing assistance payment

costs of over $73,000 due to inadequate supporting

documentation.

The review disclosed that the County currently

has procedures in place to monitor the activities of

the consultants administering its Section 8 Housing

Assistance Program, and that there were no indications that funds under the County’s CDBG Rehabilitation Program were misappropriated.

We recommended that HUD instruct the County

to: (1) reimburse all ineligible costs to the Section 8

Program from non-federal funds; (2) determine the

eligibility of all unsupported housing assistance

payments; and (3) submit the year-end settlement

forms for the appropriate fiscal years so that HUD

can perform the year-end settlement reconciliations.

We also made recommendations that should improve the County’s internal controls and enhance

compliance with HUD requirements and regulations.

(Report No. 2003-NY-1801)

In response to a citizen’s complaint, we audited

the Seattle, WA Housing Authority’s administration

of its HUD subsidized Welfare-to-Work (WTW)

Section 8 Tenant-Based Assistance Program. The

complaint alleged that the Authority is not properly

administering its WTW Program when selecting

program voucher recipients, and procuring the

services of nonprofit organizations to assist and

recruit prospective WTW program applicants. We

found that the complaint was generally valid. We

believe that in its haste to get its WTW Program

vouchers leased up by the deadline, the Authority

disregarded program requirements, and did not

provide adequate management oversight over

program implementation. As a result, the Authority

did not achieve the objective of the WTW Program

to assist eligible families in transitioning from

welfare to work. In addition, the Authority denied

many long-time Section 8 waiting list applicants the

opportunity to participate in a program that would

help them transition from welfare to work. Although the Authority followed its procurement

requirements, it spent over $130,000 of WTW funds

on ineligible costs.

We recommended that HUD require the Authority to take corrective action to comply with WTW

Program requirements and reimburse the program

for ineligible costs. We also recommended that HUD

review the Authority’s performance as a designated

Moving to Work (high performer) Authority.

(Report No. 2003-SE-1003)

As part of our audit of public housing authorities (PHAs) in Massachusetts and their administration of the mobility/portability features of housing

choice vouchers, we performed a limited review of

the Brockton, MA Housing Authority. We found
Chapter 3 - HUD’s Public and Indian Housing Programs 33

that the Authority was generally administering the

mobility/portability features of its housing choice

vouchers effectively and efficiently. However, our

review disclosed that families terminated from the

Authority’s Section 8 Program were not removed

from the reimbursement rolls of the initial PHA in

all cases. We attributed this to the fact that the

Authority failed to reconcile its Section 8 Portability-In Accounts Receivable Accounts. The

Authority’s General Ledger and Subsidiary Accounts for Portability-In Accounts Receivable were

out of balance by almost $417,000 at October 31,

2002.

We recommended, among other things, that the

Authority be required to explain how the

unreconciled balance of almost $417,000 will be

refunded or collected. The Authority should also

assure HUD that the repayments or collections will

not be reflected in any current, future, or prior

year-end settlement with HUD, and that the handling

of repayments or collections will not conflict with

the changes in administrative fee reserves included

in the FY 2003 Appropriation Act. (Report No.

2003-BO-1004)

General Activities

In Baltimore, MD, an audit of the Housing

Authority of Baltimore City’s Homeownership and

Opportunity for People Everywhere (HOPE VI)

Program found the Authority’s procurement and

contract administration practices violated regulations; managers did not maintain accurate financial

records as required; and administration of the

Community and Supportive Services Program was

not effective. As a result, a number of deficiencies

in the Authority’s operations were noted. Among

the most notable was that the Authority spent $28.5

million above the Total Development Cost (TDC)

limits on two developments. The Authority’s former

executive director provided misleading information

to HUD and did not fully disclose other information

related to the development activities. Because HUD

relied on the former executive director’s assertions,

it did not have all the facts and granted waivers to

exceed development standards and award contracts.

The Authority did not document key procurement actions, initiated and completed a number of

improper contracting actions, and did not adequately administer its HOPE VI contracts. These

deficiencies occurred because the former executive

director did not establish an adequate internal

control environment for the program’s administration.

In addition, the Authority: did not follow HUD

requirements when drawing funds from the HUD

Line of Credit Control System (LOCCS); did not

maintain accurate and complete accounting records;

and displayed various other deficient financial

management practices. These deficiencies occurred

because Authority managers did not provide adequate supervision and oversight and did not

establish proper procedures to ensure the Authority

was in full compliance with grant agreements and

other applicable requirements. The Authority’s poor

financial management resulted in several deficiencies, including: over $31.7 million in funds drawn

from LOCCS that could not be readily supported;

accounting records containing errors of more than

$37.2 million and which disagreed with HUD’s

records by approximately $27.9 million; development costs authorized by HUD that were exceeded

by over $2 million for one development and were

on track to be exceeded for a second development;

and duplicate funding of nearly $917,000 that was

inappropriately retained.

During the audit, the current executive director

took a number of actions to improve the management of the HOPE VI Program. We recommended

that administrative action be taken against the

former executive director. We made additional

recommendations to improve the Authority’s

administration of its HOPE VI Program and to return

funds to HUD. (Report No. 2003-PH-1003)

We audited the operations of the Portsmouth,

VA Redevelopment and Housing Authority and

found significant weaknesses in the way the Authority awarded and administered a number of its

modernization contracts. Specifically, we found that

the Authority awarded three consecutive contracts

valued at about $8 million from FYs1997 to 2001 to

a single contractor who substantially missed deadlines, performed substandard work, and failed to

comply with contract specifications. The Authority

also used its own maintenance staff to make repairs
Chapter 3 - HUD’s Public and Indian Housing Programs 34

covered by the contract warranty and did not ensure

the contractor performed work in accordance with

Occupational Safety and Health Agency guidelines.

These problems generally occurred because the

Authority did not adequately consider the

contractor’s ability to perform the work and did not

maintain an adequate contract administration system

to ensure contractors performed in accordance with

the terms, conditions, and specifications of their

contracts. A HUD housing inspector could only

validate work estimated at about $3.5 million for

the $8 million the Authority expended on the three

modernization contracts. As a result, we questioned

the entire $8 million value of the contracts. Further,

the Authority selected the developer of its $24.8

million HOPE VI grant without adequately documenting the reasons why the developer was selected, and could not support HOPE VI costs totaling

about $75,000.

We also identified significant weaknesses in the

Authority’s maintenance of its low-income housing

and administration of its Section 8 Program. However, during the audit, the Authority took corrective

actions to significantly improve its performance in

these areas. For example, the Authority increased

its physical condition scores under HUD’s Public

Housing Assessment System for its four developments by 11 to 77 percent from September 2001 to

December 2002. Further, the Authority provided

about 500 additional low-income families with

Section 8 assistance from June 30, 2001, through

June 30, 2003.

We recommended that HUD determine the actual

value of work completed on the three modernization

contracts for which the Authority paid $8 million.

For work the contractor failed to perform or did not

perform in accordance with contract specifications,

we recommended that HUD require the Authority to

enforce the terms of the contracts, recover the value

of work that was not completed according to contract specifications, or repay HUD the value from

non-federal funds. We further recommended that

HUD take appropriate administrative action to

prevent the contractor from performing additional

work for the Federal Government, and as appropriate, against Authority officials to protect the taxpayers from future waste and abuse. (Report No. 2003-

PH-1005)

We audited selected aspects of the Scranton,

PA Housing Authority’s (SHA) Low-Income Housing and Section 8 Programs and found that the

SHA’s public housing developments were well

maintained and in excellent repair. However, we

identified other weaknesses in the SHA’s operations.

Specifically, the SHA: (1) charged HUD’s Conventional Program over $89,000 for garbage removal

and nearly $120,000 for general administrative

salary costs that should have been charged to its

city owned project; (2) improperly received about

$9,000 in subsidy for three units used as temporary

offices; (3) removed the majority of units in a

development from the rental market until the entire

development was completely rehabilitated, unnecessarily increasing the number of vacant units used by

HUD to pay operating subsidies, and reducing the

number of units available for low-income families;

(4) did not properly establish waiting lists or

account for or process all tenant applications, and,

contrary to HUD requirements, allowed applicants to

wait for units at specific developments; (5) did not

perform adequate outreach efforts to find qualified

applicants for its vacant units; (6) hired family and/

or relatives of the executive director and board

members; and (7) did not perform accurate inspections to ensure Section 8 units met housing quality

standards.

During the course of the audit, the executive

director took immediate action to correct the SHA’s

operating policies and procedures and repaid the

Conventional Program nearly $300,000. Since the

SHA completed all the required actions prior to

report issuance, and we verified the corrective

actions were completed, the report contained only

one recommendation. We recommended HUD

complete an on-site review within one year from

report issuance to ensure the SHA continues to make

satisfactory progress. (Report No. 2003-PH-1006)

In Wewoka, OK, based on complaints made by

former executive directors, we audited the Housing

Authority of the Seminole Nation of Oklahoma and

found that Authority officials improperly procured

housing rehabilitation services, land, and mobile

homes with Indian Housing Block Grant funds.

Specifically, officials procured: (1) housing rehabilitation services without required bid solicitations,

contracts, work specifications, and accurate inspec-
Chapter 3 - HUD’s Public and Indian Housing Programs 35

tions; (2) land without required appraisals and

environmental reviews; and (3) mobile homes

without competitive proposals and properly executed contracts. The improper procurements

occurred because officials disregarded the

Authority’s procurement policy and HUD requirements. As a result, the Authority misspent over

$780,000 in grant funds.

Authority officials paid for: (1) poor workmanship and work not done on housing rehabilitation;

(2) land without assurance of satisfaction of environmental requirements and that it was fairly

priced; and (3) mobile homes without assurance of

delivery and that they were priced competitively. In

addition, officials should put to better use about

$91,000 of grant funds intended for mobile homes

that were not delivered.

We recommended that HUD take action to

ensure that the board of commissioners and the

executive director have the necessary training and

knowledge of procurement policy and Native

American Housing Assistance and Self-Determination Act regulations. In addition, we recommended

reimbursement of misspent grant funds of over

$780,000 and the avoidance of ineligible grant

expenditures of about $91,000. (Report No. 2003-

FW-1005)

At the request of the Director of the Office of

Public Housing in San Francisco, we reviewed 16

procurement actions at the City of Las Vegas, NV

Housing Authority (LVHA). Our objective was to

review the four HUD approved procurement methods: sealed bids, competitive proposals, noncompetitive proposals, and small purchase procedures.

We concluded that, in some cases, policies and

procedures were not adequate to ensure compliance

with federal regulations, contracts were awarded

without competition, and services in excess of the

small purchase limit were obtained without a

contract. Also, when contracts did exist, the terms

were often not enforced or included open-ended

escape clauses that favored the contractor. Our

review of the procurement actions identified ineligible costs of $57,000 and unsupported costs of

almost $102,000.

We recommended that HUD ensure that the

LVHA: (1) revises its procurement policy to comply

with applicable federal and HUD policies and

adheres to those policies; (2) adopts contract

administration procedures to ensure that payments

for services are in accordance with contracts; (3)

repays ineligible and unsupported costs from nonfederal funds; and (4) removes specific inappropriate clauses from its current and future contracts.

(Report No. 2003-LA-1801)

In response to a Congressional request resulting

from constituents’ complaints, we performed a

limited review of the Housing Authority of the City

of San Angelo, TX. The review disclosed that a

conflict of interest did not exist between the Authority and the rental of apartments to Colt Baseball

players. However, a conflict of interest did exist

between the assistant executive director and a

vendor wherein the Authority obtained goods from

a vendor directly related to the assistant director;

the Authority did not take appropriate steps to

remediate mold at the Cedar Crest Knickerbocker

Project; and the Authority did not perform its

fiduciary duty during the construction of the elderly

duplexes, and therefore the duplexes cost $500,000

but were appraised at only $334,000. In addition,

Authority management disregarded and circumvented controls in procurements, accounts payables,

and grants management.

We recommended that the Office of Public

Housing require the Authority to implement management controls to prevent management’s ability to

circumvent controls, reimburse the City of San

Angelo for ineligible and unsupported grant funds,

and take appropriate administrative action against

those responsible officials to protect the Authority

from further abuse. We also recommended that the

Office of Community Planning and Development

require the City of San Angelo to repay HUD for

ineligible costs of over $2,000 and unsupported

grant costs of nearly $77,000. (Report No. 2003-

FW-1804)
Chapter 3 - HUD’s Public and Indian Housing Programs 36

In response to a citizen’s complaint, the OIG

reviewed the Mount Airy, NC Housing Authority

and found that some of the citizen’s allegations

were valid. Specifically, the Authority: (1) allowed

identity-of-interest companies to bid against one

another and then allowed losing bidders to perform

the work as subcontractors; (2) did not perform

required cost and price analyses, enforce contractor

performance, or consistently obtain formal contracts; (3) split the cost of one contract into separate

contracts in an attempt to reduce costs; and (4)

allowed the executive director and other staff to use

Authority owned vehicles to commute daily between

their homes and work without reporting the taxable

employee fringe benefits.

We recommended, among other things, that

HUD ensure that the Authority obtains adequate

training for procurement staff, prepares independent cost estimates before receiving bids or proposals and performs cost and price analyses, executes

formal contracts as appropriate, discontinues the

practice of splitting purchases, and either discontinues the practice of allowing staff to use Authority

owned vehicles for commuting or complies with

related IRS requirements. (Report No. 2003-AT1007)

In Baltimore, MD, an audit of the Housing

Authority of Baltimore City’s relocation of HOPE VI

residents found that the Authority generally did an

adequate job in assisting displaced HOPE VI tenants

in finding suitable alternative housing. The Authority demolished six developments with 4,194 units.

Of the 2,246 occupied units, we found the AuthorReprinted by permission of the San Angelo Standard-Times, May 29, 2003

ity assisted 1,992 families in finding adequate

alternative housing. The other tenants were either

evicted, deceased, departed without paying rent, or

their status could not be determined due to incomplete Authority records. Further, despite some

initial setbacks, the Authority established a process

to ensure that displaced tenants received priority in

reoccupying units in the newly completed HOPE VI

developments in accordance with their HUD approved Relocation Plan. For the two developments

the Authority had redeveloped by the beginning of

the audit, Lafayette Courts and Lexington Terrace,

1,484 units were replaced with 729 units. Altogether, 198 of the displaced tenants were placed in

the 404 available public housing units.

We did, however, identify a number of deficiencies in the Authority’s administration of its tenant

relocation process. Specifically, the Authority did

not follow the appropriate HUD handbook when it

processed relocation payments. This caused the

Authority to make over $64,000 in relocation

assistance overpayments and nearly $21,000 in

underpayments to several tenants. We also questioned the Authority’s administration of the moving

contract used to relocate several tenants. The

contractor over-billed the Authority for nearly

$24,000 and the Authority also failed to include an

appropriate liability clause in the moving company’s

contract, which would have saved the Authority

nearly $10,000 in relocation expenditures.

We made a number of recommendations to

assist the Authority in improving its relocation

process. (Report No. 2003-PH-1004)
Chapter 3 - HUD’s Public and Indian Housing Programs 37

Civil False Claims

In Twinsburg, OH, at the request of the U.S.

Attorney’s Office for the Northern District of Ohio,

the OIG reviewed J.T. Eaton & Company, Inc., to

identify OIG subsidized housing authorities that

purchased pest control products from J.T. Eaton

and the amounts paid for those products. Of the

659 housing authorities we contacted, we received

one positive response from the Lucas Metropolitan

Housing Authority in Toledo, OH. In addition, we

received positive responses from the New York City

Housing Authority and the Wilmington, DE Housing Authority after expanding our review. The

responses demonstrated that between November 1,

1996, and January 12, 2001, the housing authorities

paid more for animal repellants and pesticide

products manufactured by J.T. Eaton than previously identified to the U.S. Attorney’s Office. The

U.S. Attorney’s Office followed up with the manufacturer and the suppliers we identified. Based on

that follow-up, the U.S. Attorney’s Office revised

the estimate of HUD related damages from nearly

$34,000 to over $79,000. The U.S. Attorney’s

Office negotiated a settlement agreement effective

September 18, 2003, that includes a recovery for

damages to HUD.

We recommended that HUD follow up with the

U.S. Attorney’s Office to ensure that HUD receives

the $79,000 due under the settlement agreement

with J.T. Eaton. (Report No. 2003-CH-1803)

Investigations

During this reporting period, the OIG opened

910 investigation cases and closed 454 cases in the

Public and Indian Housing Program area. Final

judicial action taken on these cases during the

period included $233,454 in recoveries/receivables,

$5,109,274 in restitution, $22,768 in fines, 150

convictions, pleas, and pre-trial diversions, 377

indictments/informations, 29 administrative sanctions, 514 arrests, and 1,632 months in prison. The

results of our more significant investigations are

described below.

Section 8 Assistance

Management and Program Officials/

Employees

Defendant Tracy Michelle Roach, former

Section 8 coordinator for the City of York, SC

Housing Authority, was sentenced in Federal Court

for the District of South Carolina to 15 months

confinement and three years supervised release,

ordered to pay $98,457 in restitution, and fined

$100. Roach previously pled guilty to embezzling

over $98,000 in federal funds for her personal use.

She embezzled the funds by writing duplicate

housing assistance payment checks to Section 8

landlords.

In Rochester, NY, in Federal Court for the

Western District of New York, defendant Mark

Fulmer, a former housing rehabilitation specialist

for the Rochester Housing Authority, pled guilty to

one count of filing a false income tax return.

Between 1993 and 1999, Fulmer solicited and

received kickbacks from Authority contractors.

Fulmer either increased the contract amount, which

allowed the contractors to complete the work at full

salary with an additional amount remaining for

Fulmer, or gave them a job that required little or no

work. Fulmer received a sentence concurrent with a

previous sentence. In May 2002, he was sentenced

to five years probation, six months home confinement, and 200 hours of community service, and

was ordered to pay $90,000 in restitution to HUD.

In addition, Fulmer will have to pay tax on the

$90,000 he received plus interest and penalties that

will be determined by the IRS.

In Hartselle, AL, in Federal Court for the

Northern District of Alabama, defendant Brenda

Ford, former executive director of the Regional

Housing Authority of Lawrence, Cullman, and

Morgan Counties, was sentenced to 10 months

incarceration and 36 months supervised release,

and ordered to pay $50,000 in restitution. Ford

previously pled guilty to making false statements to

HUD. She used Authority funds for her personal

benefit.
Chapter 3 - HUD’s Public and Indian Housing Programs 38

In Reno, NV, in Federal Court, District of

Nevada, defendant Shannon Thompson, a former

employee of the Te-Moak Indian Housing Authority,

was sentenced to 10 months incarceration and three

years supervised release, and ordered to pay

$29,999 in restitution. Between July and November

2001, Thompson embezzled approximately $30,000

of Housing Authority funds for his own use. He

previously pled guilty to one count of embezzlement from a Tribal organization.

Defendant Julio Perez, III, former Housing

Authority of Corpus Christi, TX (HACC) manager

of information systems, was sentenced in Federal

Court for the Southern District of Texas to 18

months in prison and three years supervised release, and ordered to pay $25,000 in restitution, a

$3,000 fine, and a $100 special assessment fee.

Perez pled guilty in February 2003 to theft or

bribery concerning programs receiving federal

funds. Perez embezzled $133,645 from the HACC,

committed wire fraud, and laundered funds through

his wife’s financial institution. He devised a scheme

to obtain money from HACC through a commercial

bribery scam in which he influenced the HACC

board of directors in connection with the awarding

of a computer upgrade contract. As part of the

bribery scheme, Perez was treated by Pantex Computers, Inc., as an independent “consultant” and

received kickbacks in exchange for his influence.

In New York, NY, in Federal Court for the

Southern District of New York, defendant Robert

Swinton was sentenced to one year and one day in

jail, three years supervised release, and $20,500 in

restitution. Swinton pled guilty in March 2003 to

extortion. While serving as deputy director of the

New York City Housing Authority’s Department of

Facility Planning, Swinton attempted to extort

$28,000 in cash from a Harlem shopkeeper whose

store was located in Rangel Houses, a HUD subsidized residence.

Defendant Janelle Johnson was sentenced in

Albuquerque, NM, in U.S. District Court for the

District of New Mexico, to six months home

detention and five years probation, and ordered to

pay $15,851 in restitution. Between July 1999 and

April 2001, while employed as the executive director of the Maxwell Housing Authority, Johnson

stole tenant rent proceeds and caused herself to

receive salary overpayments.

Defendant Brian Panich, the former executive

director of the Liberty, NY Housing Authority, was

sentenced in Federal Court, Southern District of

New York, to two years probation for theft or

bribery concerning Section 8 Program funds. From

1997 to 2001, as executive director, Panich used

$22,000 in Section 8 funds as personal loans to

himself.

In St. Louis, MO, defendant Lesa Gruber,

former executive director of the Oran Housing

Authority, signed a pretrial agreement in which she

admitted embezzling funds from HUD’s Section 8

Program while she was the executive director.

Gruber embezzled the funds by cashing unauthorized checks made payable to herself and drawn on

the Authority’s account. She also embezzled funds

by cashing Section 8 portability checks written to

the Oran Housing Authority from the Chaffee

Housing Authority. Gruber resigned her position as

executive director in 1999, shortly after she admitted to OIG that she embezzled the funds and used

the money to support her gambling habit. Gruber

agreed to pay $17,646 in restitution.

Defendant Patricia Wilson-Heath was sentenced

in New Haven, CT, in U.S. District Court for the

District of Connecticut, to five years probation,

three months of which must be served in home

confinement with electronic monitoring, 100 hours

of community service, and restitution of $13,812 to

the Housing Authority of the City of New Haven

(HANH). Wilson-Heath, a former HANH employee,

previously pled guilty to an information on one

count of theft and conversion of government funds.

While employed at the HANH, she accessed the

computer records of certain landlords and altered

the information, causing HANH checks to be issued

to her sister in Florida under the payee identification numbers of those landlords.

Defendant Eddy Lee Summers, former deputy

executive director of the Wheeling Housing Authority (WHA), was sentenced in Wheeling, WV, in

U.S. District Court for the Northern District of
Chapter 3 - HUD’s Public and Indian Housing Programs 39

West Virginia, to two years supervised probation

and ordered to pay $1,100 in fines and court costs.

Summers previously pled guilty to embezzling

$3,496 from the WHA’s petty cash account by

submitting falsified invoices for equipment and

services. Summers furthered the fraud by identifying these expenditures as emergencies and bypassing the WHA’s financial control system. Summers was also ordered to pay $12,240 in restitution,

which includes petty cash reimbursement, legal

expenses, and fees for the forensic audit conducted

at the WHA. The investigation was initiated after

finance representatives from the WHA noticed

inconsistencies as well as an inordinate amount of

“emergency” expenditures made by Summers.

Defendant Carol Pagaduan, former Port Gamble

S’Klallam Tribe Housing Authority staff accountant, was sentenced in Seattle, WA, in Federal

Court for the Western District of Washington, to

five years supervised probation and was ordered to

pay $9,591 in restitution. Pagaduan previously pled

guilty to one count of theft of federal program

funds. While employed as the staff accountant,

Pagaduan used her position to embezzle $9,591 in

rent funds. These funds were received in cash from

Housing Authority tenants; the funds were stolen

between November 2001 and May 2002.

Defendant Rhonda Jenkins, former executive

director of the Clay County Housing Authority, and

defendant Velma Kathryn Ray, a friend of Jenkins,

were sentenced in Little Rock, AR, in U.S. District Court for the Eastern District of Arkansas, to

10 months imprisonment and 36 months probation,

and were ordered to pay $50,158 in restitution.

Defendant Greg Ray signed a pretrial diversion

agreement with the U.S. District Court, Eastern

District of Arkansas, admitting to embezzlement

and conspiracy to embezzle funds from the Clay

County Housing Authority. Greg Ray agreed to pay

$3,619 in restitution in return for 18 months of

deferred adjudication. The defendants established

Section 8 accounts in the names of fictitious landlords/tenants, wrote Authority checks payable to the

fictitious landlords, and received and cashed these

checks for their personal use. Jenkins also used the

Authority’s credit card for personal purchases.

In a related case, defendant Jeffery Midgett was

sentenced in U.S. District Court for the Eastern

District of Arkansas to 24 months probation and

restitution of $1,469. Midgett, the boyfriend of

Rhonda Jenkins, previously pled guilty to one count

of submitting false statements to HUD. Although

Midgett was not qualified to receive housing assistance, Jenkins provided Midgett with rent-free

housing by tendering Section 8 checks belonging to

the Authority to Midgett’s landlord. On HUD benefit

certification forms, Jenkins and Midgett listed as

the tenants of Midgett’s residence other individuals

who qualified for housing assistance.

Also in a related case, defendant Joyce

Goodman was sentenced in U.S. District Court for

the Eastern District of Arkansas to 24 months

probation and was ordered to pay $2,815 in restitution and a $250 fine. Goodman, a friend of Rhonda

Jenkins and the property manager for Corning

Farm Supply, a landlord in Clay County, AR,

previously pled guilty to one count of submitting

false statements to HUD. Acting in her capacity as

property manager, Goodman knowingly allowed

Jenkins and Midgett to occupy a residence in

Corning. At the same time, she listed other individuals as tenants for this residence and accepted

Section 8 checks in the names of these fictitious

tenants.

Defendant Angelica White signed a pretrial

diversion agreement in Little Rock, AR, in Federal

Court for the Eastern District of Arkansas, admitting to embezzling funds from the Clay County

Housing Authority and failing to report the embezzlement of funds by others. White agreed to

participate in a substance abuse treatment program

and pay restitution of $2,673 in return for 18

months of deferred adjudication. From August 2001

to March 2002, White, along with others, including

the executive director, created false Section 8

landlords and tenants in the Authority’s books and

records. They then received payments from the

Authority in the names of the false landlords and

used the funds for their personal benefit.

Defendant Brenda Ford pled guilty in Huntsville, AL, in U.S. District Court for the Northern

District of Alabama, to two counts of theft of

government funds and two counts of false state-
Chapter 3 - HUD’s Public and Indian Housing Programs 40

ments. Ford, the former executive director of the

Hartselle Housing Authority, was previously

charged with theft of HUD funds from the Authority.

She was ordered to pay $50,000 in restitution.

In Philadelphia, PA, defendant Charmaine

Mabry pled guilty in U.S. District Court for the

Eastern District of Pennsylvania to extortion under

color of the official right (Hobbs Act), conspiracy

to commit an offense against the United States, and

theft concerning a program receiving federal funds.

Mabry, a former Philadelphia Housing Authority

Section 8 eligibility specialist, received bribes in

return for manipulating and bypassing the

Authority’s Section 8 lottery system, which is

intended to be used to fairly and properly select

eligible Section 8 recipients. This allowed each

recipient to illegally obtain Section 8 vouchers. In

addition, Mabry was suspended from participation

in procurement and non-procurement transactions

as a participant or principal with HUD and throughout the Executive Branch of the Federal Government.

Section 8 recipients Adrienne Albright, Vernell

Devan, Delores Dolison, Dorris McCullough,

Charles Moore, and Cornetha Sneed each pled

guilty to conspiracy to commit an offense against

the United States and theft concerning a program

receiving federal funds. The individuals paid

Mabry bribes ranging from $400 to $1,000. As a

result of this fraud, Section 8 vouchers in excess of

$74,000 were fraudently paid on behalf of these

individuals.

In Eden, NC, in Federal Court for the Middle

District of North Carolina, defendant April Deese,

a former Section 8 manager, pled guilty to two

counts of theft of government funds. Deese was the

on-site manager for five housing complexes, two of

which were Section 8 developments. From 1999 to

2001, Deese deposited tenant rents in her personal

bank account and used the funds for her own

benefit. She caused a loss of approximately

$55,000 to HUD.

Defendant Theresa Coughlin, a former employee of the Housing Authority of Lycoming

County, PA, pled guilty in the Lycoming County

Court of Common Pleas to one consolidated felony

count of theft by failure to make required disposition of funds received. Coughlin had been charged

with 208 counts of theft for failure to make required

disposition of funds, tampering with public records,

and receiving stolen property. She was employed as

the housing coordinator at the Pennvale public

housing development when the thefts occurred.

Coughlin stole the cash rent payments that she had

received from tenants, and lowered the rents for

other tenants without justification or authorization.

The Housing Authority suffered a loss of approximately $28,000.

Defendant Antonio Essex pled guilty in St.

Louis, MO, in Federal Court, Eastern District of

Missouri, to 14 counts of theft of government

funds. Essex admitted that he stole funds from the

HUD funded Clinton-Peabody Tenant Association.

He obtained Association checks, had the checks

made out in his name, personally endorsed the

checks, and cashed them at various locations. The

total amount of the theft was $5,450.

Defendant Susan Adams, executive director of

the Auburn Housing Authority, was indicted in

Auburn, NE, in Federal Court for the District of

Nebraska, on one count of embezzlement. Adams

embezzled $15,881 from the Authority by fraudulently receiving duplicate paychecks. She also

submitted vouchers and received multiple reimbursements for the same business expenses.

Defendants Joe R. Calabaza, Jerry B. Nieto,

Howard Tenorio, and Lorenzo F. Coriz were

indicted in Albuquerque, NM, in Federal Court

for the District of New Mexico. Each defendant was

charged with one count of conspiracy. In addition,

they were all charged with embezzlement and theft

from Indian Tribal Organizations and aiding and

abetting; Calabaza was charged with 29 counts,

Nieto with one count, Tenorio with two counts, and

Coriz with three counts. The four were also charged

with theft of federal program funds; Calabaza was

charged with 10 counts, Nieto with one count,

Tenorio with one count, and Coriz with three

counts. Calabaza, who is a the former executive

director of the Santo Domingo Tribal Housing

Authority (SDTHA), and Nieto, Tenorio and Coriz,

who are former SDTHA board members, allegedly
Chapter 3 - HUD’s Public and Indian Housing Programs 41

embezzled over $200,000 from SDTHA. Most of the

embezzled money came from a SDTHA bank account

that the defendants opened with SDTHA/HUD funds.

The account was set up solely for their personal

use. Calabaza would make the cash withdrawals

from the account and then distribute some of the

funds to the other three defendants. On several

occasions, the other three defendants also made

some of the cash withdrawals themselves. When the

funds in the account ran low, the defendants transferred additional money from other SDTHA bank

accounts. The embezzled money was used by the

four defendants for personal expenses and entertainment, including gambling, vehicle purchases,

and payment of personal debts.

In New Orleans, LA, in Federal Court for the

Eastern District of Louisiana, defendant Debra

Smith, the former Section 8 housing assistance

manager for the Housing Authority of Bogalusa,

was charged in a three-count information with

submitting false statements to HUD. From January

1997 to March 1999, Smith allegedly used her

position to create and approve fraudulent Section 8

housing assistance payment contracts in the names

of family and friends. The scheme resulted in the

payment of approximately $25,000 in fraudulent

Section 8 assistance to landlords who are Smith’s

relatives.

Defendant Paul Howard was indicted in Platte

County District Court on one count of felony theft.

Howard stole a credit card from the Housing

Authority of Kansas City, MO (HAKC), upon

termination of his employment in July 2002. From

the date of his termination through October 2002,

Howard stole $12,179 from the HAKC by using the

credit card to obtain gas, cash, and other miscellaneous items.

Defendants Wilfred Niedo and his wife Laura

Niedo, also known as Laura Tapp, were indicted in

Oklahoma City, OK, in Federal Court for the

Western District of Oklahoma, on charges of

conspiracy, theft from an Indian Tribal Agency, and

aiding and abetting. An investigation disclosed that

while acting as the executive director of the Wichita

Indian Housing Authority, Wilfred Niedo set up a

fictitious company identified as the Native American Processing Center. Wilfred Niedo designated

his wife as the president of this fictitious company,

and then generated Indian Housing Authority

checks payable to the fictitious company. He hand

carried these checks to his wife. At Wilfred Niedo’s

direction, Laura Niedo cashed multiple fraudulent

checks and returned the cash proceeds to her

husband. The loss to the government is $7,500.

In New York, NY, defendants Jacquelyn

Rogers, Lakisha O’Neal, and Wanda Bonilla were

arrested and charged in State Court with grand

larceny in the third degree. The defendants used

their ATM cards to withdraw funds from the Municipal Credit Union (MCU). The MCU computer

systems were disabled during the World Trade

Center (WTC) attacks in September 2001. As a

result, there was no limit on the amount of funds

that could be withdrawn. These individuals withdrew the money during the weeks following the WTC

attacks. The funds withdrawn were far in excess of

the defendants’ account balances. Rogers is an

employee at the New York City Housing Authority

(NYCHA), and O’Neal and Bonilla are NYCHA

tenants.

In a related case, 68 individuals were arrested

and charged in State Court with grand larceny in

the third degree. These individuals also used their

ATM cards to withdraw funds from the MCU in

excess of their account balances. Of the 68 individuals, the following NYCHA employees were

arrested: Maritza Diaz, Quanbie Green, Ronald

Lyons, Lamont McCorkle, Jose A. Ramos, Lance

John Stephenson, Rhasheeda Thigpen, and Charles

Williams. Twenty of the arrestees were NYCHA

tenants: Gigi Lofton, Paul Williams, Ingrid Carter,

Belinda Robinson, Kim Ward, Latayna Simpson,

Yolanda Dixon, Rosalyn Stevenson, Theresa

Alcantaro, Angela Wiggins, Kamau Christian, Alan

Godfrey, Regina Wooden, William Polanco, Louise

Davis, Pamela Harvell, Mario Osman, Bowana

Robinson, Roheen Oats, and Kim Darkins.

In another related case, defendants Addie

Moses, Charise Stewart, and Keshia Nimmons were

arrested and charged in State Court with grand

larceny in the third degree. The defendants used

their ATM cards to withdraw funds from the MCU in

excess of their account balances. Stewart and
Chapter 3 - HUD’s Public and Indian Housing Programs 42

Nimmons were NYCHA employees, while Moses

was a NYCHA tenant.

Defendant Beverly Lewis, former executive

director of the Housing Authority of the City of

Canton, GA, voluntarily surrendered to the City of

Canton Police Department. Lewis was charged in

State Court, Cherokee County, with theft for

unlawfully appropriating a property belonging to

the Housing Authority. Lewis resigned as executive

director on May 14, 2003, after a fee accountant

discovered that she had inappropriately used the

Authority’s credit card for personal use.

In Berlin, CT, defendant Denise Guite was

arrested pursuant to a Connecticut State arrest

warrant on 11 counts of larceny in the first degree

and four counts of larceny in the second degree.

Guite, the former executive director of the Berlin

Housing Authority, allegedly embezzled $111,422

from the Authority between November 2000 and

November 2002. This dollar amount includes cash

withdrawals, unauthorized retail purchases, unauthorized travel, and excess wages.

The San Angelo, TX Housing Authority board

of commissioners fired defendant Alex Tafolla,

executive director of the San Angelo Housing

Authority. The firing followed months of allegations

of mismanagement and abuse, findings by the OIG,

and reports by the accounting firm Webb and Webb.

The commissioners began formal proceedings to

discipline Tafolla and Mark Lambert, assistant

director of the Housing Authority, in June. Lambert

submitted his resignation on July 21, before the

commissioners could take any disciplinary action

against him.

OIG highlighted several incidents including a

conflict of interest that arose when Lambert’s

company, Hard Drive Cafe, sold goods and services

to the Authority. OIG also reported that the Authority expended $76,800 in unsupported grant funds

on constructing duplexes, and failed to use minimal

Environmental Protection Agency mold remediation

safety standards. The Webb report, which was

conducted at the request of the board, found duplicate employee reimbursements for gas purchases

and mileage, $160,000 in unreported payments to

the IRS, and unapproved retroactive pay raises for

Tafolla and Lambert.

In Little Rock, AR, HUD sent the former

executive director of the Clarksville Housing

Authority, defendant Gregory Wilson, a notice of

suspension from participation in procurement and

non-procurement transactions as a participant or

principal with HUD and throughout the Executive

Branch of the Federal Government. This action was

based on a criminal information filed in the Circuit

Court of Pope County. Wilson was arrested for

possession and sale of illicit drugs both on and off

Clarksville Housing Authority property.

Defendant George Douglas Linicomn, former

executive director of the Corsicana, TX Housing

Authority (CHA), was notified that HUD has placed

him on immediate suspension from future participation in procurement and non-procurement transactions as a participant or principal with HUD and

throughout the Executive Branch of the Federal

Government. His suspension was based on his

indictment on one count of theft by a public servant

($1,500 or more but less than $20,000). Linicomn

admitted his wrongdoing to the HUD Office of

Public Housing in Fort Worth, as well as the CHA

board of directors, after an investigation revealed

that he had CHA property in his possession.

Tenants

In Staten Island, NY, six individuals were

sentenced and another pled guilty in Federal Court,

Eastern District of New York, for their involvement

in providing false statements to the management

company of Parkhill, a Section 8 housing development, during the annual recertification process. The

investigation disclosed that a number of these rental

assistance recipients were in fact homeowners who

lived in other parts of the United States. They

traveled back to Staten Island once a year to participate in the recertification process.

Bamidele T. Lawal was sentenced to 16 months

incarceration and 36 months supervised release,

and ordered to pay $77,674 in restitution. Vincent

E. Esoga was sentenced to five months incarceration and five months house detention. He also

received 36 months supervised release to run
Chapter 3 - HUD’s Public and Indian Housing Programs 43

concurrently, and was ordered to pay $74,438 in

restitution and $3,000 in fines. Presley A. Hanson

and Stephen Freeman were sentenced to two years

probation for mail fraud and ordered to pay

$44,604 in restitution. Jeneba Swaray was sentenced to three years probation and ordered to pay

$41,888 in restitution. Joy Pope pled guilty to mail

fraud.

In Canton, OH, defendant Berniece Jackson

was sentenced in Stark County Court to three years

in prison for masterminding a fraud scheme. Three

additional defendants, Elijah Baldwin, Latasha

Stokes, and Evette Brown, were placed on three

years probation and ordered to serve 200 hours of

community service.

As part of the scheme, bank account numbers of

the Stark Metropolitan Housing Authority (SMHA)

were used to counterfeit SMHA checks. The counterfeit checks were subsequently used to buy computer

equipment, which in turn was used to print more

fictitious checks. The scam caused a loss to SMHA

in excess of $45,000. Investigators believe the

defendants were able to garner the SMHA bank

account numbers via utility checks sent to public

housing residents to assist them with paying utility

bills.

In Chicago, IL, defendant Marjorie L. Butler,

a Section 8 tenant, pled guilty in Cook County

Court to a State of Illinois felony count of forgery.

Butler admitted that she did not disclose her and

her boyfriend’s income during her Section 8 recertification for the years 2000 through 2002, during

which time she was employed and earning more

than $40,000 per year. She received $36,346 in

HUD Section 8 benefits to which she was not entitled. Butler was sentenced to 30 months probation

and ordered to pay $36,346 in restitution.

Defendants Wanda Rhodes and Mathew White,

former Section 8 tenants at the Freeport Housing

Authority, were sentenced in Brooklyn, NY, in

Federal Court for the Southern District of New

York, to five years probation and six months home

confinement, and were ordered to pay $32,828 in

restitution to the Authority and a $100 special

assessment. White and Rhodes previously pled

guilty to conspiracy to commit mail fraud. In

addition to underreporting their income, they

purchased a home with an FHA insured mortgage

while receiving Section rental assistance. They then

used their Section 8 subsidy to pay their monthly

mortgage payments. The defendants also admitted

to conspiring to submit false documentation in

order to qualify for the FHA insured mortgage and

using the mail to help further the fraud scheme.

In St. Louis, MO, defendant Annie Dismuke,

also known as Annie Cistrunk, was sentenced in

Federal Court, Eastern District of Missouri, to four

months home confinement and five years probation,

and ordered to pay $29,651 in restitution. Dismuke,

a Section 8 tenant, received rental assistance under

one Social Security number while working under a

Social Security number belonging to a different

individual. She also obtained vehicle loans and

opened bank accounts under the same false Social

Security number. Her sentence was based on her

plea of guilty to one count of making false statements to HUD.

In St. Louis, MO, in Federal Court for the

Eastern District of Missouri, defendant Bryant

Butler was sentenced to five years probation and

ordered to pay $27,599 in restitution to the St.

Louis County Housing Authority. Butler previously

pled guilty to a three-count indictment charging him

with making false statements to HUD. Bryant received Section 8 rental assistance from 1994 to

2001 under one Social Security number while

working full-time under a different Social Security

number. He failed to report his employment income, thereby causing a $27,599 loss to HUD.

Defendant Christy Murchinson, also known as

Christy Miller, was sentenced in St. Louis, MO, in

Federal Court for the Eastern District of Missouri,

to seven months imprisonment and three years

probation, and ordered to pay $24,416 in restitution

to the St. Louis County Housing Authority.

Murchinson previously pled guilty to one count of

making false statements to HUD. According to

Housing Authority records, Murchinson was an

unemployed single mother receiving Section 8

rental assistance. An investigation disclosed that she

was in fact employed, earning $18 per hour and

married to a firefighter who earned $75,000 per
Chapter 3 - HUD’s Public and Indian Housing Programs 44

year. Murchinson also used a false Social Security

number to purchase a vehicle and a computer. She

later filed a Chapter 7 bankruptcy petition using the

same false Social Security number in which she

listed over $100,000 in debts.

Defendants Monizha Karimi, a Section 8

landlord, and Shah Lal, a Section 8 tenant, pled

guilty and were sentenced in Dakota County Court,

Burnsville, MN. Both defendants were sentenced

to four years probation and ordered to jointly pay

$22,116 in restitution. Karimi was also sentenced to

45 days of electronic home monitoring, while Lal

was sentenced to 25 days of home confinement.

Karimi, as a landlord, collected Section 8 benefits

on behalf of Lal in spite of the fact that the property

was being subleased to a non-Section 8 tenant. The

defendants actually occupied another Section 8 unit

that belonged to another family member, who has

yet to be charged in this case.

In Cleveland, OH, defendant Charmane Lowe

was sentenced in Federal Court, Northern District

of Ohio, to three years probation and was ordered

to pay the Cuyahoga Metropolitan Housing Authority (CMHA) $20,410 in restitution after pleading

guilty to one count of mail fraud. In 1999, Lowe

applied for a mortgage loan using her minor

daughter’s name, Social Security number, and

credit. She used associates to act as Section 8

landlords and funnel housing assistance payments

back to her while she was the Section 8 tenant. The

loan was brokered by Bevel, Bevel & Associates.

Between July 1999 and July 2002, Lowe fraudulently received $20,410 in Section 8 rental assistance payments by falsely claiming to be a tenant of

the property she actually purchased and owned.

Former Section 8 recipient Helen Elliott was

sentenced in Charlottesville, VA, in U.S. District

Court, Western District of Virginia, to five years

probation and four months home confinement, and

was ordered to pay $16,439 in restitution to HUD.

Elliott failed to report income from her principal

employer over a four-year period when recertifying

for her Section 8 assistance. The defendant previously pled guilty to one count of making false

statements to HUD.

Defendant Tonya Bolden pled guilty in State

District Court in Houston, TX, to a criminal

complaint of theft that was filed on May 19, 2003.

Bolden was sentenced on the same day to five years

probation, fined $300, and ordered to pay $16,149

to the Housing Authority of the City of Houston

(HACH). On May 6, 2003, Bolden received in error

a $16,149 check from the Houston Housing Assistance Partnership (HHAP), which is the Section 8

contractor for HACH. Bolden was notified by HHAP

on several occasions that the funds were mistakenly

sent to her and was advised that she needed to

return the funds; Bolden refused.

In Topeka, KS, in Federal Court for the District of Kansas, defendant Verel T. Westover was

sentenced to one year and one day in prison and

two years supervised release, and was ordered to

pay $15,200 in restitution for making false statements to obtain rental subsidies and food stamps.

Westover was involved in a scheme to obtain rental

assistance from HUD and food stamps from the

Department of Agriculture Food Stamp Program by

submitting statements indicating that he was unemployed when in fact he was employed as a truck

driver.

Defendant Daisy Womack, a Section 8 tenant,

pled guilty in Commonwealth of Pennsylvania State

Court to one count of theft by deception and was

sentenced to 60 months supervised release and

ordered to pay $14,492 in restitution to the Philadelphia, PA Housing Authority (PHA). An investigation found that Womack fraudulently obtained

housing assistance payments to which she was not

entitled. Between September 1999 and March 2003,

Womack concealed her assets from the PHA, including the cash purchase of four Philadelphia homes.

During this time, she was receiving Section 8

benefits. The PHA confirmed that Womack never

disclosed the purchase of the homes when she

signed her recertification forms.

In Fort Worth, TX, defendant Christi Michelle

Wright pled guilty in Tarrant County State Court to

two separate indictments. In the first indictment,

Wright pled guilty to a state jail felony charge of

making false statements to HUD on her application

for housing assistance. Based on these false state-
Chapter 3 - HUD’s Public and Indian Housing Programs 45

ments, she received $13,706 in Section 8 benefits to

which she was not entitled. Following the second

indictment, Wright pled guilty to a third degree

felony for making false statements to the Texas

Department of Human Services (TDHS) on her

application for assistance by failing to report her

live-in boyfriend and his income. Based on these

false statements, she received $24,134 in Texas Aid

for Needy Families assistance to which she was not

entitled. Wright was sentenced to five years probation and restitution of $13,706 on the HUD charge,

and 10 years probation and restitution of $24,134

on the TDHS charge. Her probation will run concurrently.

In Rockville, MD, defendant Anita Cowan, a

former Montgomery County Housing Opportunities

Commission (HOC) tenant, was sentenced in Maryland State Court on felony theft charges. She

received five years probation and was ordered to

pay $11,760 in restitution to the public housing

agency. An investigation disclosed that from March

2001 through April 2002, Cowan failed to report to

the HOC that, along with her husband, she purchased an FHA insured property. Cowan also failed

to report the income that she received from other

family members when she subleased her subsidized

unit to them. Cowan’s Section 8 housing assistance

was terminated.

In Columbia, MO, in Federal Court for the

Western District of Missouri, defendant Christina

Berruz entered into a pre-trial diversion agreement.

Berruz, a Section 8 tenant, failed to report her

income to the Columbia Housing Authority. She

previously admitted to providing false statements to

the Authority to intentionally misrepresent her

household income in order to qualify for assistance

to which she was not entitled. According to the

agreement, Berruz will be on a 12-month diversion

program and will pay $8,084 in restitution.

In Cleveland, OH, in Federal Court for the

Northern District of Ohio, defendant Aubrey

Benjamin was sentenced following his guilty plea to

fraudulently accepting $7,663 in Section 8 funds.

He received five months in prison and two years

supervised release, was fined $3,000, and was

ordered to pay $7,663 in restitution to the

Cuyahoga Metropolitan Housing Authority (CMHA).

Benjamin acted as the Section 8 landlord of a single

family property that he acquired with an FHA

insured mortgage. He also lived in the FHA insured

property while falsifying Section 8 documents,

submitted to the CMHA, regarding his true address.

Benjamin’s girlfriend, Pamela Phillips, also resided

with him at the FHA insured property as a Section 8

tenant. This case is noteworthy from the standpoint

that while Benjamin was on trial for drug offenses,

he admitted to the HUD fraud during his testimony.

In Norfolk, NE, defendant Laurie Vaughn, a

Section 8 tenant, was sentenced in Madison County

District Court to 24 months probation and ordered

to pay $7,635 in restitution after being charged with

one count of theft by deception. Vaughn defrauded

the Norfolk Housing Authority by failing to accurately report her household income.

Defendant Aimee Mostek, a Section 8 tenant of

the Columbus Housing Authority, was sentenced in

Polk County District Court, Osceola, NE, on one

count of theft by deception. She received 24 months

probation and 120 hours of community service, and

was ordered to pay $7,140 in restitution. Mostek

was initially charged for failing to report her correct

household income and composition to the Columbus Housing Authority. She did not report her

employment as well as the income generated by

subleasing a portion of her residence. The total loss

to the government is $7,140.

Defendant Larry Stewart, a former Cambridge,

MD Housing Authority (CHA) Section 8 tenant,

pled guilty in Dorchester County District Court to

felony theft charges and was sentenced 30 days

incarceration and two years probation, and ordered

to pay $7,000 in restitution to the CHA. From

August 1998 through November 2001, Stewart

failed to disclose on official recertification forms

his employment at a local automobile shop. His

fraudulent activity was discovered when a CHA

official completed a random check of the Maryland

Department of Labor and Licensing files, which

disclosed that Stewart had been employed since

May 1999. Stewart was terminated from the Section

8 Program by the CHA.
Chapter 3 - HUD’s Public and Indian Housing Programs 46

Defendant Marilyn Stone was sentenced in State

Superior Court, Nevada County, CA, to 120 days

in jail, three years probation, fined $870, and

ordered to pay $5,312 in restitution to the County

of Nevada. Stone failed to disclose to the Nevada

County Housing and Community Development and

Human Services Agency that she had signed over

care, custody, and control of her daughter. Stone

signed annual certifications that her household

composition had not changed and that her daughter

still lived with her. An investigation disclosed that

Stone provided false statements to the Authority and

the Human Services Department.

In Milford, OH, after being charged in

Clermont County Court with theft by deception for

failure to report her correct household income and/

or composition, defendant Flora Nicolazzo, a

Section 8 tenant, pled guilty to a lesser count of

misdemeanor theft. Nicolazzo also admitted to

defrauding the Clermont County Office of Job and

Family Services and the Social Security Administration. Specifically, she failed to inform the Clermont

Metropolitan Housing Authority that her husband,

who was employed, lived with her in the Section 8

unit. On the day of her plea, Nicolazzo was sentenced to Clermont County jail for 180 days, with

180 days suspended, and five years probation. She

was also ordered to pay $4,027 to the Authority.

In Batavia, OH, defendants Anne and Dwayne

Hunt, Section 8 tenants, pled guilty and were

sentenced in Clermont County Court for their role

in benefits fraud against the Clermont Metropolitan

Housing Authority. Specifically, they failed to

report their correct earnings to the Authority. They

were each sentenced to five years probation and

ordered to pay joint restitution of $4,569.

In Fort Worth, TX, in Federal Court for the

Northern District of Texas, defendant Cecilia A.

Rosales was charged with violating her probation

and was arrested. Rosales was sentenced to five

years probation after pleading guilty on February

26, 2001, to making false statements to HUD on her

Section 8 application and recertifications. The false

statements included her income and family composition. This resulted in a $24,337 loss to the Department.

In Brooklyn, NY, defendant Vivien Carter, a

former Section 8 tenant, signed a deferred prosecution agreement for a term of one year. The U.S.

Attorney for the Southern District of New York and

the defense agreed to an arrangement for Carter to

pay full restitution of the amount owed and declined

to prosecute Carter due to the relatively small

amount of money involved ($5,974). Carter was

accused of underreporting her income to the New

York City Housing Authority in order to receive

Section 8 rental assistance.

Defendant Dawn Kirkley pled guilty in St.

Augustine, FL, in State Court for the Northern

District of Florida, to public assistance fraud and

was sentenced to 18 months probation and ordered

to pay $3,500 in restitution. Kirkley previously pled

guilty to making false statements and housing fraud

and was ordered to pay $4,404 in restitution. She

failed to comply with the order, and a state warrant

was issued for her arrest. Kirkley was arrested

while residing in Flagler Village Apartments, a HUD

Section 8 complex.

Defendant Priscilla French, a Section 8 tenant,

was sentenced in Nashville, TN, in State Court,

Middle District of Tennessee, for reporting false

income to the Metropolitan Development and

Housing Agency, resulting in a $13,832 overpayment of Section 8 assistance. French was sentenced

to two years (suspended), two years supervised

probation, and ordered to perform 240 hours of

community service in lieu of restitution.

Defendants Marilyn Williams, Anthony Williams, Tonya Denise Wiggins, Sherry Alexis Washington and Tanisha Scott were each sentenced in

Jacksonville, FL, in State Court for the Northern

District of Florida, on public assistance fraud

charges. Marilyn Williams was sentenced to five

years probation, ordered to pay $7,228 in restitution, and fined $350. Anthony Williams received

one-year probation and was ordered to pay $772 in

restitution and $298 in fines. Tonya Denise Wiggins

was sentenced to two years probation, ordered to

pay $660 in restitution, and fined $323. Sherry

Alexis Washington was sentenced to two days

incarceration and ordered to pay $606 in restitution

to the Jacksonville Housing Authority and $276 in
Chapter 3 - HUD’s Public and Indian Housing Programs 47

fines and court costs. Scott was sentenced to six

months supervised probation and 15 hours of

community service, and ordered to pay $229 in

restitution to the Authority and $505 in fines and

court costs.

On the same day, defendant Belinda Collins was

sentenced for felony public assistance fraud to five

years probation and ordered to pay $5,042 in

restitution to the Authority and $506 in fines and

court costs. Collins also provided false statements

to receive Section 8 assistance to which she was not

entitled. Also, defendant Latrell Rena Boykins

failed to appear for her pre-trial hearing for felony

public assistance fraud. A warrant has been issued

for her arrest.

Other individuals have been arrested and

charged in this case. The defendants included

Latasha Mobley, Linda Montfort, Mounita Plant,

Ethel Steward, Sherry Washington, Michelle

Marshall, Tanika Harris, and Maria Collins. They

were charged in State Court, Middle District of

Florida.

In Kansas City, MO, defendant Jacqueline S.

Ferguson pled guilty in Clinton County District

Court to stealing by deceit. She was sentenced to

five years probation and was ordered to pay restitution for the entire amount of the theft. Ferguson

fraudulently received Section 8 benefits from ABCD

Public Housing Agency and the State of Missouri.

The total loss to the government is $30,904.

Defendant Sheryl Cannamore pled guilty in St.

Louis, MO, in Federal Court for the Eastern

District of Missouri, to making false statements on

public housing recertification forms and applications for food stamp benefits. Cannamore, a resident of the Clinton-Peabody public housing development, failed to report her income as a full-time

employee of the Federal Reserve Bank of St. Louis

on her annual tenant recertifications. She listed her

only income as monthly cash grants from the

Missouri Department of Social Services. Housing

benefit overpayments for Cannamore for the period

July 1994 through April 2002 amounted to

$28,569. The amount of overpayment of

Cannamore’s food stamp benefits for 1996 through

2002 was $17,789, while the amount of overpayment of monthly cash grants from the Missouri

Division of Family Services was $34,964.

The following residents of the Yonkers, NY

Municipal Housing Authority have made or are

suspected of making false statements to HUD and

the Authority:

Defendant Thelma Young pled guilty in Federal

Court for the Southern District of New York to theft

of government funds. The defendant defrauded the

Section 8 Program since 1996 by concealing her

employment income from the management agent of

the East River Houses, causing a $7,000 overpayment of Section 8 assistance.

Defendants Shelli Phoenix and Shirley Jones

pled guilty to federal benefits fraud. Phoenix held

two rent subsidized apartments and failed to disclose her true income to the Housing Authority.

Jones, who lived in one of the apartments, benefited

from the fraud.

Defendants Amera and Abdallah Makhlouf

were indicted on charges of theft of public money

and making false statements. From July 1998

through April 2003, the defendants failed to accurately report their income and household composition to the Authority. This resulted in the overpayment of approximately $52,705 in HUD housing

subsidies.

Defendants Daifallah Rabadi, Amal Rabadi,

Nouf Rabadi, Amanda Soto, Bilal Mehdawi, Lamya

Makhlouf, Ana Medina, Angela Montas, Enrique

Perez, Giselle Baez, Augustin Scharron, Jeannette

Torres, Salvatore Moliterno, Latonia and Dave

Morris, Hilda Concepcion, and Nelson Henriquez

were arrested on charges of theft of government

funds. The defendants either provided false statements to the Authority during the annual recertification process by misrepresenting their family

composition, income, and assets, or benefited from

the Section 8 assistance received by those who

provided the false statements. Defendant Fayroz

Ahmad Assaf was arrested on charges of theft of

government funds and Social Security fraud. Assaf,

a Section 8 landlord, failed to inform the Authority

that a tenant had moved and continued to receive

Section 8 payments for this tenant for several

months.
Chapter 3 - HUD’s Public and Indian Housing Programs 48

In related cases, Pamela Riddick pled guilty in

Federal Court for the Southern District of New

York to theft of government funds. Defendant

Calvin Powell pled guilty in the same court to

conversion of government funds. Defendant Kimberly King received a deferred prosecution for a

term of six months. King has agreed to pay $50 a

month toward the $300 restitution she owes, and in

February 2004, she will be required to sign a

confession of judgment for $3,345, the remaining

amount she owes. King previously surrendered in

relation to a criminal complaint charging her with

theft of federal funds for underreporting her income

in order to receive Section 8 assistance to which

she was not entitled.

Defendant Alberta Cowan pled guilty in St.

Louis, MO, in Federal District Court for the

Eastern District of Missouri, to one count of

making a false statement to HUD. Cowan applied for

and received a Section 8 rental voucher in Mexico,

MO, in May 2000 and subsequently transferred the

voucher to Mount Vernon, NY. She then leased a

rental unit in Mount Vernon, receiving rental

assistance of over $850 per month for over two

years. In reality, Cowan never moved from Missouri

to New York. Cowan’s daughter, who was employed

and earning over $60,000 per year, occupied the

rental unit in New York. Cowan then applied for

rental assistance at the Chevy Chase Apartments, a

project-based HUD subsidized property in Mexico,

MO, in March 2002. Between May and September

2002, HUD paid subsidy for Cowan in both Missouri and New York. Cowan made numerous false

statements on her certifications, including failing to

report real property, her bank accounts, a $38,972

workers’ compensation settlement, a $27,867

disability back pay settlement, and a $80,469

divorce settlement, all of which she received during

the two-year period.

Defendants Gary and Linda Clark, Section 8

tenants, were indicted in Sioux City, IA, in Federal

Court for the Northern District of Iowa, on one

count of conspiracy to commit fraud. An investigation found that the Clarks had owned and operated

a business for over 10 years. During this time

period, they failed to accurately report their income

on Social Security Administration and HUD certifications. The loss to the government is approximately $146,425.

In Wichita, KS, in Federal Court for the

District of Kansas, defendant Chaketha Johnson

was indicted on two counts of making false statements to the Wichita Housing Authority. Allegedly,

Johnson fraudulently received $73,827 in rental

assistance over a 12-year period. The indictment

charged her with making false statements concerning household composition and unreported income

for the years 1998 and 1999. This case was filed

with the OIG in 2000 after the Wichita Housing

Authority received an anonymous tip that Johnson’s

husband, DerWard Johnson, had lived with her

since 1989.

In Colorado Springs, CO, in Federal Court for

the District of Colorado, defendant Denise Souser,

a former Section 8 tenant, was indicted on five

counts of making false statements. Souser began

receiving rental assistance from the Colorado

Springs Housing Authority in 1994. On her yearly

recertifications, she claimed that her only source of

income was child support and/or alimony. However,

an investigation disclosed that Souser had been

employed as a nurse’s aide since 1994. The Authority overpaid $38,100 in rental subsidies to Souser.

Defendant Patrick E. McHugh, Jr., was indicted

in Boston, MA, in Federal Court for the District of

Massachusetts, on two counts of theft of government money. McHugh allegedly received $33,341

in Section 8 benefits to which he was not entitled by

failing to claim his accurate income on Section 8

recertifications between 1998 and 2003. McHugh

also received $65,575 in Social Security benefits to

which he was not entitled.

Defendant Candy Renee Anderson, a former

Section 8 tenant, pled guilty in Richmond, CA, in

U.S. District Court for the Northern District of

California, to one count of theft of government

monies. Anderson failed to disclose to HUD her

part-time employment from 1996 to 2001. As a

result, HUD provided more than $27,900 in overpaid Section 8 housing assistance on Anderson’s

behalf.
Chapter 3 - HUD’s Public and Indian Housing Programs 49

Defendant Lorraine Lobato, a former public

housing tenant, was indicted in Denver, CO, in

Federal Court for the District of Colorado, on three

counts of making false statements. An investigation

disclosed that Lobato’s partner moved in with her

in January 2001 and lived with her until the Denver

Housing Authority (DHA) evicted them in May

2003. During her yearly recertifications, Lobato

failed to inform the DHA that another individual

resided with her; she also failed to report the

individual’s income. As a result of the false statements, the DHA overpaid $18,095 in rental subsidies to Lobato.

Defendant Sandra Garcia, a Section 8 tenant,

was indicted in Chicago, IL, by the Illinois Attorney General’s Office on one count of State benefits

fraud. Garcia allegedly failed to report her income

and assets to HUD and the Illinois Department of

Public Aid. In doing so, she received more than

$13,000 in Section 8 and public assistance benefits.

Defendant Joyce Marie Dykes, also known as

Lecretta Jones and Lecretta J. Dykes, was indicted

in San Antonio, TX, in Federal Court for the

Western District of Texas, on one count of theft of

public money. From January 2001 to September

2002, Dykes fraudulently received $12,254 in

Section 8 housing assistance payments. Dykes, who

applied for and received Section 8 assistance at a

San Antonio residence, also owned this same

residence under the alias name of Lecretta Jones.

The deed for the property also lists Lecretta J.

Dykes as the owner. In reality, Dykes, as the

Section 8 tenant, and Jones, as the Section 8 landlord, are one and the same person. In order to

further the scheme, Dykes falsified owners’ certification forms and Section 8 housing assistance

payment contracts.

Defendant Farhan Ahmed Mohammed was

indicted in San José, CA, in Federal Court for the

Northern District of California, on two counts of

false statements and one count of operating a money

transmitting business without a license. An investigation disclosed that Mohammed received income

and commissions from a money transmitting business in which he had an ownership. This business

affected interstate and foreign commerce in that it

caused checks and money to be transmitted from

the State of California to the State of Minnesota,

from the State of Minnesota to Dubai, United Arab

Emirates, and from Dubai to Somalia without a

money transmitting license. Mohammed failed to

report income and commissions received to the

local housing authority, resulting in a $11,319 loss

to HUD.

In Chicago, IL, defendants Robert and Sabrina

Guthrie, both Section 8 tenants at the DuPage

Housing Authority, were indicted separately on

three State of Illinois felony counts of state benefits

fraud, theft, and conspiracy. The indictments allege

that the defendants received excess Section 8

benefits to which they were not entitled by failing to

report their full time employment and income to

HUD for the period October 2001 to December

2002. The loss to HUD is approximately $10,502.

Defendant Shereth Martin surrendered to the

U.S. Marshals Service and was charged in Newark,

NJ, in Federal Court for the District of New Jersey,

with making a false statement to HUD. An investigation disclosed that Martin, an employee of the

Railroad Retirement Board, resided in the Sam Sica

Homes, a low-income housing development operated by the Carteret Housing Authority (CHA), from

1999 to August 2003. From July 2001 through July

2003, Martin submitted forged pay stubs from her

employer, which she had altered to delineate a

deduction for the repayment of sick leave, when in

fact no such deduction had been taken. This fraudulent deduction appeared to lower Martin’s pay,

which resulted in the CHA’s lowering her rent.

Martin also forged a letter from her employer and a

verification of employment form sent to her employer by the CHA. Based on Martin’s actual income, she should have paid approximately $10,600

more for her rent for the time period covering the

fraud than she actually paid.

Defendant Evita Dawson was arrested in Atlanta, GA. A sealed criminal complaint was filed

in the Southern District of New York charging

Dawson with one count of embezzlement and theft

of public money, property, or records. Dawson

received $46,901 in Section 8 subsidies to which
Chapter 3 - HUD’s Public and Indian Housing Programs 50

she was not entitled by defrauding the New York

City Housing Authority while residing in Georgia.

Defendant Denise Gardner, a former Section 8

tenant at the Philadelphia, PA Housing Authority,

was arrested and charged in the Eastern District of

Pennsylvania, under Pennsylvania Criminal Code,

with theft by deception, theft in general, false

swearing, and unsworn falsification to authorities as

a result of her lying on Section 8 eligibility documentation. An investigation disclosed that Gardner

lied about her true income and suppressed the fact

that she held a job with the State of Pennsylvania.

She made these false statements over a period of

more than five years, and caused a loss to HUD of

$34,463 before she was terminated from the Section 8 Program. In order to perpetrate the scheme,

Gardner produced false income verifications from

one of her sisters, who is co-owner of a New Jersey

based contracting firm.

An information was filed in Richmond, CA, in

Federal Court for the Northern District of California, charging Candy Renee Anderson with one

count of theft of government monies. Anderson, a

former Section 8 tenant at the Richmond Housing

Authority, allegedly failed to report her part-time

employment from 1996 to 2001. As a result of her

nondisclosure, HUD overpaid $27,912 in Section 8

housing assistance on Anderson’s behalf.

In Harrisburg, PA, in Federal Court for the

Middle District of Pennsylvania, a one-count

information was filed against defendant Trina

Hobart, a resident of Perry Manor Town Homes, a

HUD assisted development. Hobart was charged

with making false statements to receive Section 8

rental assistance payments to which she was not

entitled. An investigation disclosed that, beginning

when she applied for assistance in May 1998 and

continuing over a two-year period, Hobart failed to

report her annual income of at least $55,000 from a

cheerleading school that she owned. She received

$14,616 in excess rental assistance benefits.

Defendants Icelean Lockwood and Sharon

Barnes, two New York City Housing Authority

(NYCHA) tenants, were arrested in the Southern

District of New York on charges of making false

statements. The defendants falsified their annual

recertification forms by not declaring their salaries

or the income of tenants living in their apartments,

and not reporting property listed in their names.

They were released on their own recognizance.

Defendant Evet Cedrez, also a NYCHA tenant,

was arrested in the Eastern District of New York on

federal false statement charges. Cedrez, who lived

in the Grant Houses, falsified her annual recertification forms by not declaring the income of her

husband, who resided with her, and the fact that he

owned property. Cedrez’s husband purchased

property in Florida a few years ago, and was

employed from 1995 through 2001. Deferred

prosecution agreements are currently being prepared by the U.S. Attorney’s Office, Southern

District of New York, for all three defendants.

Others

In Detroit, MI, in Federal Court for the Eastern District of Michigan, defendant Regina

Solomon, a former field office director and senior

community builder for HUD and a local attorney,

was sentenced to two years probation and 200 hours

of community service, fined $1,000, and ordered to

pay $300 in restitution after pleading guilty to

misusing a government owned vehicle for personal

use. In an earlier sentencing hearing, Solomon

provided the Court with a cashier’s check for

$2,863 as final restitution to a complainant in this

case who lent Solomon $5,000. Solomon used the

money to pay an outstanding debt on a credit card

issued for government travel only; she originally

used the credit card for personal purchases. As part

of a plea bargaining arrangement, Solomon agreed

to leave her position at HUD.

Defendants Alfredo Schoemann, Irene Murillo,

Maria Rodriguez, Norma Hernandez, Josefina

Aguilar, Concepcion Padilla, Sabina Salazar, and

Amalia Varela each pled guilty in Texas State Court

in El Paso, TX, to unauthorized possession/

redemption of food stamps. Schoemann was sentenced to five years probation and ordered to pay

$7,190 in restitution. Murillo, Rodriguez, and

Aguilar were each sentenced to two years community supervision and ordered to pay restitution in

the amounts of $838, $1,258, and $210, respec-
Chapter 3 - HUD’s Public and Indian Housing Programs 51

tively. Hernandez and Padilla were each sentenced

to nine months community supervision and ordered

to pay restitution in the amounts of $223 and $997,

respectively. Schoemann preyed on primarily

female tenants receiving public housing in the El

Paso area. He would allow tenants to cash in food

stamps in exchange for cash and charge them a

percentage on the total amount, which he kept for

himself.

Salazar and Varela, both public housing tenants,

were sentenced to nine months community supervision and ordered to pay $361 in restitution; and two

years community supervision and ordered to pay

$1,954 in restitution, respectively. They redeemed

their food stamps with certain store owners and

received cash instead of food, up to 50 percent of

the total amount they redeemed. They ultimately

failed to report their illegal proceeds to the local

housing authority to determine their eligibility to

receive housing.

In Tampa, FL, in State Court, Middle District

of Florida, defendant Terrence Alonzo, doing

business as ACT Environmental and Construction

Services, was ordered to pay a $6,000 fine for

providing inadequate exhaust ventilation, lack of

leak proof containers, and regulated material not

adequately wet. Alonzo contracted with the Punta

Gorda Housing Authority to perform asbestos

removal from specific complexes.

Defendant José Rafael Padilla-Suncar, owner

and president of All Quality Roofing Corporation,

was sentenced in San Juan, PR, in Federal Court

for the District of Puerto Rico, on charges of

conspiracy, aiding and abetting, and violations of

the Anti-Kickback Act. He received four months

home detention and one year probation, and was

fined $5,000. Padilla-Suncar provided $15,000 in

kickback payments to Edwin Rafael Cornier-Ortiz,

a management agent and president of Erco Enterprises, Inc., in exchange for the awarding of a

contract for the sealing and repair of roofs at a HUD

subsidized public housing project at the Puerto Rico

Public Housing Administration (PHPHA). PadillaSuncar also conspired with Federico MathewSepulveda, a PHPHA contract employee, to embezzle, steal, and obtain $15,741 from the Federal

Government.

Defendant Edward Zamborsky was sentenced in

White Plains, NY, in Federal Court for the Southern District of New York, to one year and one day

in prison and ordered to pay $3,830 in restitution

for soliciting and accepting bribes in exchange for

inflating contracts at the Yonkers Municipal Housing Authority. Defendant Norman Scotland was also

sentenced to one year probation and ordered to pay

$3,830 in restitution for accepting bribes and

performing the contracting work at the Authority.

In St. Louis, MO, in Federal Court for the

Eastern District of Missouri, defendant Dennie

Washington pled guilty to one count of bank fraud

for manufacturing counterfeit checks drawn on the

St. Louis County Housing Authority. Washington

admitted engaging in a scheme, beginning in

October 2002 and continuing until April 2003, to

obtain money by means of material false and

fraudulent pretenses. During that time period, he

created and transacted over $80,000 in fraudulent

Housing Authority checks in the St. Louis metropolitan area. Along with losses incurred by financial institutions, the St. Louis County Housing

Authority lost over $28,000 from its Section 8

account. Washington also made counterfeit checks

drawn on the St. Louis City Housing Authority and

Bluecross Blueshield Insurance Company.

In Cleveland, OH, in Federal Court for the

Northern District of Ohio, defendants Donte Wade,

Keona McDonald, Tina McDonald, Sylvia Kind,

and Lekita Hall, who were previously charged

along with nine other defendants, pled guilty. The

original indictment charged the defendants with

conspiracy to defraud local banks, merchants, and

businesses, including the Cuyahoga Metropolitan

Housing Authority (CMHA), as part of a loosely

connected ring formed to counterfeit payroll and

business checks. This investigation disclosed that

defendant Vaden Anderson, who had recently been

released from State prison for attempting to cash a

counterfeit check using a false identity, sought

others whom he used as “recruiters” who, in turn,

would seek out individuals who were willing to

provide their identification and in some cases their

own bank accounts to deposit counterfeit checks

which Anderson created on a home computer.

Anderson, the recruiters, and the check “passers”
Chapter 3 - HUD’s Public and Indian Housing Programs 52

would then split the proceeds; Anderson received

the largest share of these proceeds. Counterfeit

check amounts ranged from as little as $300 to in

excess of $16,000. Loss estimates exceed $49,500.

Other individuals indicted in the conspiracy include

Gregory Carr, Tina Cannon, Preston Sales, Sharon

Smith, Leona McDonald, and Sharita Clayton.

Additionally, defendant Margaret Picard was

indicted in the same court on one count of bank

fraud regarding two counterfeit checks deposited in

her Huntington National Bank account. Allegedly,

Picard used the monies for more than $27,000 in

personal expenses. Defendants Raysheen Sharp and

Anthony Norman, who were included in the original indictment, pled guilty to their roles in the

scheme.

In a related case, defendants James Ensley,

Quintina Smith, Christine Nichols, Jennifer

Johnson, Danine Harvell, and James McKinney

were indicted in the same court for passing bad

checks that displayed either the payroll or Section 8

bank account numbers of CMHA. The indictment

alleges that legitimate CMHA checks are being used

as templates for counterfeiters to manufacture

bogus checks by using computerized business

checking programs purchased at local office supply

stores. One individual was surprised when a local

tavern owner snapped his picture after recognizing

him as having cashed a counterfeit check just one

week prior to his attempting to cash a second bogus

check. A second individual, who had been photographed by a store security camera, admitted to

cashing at least 10 checks in excess of $5,000. The

total value of the counterfeit checks under this

indictment exceeds $15,000.

In Cleveland, OH, defendant Donna Robertson

was indicted on 32 State of Ohio felony charges for

her part in a conspiracy to defraud the Section 8

Rental Assistance Program. Charges included

forgery, uttering, tampering with records, and

obstructing justice. According to the indictment,

Robertson used a false identity and knowingly

signed documents posing as a landlord when in fact

she knew that the “tenant” for whom the subsidy

was being paid actually owned the property. The

investigation also disclosed that this same “tenant”

may have some ownership in a local business and

may have been the landlord for Robertson’s daughter, who was also receiving Section 8 rental assistance. The loss has been estimated at more than

$40,000.

Defendant William Hudgens, a police officer

assigned to the Cave Spring, GA Housing Authority, was arrested based on a sworn complaint

charging him in State Court with embezzling

$23,910 from the Authority. Hudgens was charged

with 14 counts of theft by deception. He was given

blank checks by the Authority’s director to make

purchases, but instead made the checks payable to

himself and deposited them in his personal bank

account. The theft took place between July and

December 2002.

Defendant Hud T. Thompson was charged in

Maryland State Court, Rockville, MD, with six

counts of felony theft for his role in a stolen property ring that was run out of a public housing

apartment. In late 2002, Thompson ordered about

$65,000 in computer equipment using the company

name “HUD Enterprises.” The checks he used to

pay for the computer equipment were bad. The

equipment was delivered via FedEx to the public

housing apartment and ultimately sold. Thompson

is currently incarcerated.

In Fergus Falls, MN, defendants Roger West

and Sharon Kaiser-West, Section 8 landlords, were

indicted in State Court, Ottertail County, MN.

Roger West was charged with one count of theft and

four counts of perjury and Sharon Kaiser-West was

charged with two counts of theft and four counts of

perjury. Allegedly, the Wests, who were State of

Minnesota public aid recipients, claimed that no

one in their household was gainfully employed or

had any assets, when in reality they had over

$300,000 in assets, including the Section 8 rental

unit in question and a family owned business. The

Wests failed to report any of these assets when

applying for public assistance. As a result, they

received over $20,835 in assistance for which they

were ineligible.
Chapter 3 - HUD’s Public and Indian Housing Programs 53

Criminal Violation Initiatives

A Southwest Region Criminal Violation Initiative was created in the State of Arkansas to identify

and remove tenants in public housing who commit

fraud and other criminal violations in order that

qualified individuals on the housing subsistence

waiting list can be placed in housing. Pursuant to

this initiative, 36 tenants were charged with criminal violations. These tenants have been evicted or

are in the process of being evicted. The defendants

are Vegie Anderson, Sunny Nguyen, Shirley

Rideout, Shemika Thurman, Shilese Leia Scruggs,

Phillis Bragg, Natasha McRay, Monica Bell,

Michelle Smith, Michael Wayne Alston, Leroy

Stevenson, Latoya Collins, Jessica Clark, Darreon

Greer, Daniella King, Da’Anna Kennedy, Christine

Ann Lester, Calvin Milo Alvarez, Belinda Jones,

William Histrohaker, Teresa Porter, Sondra

Robinson, Michelle Harrison, Larry D. Baker,

Jaimie Lee Williams, Julia Jenkins, Jerry Dean

Decht, Jeremy Walker, Ina D. McCullar, Diana

Jones, DeQune Kennedy, Dana M. Johnston,

Charlene Soard, Amanda Becker, Craig Eugene

Wilson, and Craig Clinton. These individuals

committed the following criminal violations, among

others: theft of property, battery in the third degree,

domestic violence, possession of a controlled

substance, delivery of a controlled substance,

possession with intent to distribute a controlled

substance, misdemeanor possession, breaking and

entering, and domestic battery on a spouse. The

investigation is continuing in order to remove the

remaining tenants from the housing subsistence

program and to pursue other tenants committing

criminal violations on public housing property.

A Southwest Region Criminal Violation Initiative was created in San Antonio, TX, to identify

and remove tenants and non-tenants who commit

fraud and other criminal violations involving the

San Antonio Housing Authority’s Section 8 and

Low-Income Housing Programs in order that

qualified individuals on the housing subsistence

waiting list can be placed in housing. Pursuant to

this initiative, 13 defendants were charged with

criminal violations. The defendants are Michael

Franks, Cynthia Maciel, John Navejar, Rafael

Lopez, Richard Rodriguez, John Gamez, Oscar

Arguello, Juan Lopez, Zenaida Garcia, Juan Jesus

Alvarez, Armando Aranda, Moses Johnson, and

Miguel Gonzales. These individuals were unlawfully living at various public housing developments

while committing the following violations: possession and/or delivery of a controlled substance,

possession with intent to distribute a controlled

substance, felon in possession of a weapon, criminal trespass, aggravated robbery, possession of a

prohibited weapon, possession of marijuana, and

alias warrant violation. Also included were federal

charges of conspiracy to possess with intent to

distribute marijuana (537 pounds) and possession of

marijuana (537 pounds) with intent to distribute.

The investigation is continuing in order to remove

tenants who assisted the violators in fraudulently

residing in or utilizing public or assisted housing

developments to continue their criminal activities.

A Greater Houston Housing Violation Initiative

was created in Houston, TX, to identify and

remove tenants and non-tenants who commit fraud

and other criminal violations in Section 8 and LowIncome Housing Programs in order that qualified

individuals on the housing subsistence waiting list

can be placed in housing. Pursuant to this initiative,

17 defendants were charged with criminal violations. The defendants are: Crystal Shantel Williams, Jessica Taplin, Corina Bibbs, Demeatrice

Poole, Camilla Clark, Belinda Sanders, Gwendolyn

Fontenot, Edward Penn, Erik Wayne Colbert,

Kendrick York, Lakisha Wise, Marguisha Johnson,

Pinkie Roberson, Renita Hawthorne, Theresa

Garza, Angelique Johnson, and Bertha Morin.

These individuals were unlawfully living at various

public housing developments while committing the

following violations: aggravated assault, possession

of a controlled substance, assault, harassment,

hindering the apprehension of a felon, aggravated

assault of a family member, possession of marijuana, delivery of a controlled substance, possession with intent to distribute a controlled substance,

and probation violation. The tenants were evicted

or are in the process of being evicted. The investigation is continuing in order to remove tenants who

assisted violators in fraudulently residing in or

utilizing public or assisted housing developments to

continue their criminal activities.
Chapter 3 - HUD’s Public and Indian Housing Programs 54

OIG Offices of Audit and

Investigation – Joint Efforts

Defendant Juanita Norris English was sentenced

in Greenville, NC, in U.S. District Court for the

Eastern District of North Carolina, for falsifying a

rental application for a former Benson Housing

Authority board member. She was sentenced to six

months home confinement and ordered to pay

$30,000 in restitution. English abetted and counseled former Benson Housing Authority chairperson Maxine Holley in making a materially false,

fictitious and fraudulent statement in an application

for continued occupancy in public housing. Holley

pled guilty in February 2002 to a one-count criminal information and was sentenced to two years

probation, six months home confinement, and 100

hours of community service, and was ordered to

pay $48,762 in restitution to the Benson Housing

Authority.

English served as Housing Authority director

from 1992 until January 2000, when she resigned.

An OIG audit revealed that English misspent $1.6

million in federal money, including nearly $1

million she paid to Turnage Construction Company

for general construction work without bids or a

written contract. In violation of conflict of interest

restrictions, English hired the owner of Turnage

Construction as Housing Authority maintenance

supervisor and paid him $79,000. English’s husband, Wayne English, was hired as a subcontractor

and paid $37,600. The audit also found that English

and Holley were responsible for the loss of $37,000

in rental income.

Defendant Roberta Jean Salmon Ahdunko was

sentenced in Tulsa, OK, in U.S District Court for

the Northern District of Oklahoma, to five years

probation and ordered to pay $3,445 in restitution

and a $600 special assessment fee. Ahdunko

previously repaid $1,137 to the Pawnee Nation

Housing Authority (PNHA). She was convicted early

this summer on one count of embezzlement from an

Indian Tribal Organization and five counts of mail

fraud. Ahdunko was employed as the finance

manager for the PNHA, which receives all of its

funding from HUD through the Native American

Housing Assistance and Self-Determination Act

Indian Housing Block Grant Program. During

Ahdunko’s employment, she traveled to a weekend

vacation rendezvous, went on shopping sprees,

purchased a plane ticket for a relative, and paid her

personal telephone/utility bills with PNHA funds.

The total loss attributable to Ahdunko was $4,582.

Ahdunko was also involved in another $22,500 of

unallowable expenses.

Defendant Robert Marion Carter, former

modernization/rehabilitation inspector employed by

the Seminole Nation Housing Authority, pled guilty

in Muskogee, OK, in District Court for the Eastern District of Oklahoma, to one count of embezzlement from an Indian Tribal Organization.

Carter embezzled funds by falsifying inspection

reports and invoices for work his company and

three other companies submitted to the Tribal

Organization. Carter’s fraudulent activities caused

$161,119 in losses.

Defendant Troy Goforth, owner of Goforth

Construction, pled guilty in U.S. District Court for

the Eastern District of Oklahoma to one count of

embezzlement from an Indian Tribal Organization.

Goforth submitted fraudulent invoices for work that

his company billed to the Seminole Nation Housing

Authority. His fraudulent activities caused $42,895

in losses to the Housing Authority.

Robert Sellers, former executive director of the

Seminole Nation Housing Authority, was indicted in

the same court on one count of embezzlement from

an Indian Tribal Organization. Sellers concealed his

identity by using a “doing business as” company

name on a “Request for Payment” form he submitted to the Authority. As a result, Sellers was paid

$4,000 for work that was never performed.

In a related case, defendant Wayburn Ray

Earhart, former modernization/rehabilitation

coordinator at the Seminole Nation Housing Authority, was indicted on one count of theft from an

Indian Tribal Organization. Earhart resigned from

the Authority and immediately was contracted to

perform modernization/rehabilitation work for the

Authority. Doing business as A&R Maintenance,

Earhart billed and was paid for work that he did not

perform, did not complete, or was substandard. As

a result of Earhart’s activities, the Authority’s

losses are $23,550.
Chapter 3 - HUD’s Public and Indian Housing Programs 55

Defendant Tamica Waters was indicted in

Birmingham, AL, in Federal Court for the Northern District of Alabama, on four counts of making

false statements to the Fairfield Housing Authority

to obtain Section 8 benefits. Waters received

$10,404 in rent subsidies to which she was not

entitled.

In the same case, defendant Carolyn Canada

was indicted on two counts of making false statements to the Fairfield Housing Authority to obtain

$7,434 in Section 8 rent subsidies to which she was

not entitled.

Additionally, defendants Georgia and Kevin

Smith and Sheryl and Luquita Wallace each pled

guilty to two counts of making false statements to

HUD. These defendants were previously indicted for

making false statements to the Fairfield Housing

Authority to obtain Section 8 benefits.

Defendant Leslie Skaggs, a public housing

tenant under the jurisdiction of the Housing Authority for the City of Topeka, KS, was referred for

eviction. An investigation disclosed that Skaggs

failed to report on her initial application for occupancy/tenancy that she had a prior conviction for a

controlled substance violation.

Fugitive Felon Initiative

OIG recently launched a fugitive felon initiative

to identify HUD housing assistance recipients who

are criminal fugitives from justice. Section 903 of

the Personal Responsibility and Work Opportunity

Reconciliation Act of 1996 (PRWORA), Pub. Law

No. 104-193 (Aug. 22, 1996), amended 42 U.S.C.

§§ 1437d(1)(9) and 1437f(d)(1)(B)(v), to make

fugitive status a ground for the termination of

tenancy. The law applies to any tenant who is

fleeing to avoid prosecution for a felony, fleeing to

avoid confinement for conviction of a felony, or is

violating a condition of probation or parole imposed

for the commission of a felony.

On September 25, 2002, the General Accounting Office (GAO) issued GAO Report No. 02-716,

Welfare Reform: Implementation of Fugitive Felon

Provisions Should Be Strengthened. The GAO report

evaluated several agencies’ efforts to implement

various PRWORA provisions that related to fugitives

receiving benefits from federal assistance programs, and critically noted that HUD had not conducted a data match to identify fugitives receiving

rental assistance. GAO further determined that HUD

had effectively delegated its responsibilities to

PHAs, and that HUD had not monitored or evaluated

the efforts of PHAs in this regard.

In furtherance of Section 903 of the PRWORA,

and in partial response to the GAO’s findings, OIG

initiated a joint effort with the U.S. Marshals

Service to identify and apprehend fugitives and

probation/parole violators who may be living in

HUD assisted housing. OIG’s Fugitive Felon Initiative commenced in FY 2003, and as of August 31,

2003, OIG the U.S. Marshals Service had identified

and arrested 98 fugitives residing in HUD assisted

housing.
Chapter 3 - HUD’s Public and Indian Housing Programs 56

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Chapter 4 — HUD’s Multifamily Housing Programs

In addition to multifamily housing developments with HUD held or HUD insured mortgages, the

Department owns multifamily projects acquired through defaulted mortgages, subsidizes rents for lowincome households, finances the construction or rehabilitation of rental housing, and provides support 

services for the elderly and handicapped. 

Audits 

During this reporting period, the OIG issued eight reports in the Multifamily Housing Program area: 

one internal memorandum, three external audits, and four external memoranda. These reports disclosed 

almost $700,000 in questioned costs and nearly $2.5 million in recommendations that funds be put to

better use.

Multifamily Housing Reports Issued

1

3

4

Internal Audit External Reports External Memoranda

Multifamily Housing Dollars

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

External Audits External Memoranda

Questioned Costs Funds Put to Better Use

We audited owner and management agent operations at several multifamily projects and a multifamily 

accelerated processing lender. The results of our more significant audits are described below. 

Owner and Management Agent Operations 

At the request of the U.S. Attorney’s Office for the Southern District of Indiana, the OIG reviewed

Federal Property Management Corporation (FPMC), Indianapolis, IN, to determine whether FPMC used 

project funds in compliance with the Regulatory Agreements and HUD’s requirements and maintained the

units according to HUD’s housing quality standards. We found that FPMC inappropriately claimed Section 8 

housing assistance payments from HUD for units at all six projects it managed that did not meet HUD’s 

housing quality standards and/or its tenant income recertification requirements. In addition, FPMC violated

the Regulatory Agreement by improperly disbursing Savoy-Hoosier Apartments project funds for ineligible

costs. As a result of FPMC’s mismanagement, the projects defaulted on their HUD insured mortgages.

Chapter 4 - HUD’s Multifamily Housing Programs 57
Chapter 4 - HUD’s Multifamily Housing Programs 58

We referred our draft audit findings to the U.S. Attorney’s Office for the Southern District of Indiana for 

civil matters. HUD and the U.S. Attorney’s Office executed a settlement agreement with FPMC effective September 18, 2003. Under the terms of the settlement, FPMC, without any admission of wrongdoing, agreed to pay 

the Federal Government $400,000 on or before December 17, 2003. Also as part of the settlement, FPMC

agreed to a two-year voluntary exclusion from seeking new contracts with HUD and any other agency of the 

Executive Branch of the Federal Government. 

We recommended that HUD ensure that FPMC pays the Federal Government $400,000 as required by the 

settlement agreement. (Report No. 2003-CH-1802) 

At the request of the Director of the Houston Multifamily Housing Program Center, and to fulfill an escrow 

and payment agreement requirement, we attempted to conduct an audit of the multifamily housing projects 

Haverstock I, Haverstock II, Haverstock III, and Coolwood Oaks in Houston, TX. The objective was to determine if the owner, Herbert J. Zieben, complied with HUD regulations, the Regulatory Agreement, and the 

Compliance Agreement when he made: (1) transfers of funds between the projects; and (2) payments from the 

projects to identity-of-interest companies. We did not conduct a full audit because the projects and identity-ofinterest companies did not provide complete financial books and records. 

We concluded that Zieben improperly transferred $230,000 from Haverstock I, $190,000 from Haverstock 

II, and $25,000 from Coolwood. In addition, Zieben improperly withdrew funds from the projects by having 

his identity-of-interest companies bill the projects inflated amounts for materials and labor. Due to the lack of 

records, we could not determine the exact amount Zieben overcharged the projects. However, the projects 

overpaid at least $304,000 for materials and up to $983,000 for labor. Zieben used the unauthorized distributions and improper billings to inappropriately enrich himself and his other business ventures. 

Since our audit work identified equity skimming, the OIG will be seeking recovery action. However, HUD

should continue to hold the $1.95 million in escrow until recovery actions are complete. (Report No. 2003-FW0803) 

As a result of a referral from the Honolulu HUD Office of Multifamily Housing, we completed an audit of 

the Jack Hall Waipahu, Westlake, and Kulana Nani projects managed by Chaney, Brooks and Company (CBC) in 

Honolulu, HI. The audit disclosed serious problems in the use of project funds, including a lack of management controls by both the owners and management agent. Specifically, we noted repeated instances where 

excessive and duplicate charges were approved for payment, fictitious and/or altered bids and invoices were 

used to substantiate the selection of a particular company and inflate costs, and contracted renovation work was 

The Indianapolis Star, October 1, 2003 
Chapter 4 - HUD’s Multifamily Housing Programs 59

performed by in-house project maintenance personnel. Subsequent to the completion of our review, the owner 

of Jack Hall Waipahu prepaid the HUD insured mortgage and is no longer bound by the terms of the Regulatory 

Agreement; therefore, repayment of over $200,000 in excessive and duplicate charges was not required. However, the owner of the other two projects, the City and County of Honolulu, is still required to abide by the 

terms of the Regulatory Agreement. 

We recommended that HUD require the City and County of Honolulu to repay Westlake approximately 

$145,000 and Kulana Nani nearly $50,000 for excessive and duplicate costs approved by the CBC property 

manager. We also recommended that HUD impose administrative sanctions against CBC until it demonstrates that 

it has developed and implemented adequate written procedures and controls over its accounting, procurement, 

on-site manager training, and monitoring responsibilities. (Report No. 2003-LA-1001) 

Based on a recommendation from Houston Multifamily staff, we conducted a review of Colonial Oaks 

Apartments in Houston, TX, to determine whether the owners operated the project in accordance with HUD

requirements. We found that the owners were not adequately managing the project. Although the owners kept 

the mortgage current, they did not establish or maintain controls, procedures, or financial records that met 

HUD’s requirements because they were either not familiar with the requirements or believed HUD required too 

much paperwork for such a small property. As a result, the owners: (1) did not maintain the project’s physical 

condition; (2) did not properly collect, record, and deposit rental receipts; (3) lacked leases for 43 percent of 

their tenants; (4) lacked support for payments totaling over $9,000; (5) improperly paid at least $4,000 in 

management costs from project operating funds; (6) did not submit audited financial statements to HUD timely; 

and (7) did not prepare an affirmative marketing plan. 

Since these problems date back to the owners’ assumption of the project, we recommended that HUD terminate the owners’ self-management and require them to obtain the services of an independent property management agent. In addition, we recommended that HUD require the owners to reimburse the project for any improper or unsupported disbursements. Further, HUD should either require the owners to submit audited financial 

statements or seek appropriate sanctions against the owners. (Report No. 2003-FW-1806) 

Missing gutter and rotted fascia boards at Colonial Oaks project. 

Missing breaker box cover and exposed 

wiring at Colonial Oaks project. 
Chapter 4 - HUD’s Multifamily Housing Programs 60

In response to a complaint, we reviewed 

Shawnee Hills, Inc., in Charleston, WV, a former 

management agent of HUD assisted multifamily 

properties. Shawnee Hills filed for bankruptcy 

protection in May 2002. Subsequently, questions 

were raised about whether Shawnee Hills properly 

used federal funds. We found that, for the most 

part, Shawnee Hills’ financial records were not 

auditable, and therefore a detailed review or accounting of the funds could not be performed. We 

did find, however, that Shawnee Hills improperly 

used $9,000 in reserve for replacement funds just 

prior to filing for bankruptcy protection. 

We recommended that HUD initiate appropriate 

action to prohibit Shawnee Hills and its officers 

from being awarded future contracts with the 

Federal Government. (Report No. 2003-PH-1802) 

Multifamily Accelerated Processing

Lender

As part of a targeted effort to review the new 

Multifamily Accelerated Processing (MAP) Program, we completed an audit of CWCapital LLC in 

Needham, MA. This is the first of several audits 

we will conduct to evaluate lender performance in 

producing insured multifamily mortgages that 

represent a reasonable risk for the FHA insurance 

fund. The audit found that CWCapital’s MAP

application and procedures during the construction 

phase met HUD requirements, and its loan underwriting estimates were reasonable. Although 

CWCapital complied with its Quality Control Plan, 

changes can be made to enhance its MAP loan 

process. 

We recommended that CWCapital LLC be 

required to make changes to its current Quality 

Control Plan to ensure that HUD identified deficiencies are reviewed at the corporate level by the chief 

underwriter, and if appropriate, advise senior 

management of recommended changes to improve 

the MAP loan process. CWCapital revised its Quality 

Control Plan, which we reviewed and confirmed 

that the revisions fully comply with the intent and 

purpose of the recommendation. No further action 

is required. (Report No. 2003-SE-1004) 

Investigations

During this reporting period, the OIG opened 63 

investigation cases and closed 16 cases in the 

Multifamily Housing Program area. Final judicial 

action taken on these cases during the period 

included $629,074 in recoveries/receivables, 

$5,197,410 in restitution, $1,588,000 in fines, 16 

convictions, pleas, and pre-trial diversions, 59 

indictments/informations, 20 administrative sanctions, 62 arrests, and 119 months in prison. The 

results of our more significant investigations are 

described below. 

Equity Skimming/Conspiracy

In Baltimore, MD, in Federal Court for District of Maryland, the Department of Justice and 

HUD signed a settlement agreement with HAI Management, Inc., a developer and management agent, 

to resolve allegations of fee splitting and civil 

equity skimming on FHA insured multifamily 

projects. HAI agreed to pay $500,000 and accept 

two years voluntary exclusion from doing new 

business with the government. From 1998 through 

2001, HAI was the management agent for five 

Maryland multifamily projects owned by Morton 

Sarubin or members of the Sarubin family. In 1998, 

HAI and Morton Sarubin reached an agreement 

whereby HAI would manage the properties only if 

50 percent of the management agent’s fee was split 

with Sarubin. To further the scheme, HAI and the 

Sarubin family created a pair of shell corporations 

through which to funnel and conceal fee splitting 

payments of $750,000. Furthermore, HAI collected 

for itself unauthorized and excess fees from the 

projects totaling $151,000. As part of the settlement, HAI will continue to cooperate in the investigation. 

In Indianapolis, IN, in Federal Court for the 

Southern District of Indiana, an investigation into 

violations of the False Claims Act and HUD’s equity 

skimming statute on the part of Federal Property

Management Corporation (FPM) resulted in a 

negotiated settlement agreement. Analysis of tenant 

files and other records disclosed that FPM, a multifamily housing project management company, billed 

for vacant units, falsely certified housing quality 
Chapter 4 - HUD’s Multifamily Housing Programs 61

standards requirements, claimed rent subsidies for 

tenants whom it did not certify, and misused fire 

insurance proceeds in violation of the Regulatory 

Agreement. As part of the settlement agreement, 

FPM agreed to pay the government $400,000 and to 

voluntary exclusion from future transactions with 

HUD and the Executive Branch of the Federal 

Government for two years. 

The U.S. Attorney filed a civil complaint in 

Buffalo, NY, in Federal Court for the Western 

District of New York, against defendant Charles R. 

Livecchi and CRL Management, Inc., for multifamily equity skimming. In March 1997, Livecchi, the 

owner of Cambridge Court Apartments and president of CRL Management, Inc., the management 

agent for Cambridge Court, defaulted on the 

project’s FHA insured mortgage. While the mortgage was in default, Livecchi and CRL Management

received and retained $368,305 in project assets 

and income. Livecchi also authorized $145,939 of 

expenditures contrary to the project’s Regulatory 

Agreement. These expenditures included payments 

for the owner’s mortgage, credit card, home equity 

loan, and an unsecured line of credit. The civil 

complaint seeks damages in the amount of 

$1,028,489, which is double the value of the assets 

and income used in violation of the Regulatory 

Agreement, plus $514,244 for breach of contract 

and unjust enrichment. 

Defendant Robert Vaughan, a former attorney 

and manager of an FHA insured elderly housing 

development in Flint, MI, was sentenced in Detroit, MI, in Federal Court for the Eastern District 

of Michigan, following his earlier guilty plea to 

multifamily equity skimming. Vaughan skimmed 

money for his personal law practice and personal 

debts from Flint Heights, a 196-unit apartment 

building, between 1998 and 2000. Vaughan resigned from his management position in 2000 and 

lost his license to practice law in 2002 after failing 

to turn over funds from a guardianship. He was 

sentenced to 21 months in prison and ordered to 

pay $369,405 in restitution. 

The following judicial actions, which took place 

in Shreveport, LA, in Federal Court for the Western District of Louisiana, resulted from am investigation into conspiracy to commit equity skimming, 

mail fraud, wire fraud, and money laundering in 

conjunction with a scheme to defraud the LowIncome Housing Tax Credit Program. 

Defendant Maurice Riemer Calhoun, Jr., a 

developer, owner, and manager of multifamily 

properties in Louisiana and Texas, and the former 

owner of Calhoun Property Management, a multifamily development and management company in 

Mansfield, LA, was sentenced to 60 months incarceration and three years supervised release on each 

count, to be served concurrently, was fined 

$500,000, and was ordered to pay $3,208,521 in 

restitution. Calhoun also agreed to sign a 

$1,155,162 promissory note to the Federal Home 

Loan Bank of Dallas, TX. Calhoun pled guilty in 

March 2003 to a two-count bill of information 

which charged him with one count of wire fraud 

and one count of conspiracy. 

T.F. Management, Inc., a company owned and 

operated by Maurice Riemer Calhoun, Jr., was 

sentenced to 60 months probation and fined 

$500,000. T.F. Management pled guilty in March 

2003, through its owner, to a one-count bill of 

information which charged the company with one 

count of wire fraud. 

Defendant James C. Howell, Jr., a former 

employee of Calhoun Property Management, was 

sentenced to six months incarceration and one year 

supervised release, and was fined $5,000. Howell 

pled guilty in December 2002 to a one-count bill of 

information charging him with misprision of a 

felony involving a multifamily equity skimming 

scheme. 

Defendant Joseph W. Ham, a former general 

contractor for Calhoun Property Management who 

was responsible for the rehabilitation of 37 multifamily properties in Texas and Louisiana with a 

government insured loan amount of approximately 

$14 million, was sentenced to four months incarceration and two years supervised release, and was 

fined $60,000. Ham was previously issued a 

suspension by HUD from participation in procurement and non-procurement transactions as a participant or principal effective June 6, 2003. Ham’s 

sentence was a downward departure from the 

sentencing guidelines due to his cooperation in the 
Chapter 4 - HUD’s Multifamily Housing Programs 62

prosecution of Maurice Riemer Calhoun, Jr. Ham 

pled guilty in November 2002 to a two-count bill of 

information charging him with one count of conspiracy to commit mail and wire fraud and forfeiture. 

Defendant Thomas L. Frye, an officer of 

Calhoun Property Management, was sentenced to 

two months incarceration and one year supervised 

release, and was fined $60,000. Frye’s sentence 

was a downward departure from the sentencing 

guidelines due to his cooperation in the prosecution 

of Maurice Riemer Calhoun, Jr. In coordination 

with others, Frye created and caused to be created 

numerous false invoices and certificates of actual 

cost related to the rehabilitation of multifamily 

properties. He pled guilty in December 2002 to a 

two-count bill of information charging him with one 

count of conspiracy to commit mail and wire fraud 

and forfeiture. 

Defendant Murray E. Howell, an employee of 

Joseph W. Ham, was sentenced to five months 

incarceration and three years supervised release, 

and was fined $60,000. Howell’s sentence was a 

downward departure from the sentencing guidelines 

due to his cooperation in the prosecution of 

Maurice Riemer Calhoun, Jr. Howell pled guilty in 

November 2002 to a one-count bill of information 

charging him with one count of conspiracy to 

commit mail and wire fraud. 

Defendants Marvin Gold and Jeffrey Gold pled 

guilty in Brooklyn, NY, in Federal Court for the 

Eastern District of New York, to one count each of 

conspiracy to defraud HUD and the IRS. Marvin 

Gold was the owner of Marvin Gold Management, 

a real estate management company. Jeffrey Gold 

was the vice president. The company managed 

numerous properties in New York which received 

HUD subsidies and loan guarantees. Between January 1992 and April 1999, Marvin and Jeffrey Gold 

received over $80,000 and $17,000 in kickbacks, 

respectively, from vendors for work performed at 

buildings managed by Marvin Gold Management. 

Marvin Gold approved payments to other individuals for an additional $210,000 in kickbacks. These 

kickbacks were included in vendor contracts as 

costs for services provided. 

Defendants Eric Dubbs, former building manager for the Amsterdam Building in Manhattan, 

NY, Angelo Scudiero, former building manager for 

Taino Towers in Manhattan and Dayton Towers in 

Far Rockaway, NY, and Arnold Zabinsky, president 

of Elm Management, a real estate management 

company in Elmhurst, NY, pled guilty in Central

Islip, NY, in Federal Court for the Eastern District 

of New York, to conspiracy to defraud HUD and the 

IRS. All the buildings involved in this case received 

HUD subsidies and loan guarantees. Dubbs, 

Scudiero, and Zabinsky received $4,000, $20,000, 

and $11,000 in kickbacks, respectively, from 

vendors for work performed at the buildings their 

companies managed. The kickbacks were disguised 

in the vendor invoices as costs of services provided. 

In Los Angeles, CA, in Federal Court for the 

Central District of California, defendant Michael 

Clarence Jones pled guilty to conspiracy and mail 

fraud. Jones admitted to being paid a salary by 

American Development Company (ADC), a company that managed Section 8 properties, when in 

reality he was a ghost employee who rarely did any 

work for ADC. Jones also used ADC employees to 

perform construction work at a private residence for 

a construction company he controlled while the 

employees were being paid by ADC. The dollar loss 

to HUD was $206,000. 

Embezzlement/Theft

Defendant Theresa Sheppard pled guilty in 

State Court, Howard County, Big Spring, TX, to 

theft of more than $20,000 but less than $100,000. 

She was sentenced to seven years in prison, ordered 

to pay $50,000 in restitution, and fined $233 for 

court costs. Sheppard admitted embezzling more 

than $57,000 in rents from two Saint Mary Episcopal Retirement Homes, both of which are HUD

projects. At the time she committed this crime, 

Sheppard was on probation for a prior embezzlement charge. 

In Charlottesville, VA, in U.S. District Court 

for the Western District of Virginia, defendant 

Rodney Crump, former assistant property manager, 

was sentenced to 15 months incarceration and 36 

months supervised release, and was ordered to pay 
Chapter 4 - HUD’s Multifamily Housing Programs 63

$23,219 in restitution for his part in a conspiracy to 

embezzle funds from Blue Ridge Commons Apartments (BRC). Crump and the former property 

manager, Nancy Besemer, conspired to embezzle 

$23,219 in cash payments and blank money orders 

from residents of BRC. Instead of depositing these 

funds in a bank account belonging to BRC, Crump 

and Besemer kept the funds for their own benefit. 

Two arrest warrants have been issued for Besemer, 

who has fled the jurisdiction. One warrant is related 

to this matter and one is for probation violation. 

Defendant Sandra Pullett, a multifamily specialist, was sentenced in Philadelphia, PA District 

Court for the Commonwealth of Pennsylvania to 12 

months supervised release and was ordered to pay 

$16,000 in restitution and fines. Pullett previously 

pled guilty to one count of conspiracy and one 

count of theft by deception. An investigation disclosed a $40,000 embezzlement scheme that took 

place at the Overmont House multifamily development. The investigation found that in the past year 

and a half, Pullett and an accomplice embezzled 

rental payments from HUD assisted multifamily and 

Section 8 tenants living at Overmont. Pullett and 

her accomplice deposited cash payments, cashed 

money orders, and split the illegal proceeds. Pursuant to her guilty plea, Pullett stipulated that she will 

pay Overmont House $16,000 in restitution. 

Defendant Anita Young was sentenced in 

Topeka, KS, in Federal Court for the District of 

Kansas, to three years probation and was ordered to 

pay $13,226 in restitution to HUD. Young, who pled 

guilty to a one-count superseding information 

charging her with false statements and embezzlement, received Section 8 project-based rental 

assistance at the Highland Park Apartments multifamily development. She fraudulently received 

$13,266 in rental assistance after she falsified her 

annual recertifications by failing to disclose her true 

income. 

Defendant Roger Younts was arrested and 

charged in Lexington, NC, in State Court for the 

Middle District of North Carolina, with 11 counts 

of felony embezzlement of approximately 

$600,000. Younts allegedly embezzled the money 

from Housing Management, Inc., which manages 

dozens of Section 8 public housing complexes 

across the Southeast. Younts was indicted earlier 

this month for embezzling money from seven 

entities managed by Housing Management, Inc. 

Defendant Diane L. Galloway, manager of 

Branson Manor Apartments, was charged by the 

State of Missouri in Branson, MO, with one count 

of financial exploitation of an elderly person and 

one count of theft by deceit when she failed to 

disclose financial assets owned by a tenant receiving 

subsidized housing. Branson accepted at least 

$167,443 from an elderly Branson Manor resident. 

To retain access to the resident, Galloway falsified 

certifications by underreporting the resident’s 

income and assets. The total loss to HUD is $6,012. 

In St. Louis, MO, in Federal Court for the 

Eastern District of Missouri, defendant Nueil 

Edwards was indicted on charges of theft or bribery 

concerning programs receiving federal funds. 

Edwards was the former operations manager for the 

Roosevelt Towne Apartments, a multifamily Section 

8 property. He allegedly stole monies from the 

property’s reserve fund checking account by remitting checks payable to a bank account he had set up 

in the name of the complex. He used this money, 

alleged to total more than $135,000, for his personal benefit. 

Defendant Ronald McCoy, owner of ABC

Construction, Inc., was arrested and charged in 

State Court, Philadelphia, PA, on seven felony 

Pennsylvania State Crime Code violations. These 

violations include bribery, criminal conspiracy, bid 

rigging, theft by unlawful taking, theft by deception, attempted theft by deception, and deceptive or 

fraudulent business practices. McCoy allegedly paid 

bribes in the form of home improvements to Allan 

Brown, former deputy director of the Philadelphia 

Housing Development Corporation (PHDC). In 

return for these bribes, McCoy, doing business as 

ABC Construction, received repair and service 

contracts for multifamily housing units managed by 

PHDC. Brown was convicted on related charges in 

July 2001. 

Defendants Phillip Colley, Vernon Strauch, and 

Sherrie Bussleman were arrested and named in a 
Chapter 4 - HUD’s Multifamily Housing Programs 64

22-count indictment in Lincoln, NE, in Federal 

Court for the District of Nebraska, for charges 

involving Section 8, mortgage, Social Security, and 

Medicare fraud, as well as firearms violations. 

Serenity Place, the subject of the investigation, is an 

organization that provides food, shelter, and entertainment for disabled people in the Lincoln area. 

This entity is owned and operated by Colley and 

Strauch, who operate numerous other businesses 

from this same location. Serenity Place receives 

money from HUD, the Social Security Administration (SSA), the Department of Health and Human 

Services (HHS), and various state agencies for 

subsistence, transportation, lodging, and medication. Colley and Strauch have allegedly deprived the 

occupants of money to which they are entitled, and 

provided false statements to HUD, SSA, and HHS to 

receive funding for which they fail to qualify. 

Forgery

In the 20th Judicial Circuit Court, Grand

Haven, MI, defendant Karen Englert, a manager at 

Spring Lake Presbyterian Housing Corporation 

(SLPHC), was sentenced to 180 days incarceration 

and 60 months probation, and ordered to pay 

$77,385 in restitution. Englert, without board 

approval, paid $4,249 for her daughter’s health 

insurance and made purchases at local merchants 

using SLPHC issued credit cards and checks. In 

addition, she admitted to writing over $33,000 in 

SLPHC checks to herself and forging the check stubs 

to avoid detection. In total, Englert embezzled 

$45,000 during fiscal years 2001 and 2002. 

In Cook County State Court, Chicago, IL, 

defendant Odessie Allen, a schoolteacher, pled 

guilty to one count of felony forgery and was 

sentenced to pay a minimum of $12,500 in restitution. Allen failed to report her income while receiving Section 8 benefits at a multifamily HUD subsidized development. Allen tendered $6,500 in a 

money order made payable to HUD, and will make 

the remaining payments over the next 30 months. 

The Attorney General’s Office has the option of 

requesting an increase in restitution if Allen’s 

financial situation changes. 

Davis-Bacon Act Violations

Defendant Avner Leibovitch, also known as 

Avner Electric, pled guilty in Columbus, OH, in 

Federal Court for the Northern District of Ohio, to 

concealing and falsifying material facts relating to 

prevailing wage violations at Terraces at Northridge, 

a HUD insured multifamily development. Leibovitch 

was the sole proprietor of Avner Electric, which 

was an electrical subcontractor at Terraces at 

Northridge. Because the mortgage was insured by 

HUD, the construction of the project was subject to 

the provisions of the Davis-Bacon Act and labor 

laws, which required the general contractor and 

subcontractors to pay construction workers at least 

the “prevailing wage” for their work classification, 

as determined by the Department of Labor. 

Leibovitch paid certain workers less than the 

required prevailing wages and prepared false payroll 

forms which concealed that fact and contained false 

statements and certifications relating to the wages 

actually paid to the workers. Four other subcontractors (Robert Adkins, doing business as Adkins 

Drywall, Andrew Sandor, doing business as Sunrise 

Decorating, Chris Gorges, doing business as Austin 

Electric, and Robert Gregoric, doing business as 

Precision Cuts), all of whom worked at Terraces at 

Northridge, have already been charged federally 

and convicted. 

In the same case, defendants Dennis Breiding, 

Douglas Lund, Joginder Singh, and Rajinder Singh 

were indicted on the same charges relating to three 

HUD insured multifamily residential housing 

projects. According to the indictment, Gatehouse 

Building Company was the general contractor on 

three HUD insured multifamily housing projects 

owned by separate limited partnerships — the 

Enclave at Rosemont Ridge, the Terraces at 

Northridge, and the Terraces on the Green. Defendants Breiding, Lund, and Joginder Singh were 

employees of Gatehouse, with responsibility for the 

projects; Rajinder Singh had a financial interest and 

was involved in controlling the business of Austin 

Electric, Inc., a company which performed work as 

an electrical subcontractor on the three housing 

projects. The indictment alleges that the four 

defendants entered into a conspiracy, an objective of 

which was to reduce the general contractor’s costs 

on the projects by paying workers less than the 
Chapter 4 - HUD’s Multifamily Housing Programs 65

required prevailing wages and to conceal the failure 

to pay prevailing wages from those personnel at the 

Departments of Labor and HUD. The subcontractors 

allegedly caused the forms to be submitted to the 

general contractor, who in turn submitted them to 

HUD. 

Four other subcontractors who worked on one 

or more of the projects – Edward C. Gorges (a 

principal of Austin Electric), Robert A. Gregorek (a 

framing contractor), Andrew E. Sandor (a painting 

contractor), and Robert Adkins (a drywall contractor) – pled guilty in 2002 to separate but similar 

conspiracy charges. 

Obstruction of Justice

Defendant Jocelyne Martinez, an investigator 

for the State Attorney General’s Office, was arrested and charged in Central Islip, NY, in Federal 

Court for the Eastern District of New York, on 

charges of loan origination fraud and obstruction of 

justice. Martinez allegedly defrauded HUD by 

illegally obtaining $1.7 million in federally insured 

mortgages to purchase four multifamily buildings in 

the Bronx, and then coached a witness to lie to 

investigators about the transactions. 

False Statements

Knudson Management Company, Inc., owner of 

two Section 8 multifamily apartment complexes in 

Humble, TX, agreed to a civil settlement, through 

the U.S. Attorney’s Office in Houston, TX, 

Southern District of Texas, to pay HUD $133,500 to 

settle allegations of fraudulent vouchering practices 

at the apartment complexes. Knudson Management

Company billed HUD for Section 8 tenants who 

were actually deceased or who were no longer 

residents of the properties. 

Defendant Michelle Uzzle, a former Section 8 

tenant, was sentenced in Circuit Court for Isle of

Wight County, VA, to 30 years imprisonment 

(suspended) and an indefinite period of probation; 

was ordered to perform 500 hours of community 

service; was ordered to pay $24,283 in restitution 

to various social service agencies, including 

$10,825 to HUD; and was ordered not to apply for 

or receive any social service benefits, including 

federal housing assistance, for a period of seven 

years. Uzzle’s sentence followed her June 2003 

guilty plea to six felony counts, including three 

counts of grand larceny from HUD, related to her 

submitting false statements concerning her household income while obtaining various social services 

and housing assistance. 

Defendants Robert and Sabrina Guthrie, former 

Section 8 tenants, pled guilty in DuPage County,

IL Court to state benefits fraud. The Guthries 

submitted false statements about their family 

income in order to receive rental assistance at 

Chateau Village Apartments, a HUD insured, Section 8 subsidized development. On the same day, 

they were sentenced to 240 hours of community 

service, two years probation, and $10,502 in joint 

restitution. 

Defendant Vicky Bogard signed a pretrial 

diversion agreement in Little Rock, AR, in Federal 

Court for the Eastern District of Arkansas, admitting to making false statements to HUD. Bogard 

agreed to perform 75 hours of community service 

and pay restitution of $9,436 in return for 18 

months of deferred adjudication. From August 1999 

to October 2002, Bogard failed to report to West 

Scenic Apartments the income she earned working 

as a teacher. She signed annual Section 8 recertification forms knowing this income was omitted. As 

a result of her fraud and false statements, she 

received $7,412 in multifamily project-based 

Section 8 benefits to which she was not entitled. 

Defendant Maxine Gordon, a former multifamily Section 8 recipient, pled guilty in Pittsburgh,

PA, in U.S. District Court for the Western District 

of Pennsylvania, to using false identities to obtain 

Section 8 and Social Security benefits. Gordon was 

previously indicted on eight counts, and subsequently fled the area to avoid prosecution. She was 

apprehended in April 2003 after spending 17 

months on the run. HUD paid Gordon, under a 

fictitious identity, nearly $38,000 in Section 8 

subsidies between 1994 and 2001. The Social 

Security Administration paid her more than 

$87,000 under two fictitious identities during this 

same period. Gordon will be sentenced on December 5, 2003. 
Chapter 4 - HUD’s Multifamily Housing Programs 66

A one-count information was filed in Topeka,

KS, in Federal Court for the District of Kansas, 

against defendant Cynthia Edwards. Edwards, a 

former multifamily project manager, allegedly made 

a false statement or representation when she signed 

schedules of tenant assistance payments for Ripley 

Park (Timberlee) Apartments. The schedules in 

question represented that several tenants were 

entitled to receive rental subsidy payments when in 

truth they no longer lived at the complex. The 

scheme resulted $90,918 in fraudulent payments to 

Timberlee Apartments. Edwards turned herself in 

prior to appearing in Court. 

Prior to the filing of charges, Timberlee Apartments, through its attorney, submitted a $40,000 

payment to HUD and agreed to make $5,000 payments beginning on September 15, 2003, until the 

total $90,918 claim has been paid. 

Defendant Blondy R. Haycraft, president and 

agent of U.H.M. Management Services, Inc., a 

Kentucky corporation which managed operations 

for the J.O. Blanton House, was indicted in Louisville, KY, in Federal Court for the Western District 

of Kentucky. Blanton House is a high-rise rental 

property with 206 of its 256 units designated for 

Section 8 housing for elderly or disabled individuals. As managing agent for Blanton House, Haycraft 

was required to pay the HUD insured mortgage, loan 

payments, employee salaries, and vendor invoices 

for goods and services provided to the property and 

to use the funds for reasonable expenses only. From 

February 7, 2000, to January 12, 2001, Haycraft 

knowingly and willfully made false statements and 

entries to pay invoices from vendors he certified 

had provided goods and services to Blanton House, 

when he knew that the forms contained false entries. 

On or about March 22, 2001, and April 23, 

2001, Haycraft knowingly executed a scheme to 

obtain monies, funds, credits, and assets owned by 

and under the custody and control of River City 

Bank, the deposits of which were insured by the 

Federal Deposit Insurance Corporation under false 

pretenses. Haycraft used his position as president of 

U.H.M. and falsely represented to River City Bank 

that he was the sole owner of misplaced certificates 

of deposits issued to Blanton House, when in fact 

he knew the certificates of deposits were not misplaced. On or about January 1, 2000, to June 30, 

2001, Haycraft stole property valued at more than 

$5,000 owned by and under the custody of Blanton 

House. 

Defendant Shau Ling Yam, a HUD Section 236 

Program participant, was arrested in New York,

NY, on nine state counts of grand larceny and 

fraud. Yam posed as a HUD management agent for a 

multifamily housing complex. She made false 

promises to immigrants in Chinatown by claiming 

she would assist them in obtaining public housing. 

Yam charged between $1,000 and $17,500 for 

initial fees to obtain an apartment, and used HUD

recertification forms to make her scheme appear 

more legitimate. Yam never provided the victims 

with apartments. She has defrauded over 33 victims 

out of $150,000. 
Chapter 5 — HUD’s Community Planning and 

Development Programs

The Office of Community Planning and Development (CPD) seeks to develop viable communities by

promoting integrated approaches that provide decent housing, a suitable living environment, and expanded

economic opportunities for low- and moderate-income persons. The primary means toward this end is the 

development of partnerships among all levels of government and the private sector. 

Audits 

During this reporting period, the OIG issued 16 reports in the Community Planning and Development 

Program area: one internal audit, 11 external audits, and four memoranda. These reports disclosed about $21 

million in questioned costs and over $1.1 million in recommendations that funds be put to better use. 

Community Planning & Development Reports

Issued

1

11

4

Internal Audit External Reports External Memoranda

Community Planning & Development Dollars

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

External Audits External Memoranda

Questioned Costs Funds Put to Better Use

We audited Community Development Block Grant Disaster Assistance Funds in the State of New York; 

the Empowerment Zone, HOME, HOME Investment Partnership, Community Development Block Grant (CDBG),

and Housing Rehabilitation Programs; a Section 108 loan and an Economic Development Initiative grant; and 

the Housing Opportunities for Persons with AIDS and Supportive Housing Programs. The results of our more 

significant audits are described below.

Disaster Assistance Funds – State of New York 

We are performing ongoing audits of the administration of the CDBG Disaster Assistance Funds provided to 

the State of New York as a result of the terrorist attacks on the World Trade Center in New York City. These

funds are being administered by two entities, the Empire State Development Corporation (ESDC) and the 

Lower Manhattan Development Corporation (LMDC). We plan to issue an audit report on each entity every six 

months and include the results in the Inspector General’s Semiannual Report to Congress in order to comply

with Congress’ request that the OIG periodically audit and semiannually report on the expenditure of these 

CDBG Disaster Assistance Funds. We previously reported on the operations of the ESDC on March 25, 2003, 

and recently completed our first review of the operations of the LMDC. 

The objectives of both the ESDC and LMDC reviews were to determine whether the entities: (1) disbursed 

CDBG funds to eligible applicants in accordance with the HUD Approved Action Plan; (2) disbursed CDBG funds 

to applicants in a timely manner; and (3) had financial management systems that adequately safeguard the 

Chapter 5 - HUD’s Community Planning and Development Programs 67
funds. Both reviews covered the period between October 1, 2002, and March 31, 2003. The reviews disclosed

that both ESDC (Report No. 2003-NY-1005) and LMDC (Report No. 2003-NY-1006) generally met these 

requirements. However, we found processing deficiencies at both ESDC and LMDC for which we recommended 

corrective actions to ensure that proper payments are made and to enhance the efficiency of the administration 

of the CDBG funds. 

The recent reviews represent our second review of ESDC’s operations. Generally, we found that ESDC

continued to make substantial progress developing and implementing programs to address the immediate

economic needs of numerous businesses that suffered economic losses and property damage in the terrorist 

attacks on September 11, 2001. At March 31, 2003, the ESDC had disbursed over $641 million of the $1.05 

billion in CDBG Disaster Assistance Funds it is administering, as shown below: 

Program Budget as of 

3/31/03 

Disbursements 

as of 3/31/03 

Balance as of 

3/31/03 

Bridge Loan Program $6,760,000 $0 $6,760,000 

Business Recovery Loan Fund $41,140,000 $5,772,798 $35,367,202 

Business Recovery Grant Program $489,860,000 $478,084,202 $11,775,798

Small Firm Attraction & Retention 

Grants $155,000,000 $26,513,750 $128,486,250

Grants to Technical Assistance

Providers $5,000,000 $1,490,456 $3,509,544

Large Firm Job Creation & Retention $320,000,000 $110,244,000 $209,756,000

Compensation for Economic Losses 

to Other Businesses 

$13,240,000 $12,732,591 $507,409

Business Information $5,000,000 $2,241,078 $2,758,922 

Administration $14,000,000 $4,807,285 $9,192,715

TOTALS $1,050,000,000 $641,886,160 $408,113,840

ESDC Action Plan as approved by HUD. 

However, we noted processing deficiencies in ESDC’s grant programs that need to be resolved to enhance

the efficiency of its administration of the funds. Our review of statistically selected samples from the Small

Firm Attraction and Retention Grant Program disclosed that overpayments were made to certain grant 

recipients. Specifically, we found that three of 110 sampled applicants received overpayments totaling nearly

$28,000. 

We reviewed grants provided under the Business Recovery Grant (BRG) Program by statistically selecting a 

sample of 308 BRGs, which represent BRG disbursements of over $30 million. We identified some of the same 

issues as reported in our previous audit. Specifically, we found overpayments of nearly $209,000 and one

duplicate payment of $34,000. 

Also, we noted accounting procedures that need to be strengthened to prevent misclassification of costs and 

incorrect calculations of indirect costs. Although some weaknesses may have resulted from the fast pace

required of the ESDC to implement the Disaster Assistance Programs, other deficiencies appear to exist because 

of weak accounting procedures. Specifically, we found that business information expenses of over $184,000

were misclassified as administrative costs, indirect overhead charges were calculated incorrectly, and a portion 

of a Technical Assistance Service Grant payment of nearly $81,000 lacked adequate supporting

documentation. 

We recommended, among other things, that HUD: (1) ensure that the ESDC has properly recorded and 

accounted for reimbursement of any overpayments; (2) instruct the ESDC on whether the funds we determined

to be ineligible should be reimbursed to the BRG Program from non-federal funds; (3) instruct the ESDC to reimburse the program for the duplicate payment; and (4) instruct the ESDC to establish accounting procedures to

Chapter 5 - HUD’s Community Planning and Development Programs 68
ensure that costs are correctly classified, that indirect costs are based on actual cost data, and that all grant

disbursements are adequately supported with documentation. (Report No. 2003-NY-1005) 

This review represents our first review of LMDC’s operations, which disclosed that LMDC had drawn down 

over $219 million of the almost $656 million approved by HUD, as shown below: 

Program

LMDC Partial 

Action Plan No. 1 

LMDC Partial 

Action Plan No. 2 TOTAL Drawn Down as of 3/31/03 

Residential Grant Program $280,500,000 $0 $280,500,000 $68,180,816 

Employment Training 

Assistance Program $10,000,000 $0 $10,000,000 $8,259 

Design & Installation of 

Interim Memorial $350,000 $0 $350,000 $0

WTC Business Recovery 

Grant Program $150,000,000 $150,000,000 $143,529,756

Small Firm Attraction & 

Retention Grants $50,000,000 $50,000,000 $0

Large Firm Job Creation & 

Retention $150,000,000 $150,000,000 $0 

Administration $15,042,500 $0 $15,042,500 $7,506,362

TOTALS $305,892,500 $350,000,000 $655,892,500 $219,225,193

LMDC’s first and second Partial Action Plans as approved by HUD. 

While we found that LMDC generally disbursed CDBG Disaster Assistance Funds to eligible applicants in 

accordance with the HUD Approved Action Plan, we noted processing deficiencies in LMDC’s Residential Grant

Program that need to be resolved to enhance the efficiency of LMDC’s administration of funds, and to prevent

duplicate payments and other related administrative deficiencies from recurring. We found that LMDC’s 

program administrator was unable to provide adequate documentation to fully support the eligibility of 37 

grant recipients that received nearly $78,000, and made either an over or under payment to ten additional

recipients. We also found that, contrary to program requirements, checks of nearly $101,000 were prepared

for 31 individuals who were either approved to receive a grant check under two different identification

numbers or reside in the same household with a grant recipient.

We recommended that LMDC and/or its program administrator be instructed to obtain and maintain all 

missing documentation to support all grant recipients’ eligibility, seek reimbursement from recipients who 

either are ineligible or received overpayments, and make the required payments to those recipients who were 

underpaid. We also recommended that LMDC and/or its program administrator take immediate steps to prevent 

the preparation of duplicate grant checks, recover the amount of all duplicate payments disbursed, and return

the recovered funds to the CDBG Disaster Assistance Funds. In addition, we made recommendations that will 

encourage compliance with HUD requirements and the HUD Approved Action Plans. (Report No. 2003-NY1006) 

Empowerment Zone Program 

The OIG completed a multi-location audit of the Office of CPD’s oversight of the Empowerment Zone

Program to determine whether HUD had an effective system for oversight and control of the program. The 

audit was conducted in response to two requests from Congress. The audit was conducted at HUD

Headquarters, six Zones, and HUD’s Field Offices of CPD having jurisdiction for the six Zones we reviewed. 

The six Zones were as follows: 

Chapter 5 - HUD’s Community Planning and Development Programs 69
Empowerment Zone Report Number Issue Date 

Cincinnati, Ohio 2003-CH-1009 January 28, 2003 

Cleveland, Ohio 2003-CH-1016 April 25, 2003

Huntington, West Virginia/Ironton, 

Ohio 

2003-CH-1006 December 31, 2002

Minneapolis, Minnesota 2003-CH-1007 January 3, 2003

Norfolk/Portsmouth, Virginia 2003-PH-1001 December 20, 2002

St. Louis, Missouri/East St. Louis,

Illinois 

2003-KC-1003 December 26, 2002

We concluded that HUD’s Office of CPD lacked an adequate system of oversight and control over its 

Empowerment Zone Program. Specifically, CPD needs to improve its oversight of the Cities’ use of HUD funds

(Empowerment Zone, Section 108 Loan Guarantee, and Economic Development Initiative Grant) for the 

program. HUD did not adequately confirm that the Cities’ projects complied with the respective federal 

requirements and their contracts with the projects’ administering entities regarding the use of HUD funds. Five 

of the six Zones we reviewed inappropriately used some of their HUD funds for the program. 

We also found that CPD did not effectively assess the status and progress of the Cities’ programs by

adequately verifying the accuracy of the June 2001 and/or June 2002 Annual Reports submitted by the Cities. 

The six Cities we reviewed provided inaccurate information to HUD for 38 of the 50 activities (76 percent) we

evaluated from the 2001 and/or 2002 Annual Reports. These Reports contained inaccuracies regarding the 

outputs of 32 projects, milestones of 26 projects, and sources and/or uses of funds of 20 projects.

As a result: (1) HUD lacks assurance that the Cities were efficiently and effectively using their HUD funds; 

(2) HUD lacks accurate information to assess the Zones’ progress on meeting the goals of their Strategic Plans;

and (3) the impression exists that the benefits of the program were greater than what was actually achieved. 

We recommended that the Office of CPD implement procedures and controls to ensure HUD funds for the 

Empowerment Zone Program are used efficiently and effectively, issue additional guidance regarding the use 

of HUD funds to ensure the funds benefit Zone residents, and implement procedures and controls to ensure that 

verifications of Annual Reports are conducted as required. (Report No. 2003-CH-0001) 

Of the six Empowerment Zones we reviewed during our multi-location audit, one Zone audit report, 

Cleveland, OH, was issued during this reporting period. In Cleveland, we found that: (1) controls over HUD

funds were not adequate; (2) accomplishments were inaccurately reported; (3) Zone residents were not 

benefiting from projects; and (4) program income was not properly managed. All 10 of the projects we 

reviewed incurred inappropriate or unsupported expenditures. The City inappropriately used nearly $6.9 

million of HUD funds that did not benefit the City’s Zone Program or were not matched with in-kind 

contributions. The City also lacked documentation to support that another $4.7 million in HUD funds paid

benefited the program. As of November 2002, the City spent $22 million of HUD funds for its Zone Program

on the 10 projects. 

The audit also found that the City inaccurately reported the actual status and/or progress for eight of the 10

(80 percent) projects in its June 30, 2001 Annual Report. The report contained inaccuracies related to the eight 

projects’ progress on projected outputs, milestones, and sources and/or uses of program funds. In addition, the 

City used $13.2 million of the $13.7 million in HUD monies committed for its program to fund three projects

that have not provided benefits to Zone residents or benefited only 25 percent of Zone residents as of

November 2002. The three projects are scheduled for completion in December 2004. Since the three projects

spent 96 percent of their HUD funds committed, benefits to Zone residents would be expected. However, this 

has not occurred.

Chapter 5 - HUD’s Community Planning and Development Programs 70
Chapter 5 - HUD’s Community Planning and Development Programs 71

© 2003 The Plain Dealer. All rights reserved. Reprinted with permission. 

The City did not follow its Economic Development Initiative Grant Agreement with HUD and its contract with 

Fairfax Renaissance Development Corporation (FRDC) to ensure that program income was remitted to the City and 

deposited into its loan repayment account. The account was established by the City as security for the repayment of 

its loan guarantee. FRDC is fully funded with initiative grant funds from the City’s Empowerment Zone Program 

and Community Development Block Grant funds, and receives fees for development services it performs. FRDC

received over $1.1 million in development fees between 1996 and 2002. 

We recommended that the Office of CPD assure that the City reimburses its Empowerment Zone Program for 

the nearly $6.9 million of inappropriately used HUD funds, provides documentation to support over $4.7 million of 

unsupported payments, and implements controls to correct the weaknesses cited in this report. (Report No. 2003- 

CH-1016) 

HOME, HOME Investment Partnership, Community Development Block Grant,

and Housing Rehabilitation Programs

In response to a request from HUD’s Caribbean Office of CPD, we performed an audit of the Puerto Rico 

Department of Housing’s (Department) State HOME Investment Partnership Program in San Juan, PR. We 

found that the Department’s HOME grants were unauditable and its financial management system was inadequate. Although these deficiencies were identified in prior independent public accountant reports and HUD

monitoring reviews, they continued to exist because the Department did not provide sufficient staff and training 

to correct the problems and disregarded program requirements. We identified nearly $1.7 million of ineligible 

program funds. 

The Department did not accomplish its intent for two of three new housing development/rehabilitation 

projects tested. For the Paseo Horizonte II project, we found that HOME funds were spent for work not performed or that was incomplete, and for excessive costs. Over $29,000 of the $656,000 in HOME funds disbursed to 

the developer were ineligible and the remaining $627,000 were unsupported. Our visit to the project found the site 

abandoned and unkempt. We found an eroded landfill, overgrown grass and bushes, and a missing manhole grill 

cover, exposing a hazardous hole four feet deep. 
Chapter 5 - HUD’s Community Planning and Development Programs 72

HOME funds expended for the Vilar Development project were inadequately supported, and the files lacked 

construction permits and other required documents showing building compliance for a housing project located 

in a flood zone. Our visit to the project showed that the site appeared to have been abandoned for some time. 

We recommended that HUD suspend disbursements of any further HOME awards until the Department can 

demonstrate accountability and compliance for all HOME grants. We also recommended that the Department be 

required to reimburse HUD ineligible costs of nearly $1.7 million, determine the eligibility of $627,000 in 

unsupported costs, and determine the status of the projects and possibly save over $1 million. (Report No. 

2003-AT-1006) 

We audited the City of Bridgeport, CT’s HOME Investment Partnership Program and identified nearly $1 

million in unsupported costs. The City: (1) could not demonstrate that rehabilitation costs for 13 projects, 

funded with $1 million in HOME funds, were justified and reasonable; (2) allowed developers to contract with 

identity of interest contractors contrary to its written agreement; (3) failed to ensure that HOME Program funds 

were used efficiently, resulting in potentially excessive rehabilitation costs and developer profits upon sale of the 

properties to homebuyers; (4) failed to properly apply recapture/resale provisions/amounts in the event of resale 

for projects; (5) imposed incorrect periods of affordability for projects; (6) did not maintain adequate documentation demonstrating that the projects were sold to and/or occupied by low-income families; and (7) did not 

adequately monitor the tenants’ eligibility and condition of the HOME assisted properties. 

The City concurred that mistakes were made in the administration of the HOME Program; nonetheless, units 

were produced, met local codes and housing quality standards, and have been maintained. The City contends 

that the costs were reasonable for the units. Therefore, the City only concurred that $50,000 should be repaid 

due to income ineligibility of one recipient. 

We recommended, among other things, that the City be required to provide documentation to justify the 

necessity and reasonableness of project costs or reimburse the HOME Program nearly $1 million from nonfederal funds. (Report No. 2003-BO-1003) 

In response to a citizen’s complaint, we conducted an audit of the Upfront Grant and the HOME loan provided to the Spanish Village Community Development Corporation (SVCDC) in Houston, TX. The complainant 

alleged wrongful expenditures of government funds, violations of grant and loan agreements, failure by HUD and the 

City of Houston to follow Upfront Grant and HOME loan guidelines, and political influence that prevented HUD from 

declaring the SVCDC in default of its agreements. We concluded that several of the citizen’s allegations were valid. 

View of Paseo Horizonte II showing the abandoned site. Partial view of houses under construction at 

Vilar Development project. 
Chapter 5 - HUD’s Community Planning and Development Programs 73

We found more than $90,000 of ineligible and unsupported expenses charged to a federal loan. We also 

found that, possibly because it lacked the administrative capacity to complete renovations, the SVCDC

violated grant and loan agreements and could not even 

start HUD funded renovations on the Spanish Village 

Apartments until long after the renovations were 

supposed to be completed. Neither HUD nor the City 

of Houston Housing and Community Development 

Department had a plan for ensuring completion of the 

renovation project even after the project was more 

than four years overdue. SVCDC finally completed the 

first phase of the renovations in January 2001; however, the renovations did not meet HUD standards and 

work ceased again with no restart date planned. As a 

result, the residents of Spanish Village continue to 

live in substandard units. Our audit did not substantiate any undue political influence. 

HUD issued SVCDC a default letter on March 12, 

2003, with options for SVCDC to return the property 

back to HUD or sell it to a buyer with the capacity to 

complete the renovations and operate the property as 

low-income housing. Therefore, we recommended 

that HUD continue with its remedial action by establishing a plan and timeframes for action if SVCDC

does not comply with the terms of the default letter. 

Further, in order that the funds can be put to better 

use, we recommended that HUD deobligate the 

remaining Upfront Grant of about $1.4 million to 

SVCDC, and require the City of Houston to reimburse 

its HOME investment trust fund the amount expended 

on the incomplete project and to deobligate a 

$498,000 HOME loan to SVCDC. (Report No. 2003- 

FW-1004) 

In response to a Congressional request, we 

performed an audit of the City of Montgomery,

AL’s CDBG Program activities related to the Madison Park sewer project. The Congressional request 

was based on a citizen’s complaint alleging misappropriated funds, suspected improprieties, and 

inadequate controls over the project. We found that 

the City did not: (1) use its CDBG funds prudently for 

the Madison Park community to connect 25 residences to sewer facilities after it spent over $700,000 

to do so; and (2) maintain adequate records on CDBG

activities for Madison Park. 

We recommended that HUD require the City to: 

(1) connect residents to existing sewer facilities in the 

Madison Park community; and (2) establish an 

adequate recordkeeping system and other basic 

controls to ensure its activities are in accordance 

with applicable HUD requirements. (Report No. 

2003-AT-1005) 

In response to a Hotline complaint, the OIG

audited the CDBG Program of Oakwood Neighborhood Association in Kalamazoo, MI. The complainant alleged that the Association’s former board 

treasurer misused program funds. The Association 

is a subrecipient of the City of Kalamazoo’s Block 

Grant Program. 

We found that the Association did not adequately account for the source and use of CDBG

funds. Specifically, the Association: (1) did not 

maintain complete and accurate accounting books 

and records; and (2) submitted inaccurate monthly 

expense claims to the City for reimbursement. We 

attributed these deficiencies to the fact that the 

Association’s former board treasurer lacked an 

adequate segregation of his assigned duties, a 

knowledge of accounting principles, and established 

accounting policies and procedures. 

We recommended that HUD require the Association to implement procedures and controls to 

segregate accounting duties over the program to the 

extent practical; maintain bank and accounting 

records on-site; and provide periodic financial 

reports to its board. In addition, HUD should 

require the City of Kalamazoo to discontinue 

providing CDBG Program funds to the Association 

until it develops and maintains written accounting 

procedures, source documents, a chart of accounts, 

a cash receipts and disbursements journal, and a 

general ledger, and segregates duties over the 

program. (Report No. 2003-CH-1015) 

Following a citizen complaint to Congress, we 

audited Housing Continuum, Inc.’s Homebuyers 

Assistance Program. The complainant alleged that 

Housing Continuum, located in Geneva, IL, failed 

to ensure that rehabilitated homes met HUD requirements. HUD’s HOME Investment Partnership Program funded Housing Continuum’s Homebuyers 

Assistance Program. 
Chapter 5 - HUD’s Community Planning and Development Programs 74

We found that Housing Continuum did not ensure that 

rehabilitated homes met HUD’s housing quality standards and/ 

or requirements of the State of Illinois. Specifically, Housing 

Continuum failed to sufficiently document the required cost 

analysis and did not assess the reasonableness of the rehabilitation contractors’ proposed contract prices. Housing rehabilitation work was not authorized, not provided, or was 

improperly performed. Also, contractors did not obtain 

construction permits in a timely manner, as required. 

We recommended that HUD assure that the Housing 

Continuum reimburses its Homebuyers Assistance Program 

nearly $68,000 for the inappropriate use of HUD funds, 

implements controls and procedures to ensure that the 

procurement of housing rehabilitation services meets all 

applicable requirements, and requires contractors to obtain 

the necessary permits. (Report No. 2003-CH-1017) 

Example of housing rehabilitation work that was improperly 

performed at one of Housing Continuum’s projects. Electrical 

wiring not installed in conduit. 

Section 108 and Economic Development Initiative

In response to a request from HUD’s Georgia State Office, Office of CPD, we audited the City of Atlanta,

GA’s administration of a Section 108 loan and an Economic Development Initiative grant totaling $7.2 million. The project is known as Historic Westside Village. The City and its subrecipient, the Atlanta Development Authority (ADA), did not adequately manage and control the project. The City allowed significant 

violations of HUD requirements to occur without early detection or prompt corrective action, and failed to 

adequately monitor the performance of subrecipients to ensure compliance with HUD program requirements. 

The City and ADA improperly allowed an ADA affiliate, Inner City Development Corporation (ICDC), to 

perform as a grant subrecipient without executing a subrecipient agreement. ICDC improperly paid $1.35 

million of Section 108 funds for non-competitively selected service vendors and over $163,000 for other 

ineligible and unsupported costs. The City and ADA did not competitively procure 22 service contractors and 

did not execute a contract with a “for-profit” company, Historic Westside Partners (HWP), to perform as the 

project’s exclusive development and management agent. The City and ADA also allowed “for-profit” affiliates 

of HWP and ICDC to become exclusive developers with ownership interests in project land and leases without 

competition, and without compensation to the City or the Section 108 Program. The opportunity to collect at 

least $1.7 million of program income from the sale of one land parcel was not pursued, and project related 

revenue totaling more than $403,000 was not properly recorded as project revenue. In addition, the City and 

ADA did not comply with HUD requirements pertaining to project budget approvals and accounting. 

We recommended that HUD initiate sanctions against City, ADA, and ICDC officials responsible for program violations. We also recommended that HUD require the City to: (1) provide evidence that its management control and accounting systems comply with HUD requirements before awarding any further funding; (2) 

recover land or appropriate program income from those parcels; and (3) repay $1.65 million of non-competitively procured services and ineligible and unsupported costs. (Report No. 2003-AT-1004) 
Chapter 5 - HUD’s Community Planning and Development Programs 75

HOPWA and Supportive Housing Programs

Safe Space, Inc., a nonprofit in New York, NY, could not provide adequate assurances that $2.2 million 

(over $537,000 for the Housing Opportunities for Persons with Aids (HOPWA) Program and $1.67 million for 

the Supportive Housing Program (SHP)) in costs either paid with grant funds or allocated to activities were 

actually applicable to the grant programs. An OIG review of the grantee’s books and records pertaining to its 

HOPWA and SHP Programs disclosed that the grantee did not maintain adequate books and records to account for 

expenditures charged to the programs, or adequate documentation to support that grant funds were only expended for eligible program activities. Specifically, the grantee failed to properly maintain accounting records 

to document the basis for allocating costs charged to individual grant programs. This occurred because grantee 

officials failed to comply with federal requirements and regulations pertaining to charging of costs to grant 

programs, which provide that actual conditions must be taken into account when selecting a base to be used in 

allocating costs to each grouping of benefiting functions. 

We recommended that HUD instruct the grantee to obtain an independent public accounting (IPA) firm to 

evaluate the manner in which costs were allocated to the various HUD grant programs and other funding 

sources. The IPA should certify whether the method used to allocate costs produced allocated amounts that were 

commensurate with the benefits derived. HUD should also instruct the grantee to reimburse to HUD any amount 

of the $2.2 million that the IPA does not certify to as being an eligible cost that is allocable to the HUD funded 

grant programs. In addition, we made recommendations to improve the grantee’s controls and enhance compliance with HUD requirements and regulations. (Report No. 2003-NY-1802) 

In Denver, CO, the OIG reviewed the Colorado Coalition for the Homeless’ administration of its SHP grants. 

The audit was initiated based on a complaint regarding the Coalition’s administration of HUD grant funds. We 

found that the Coalition’s management controls were not adequate to ensure that HUD grant monies were being 

used for eligible and supported program costs. 

Contrary to HUD requirements, the Coalition did not adequately support the source and application of HUD

funded activities. The Coalition used various budgets and/or estimates for charging direct and indirect salaries 

and other operating and supportive services to its SHP grants. Subgrantees carrying out various segments of 

supportive housing for the HUD funded programs were not allocating costs on a properly supported basis and 

©The Atlanta Journal-Constitution, July 28, 2003. Reprinted with permission from The Atlanta Journal-Constitution. 
Chapter 5 - HUD’s Community Planning and Development Programs 76

for the actual costs of providing housing to program 

grant recipients. In addition, the Coalition charged 

various miscellaneous ineligible costs to its HUD

grants. As such, the Coalition cannot fully support 

that the charges to the HUD grants represent the 

actual amount expended for each individual grant 

and program activity. 

HUD requires that part of the SHP costs be 

funded by the grantee and used for eligible grant 

program activities. In the most current Annual 

Performance Reports for nine of the Coalition’s SHP

grant projects, the Coalition reported that over 

$283,000 in cash match funds were provided and 

used for eligible program activities. However, the 

cash match funds reported were not supported as 

expenditures of the particular SHP project, nor were 

the funds recorded on the individual grant project’s 

books of account. 

The Coalition charged the maximum five 

percent administrative allowance for its administrative fee under the two SHP projects we reviewed, 

rather than an amount based on actual supported 

costs. The Coalition based the five percent administrative total on the yearly budgets and estimates of 

its total general administrative costs, and as such, 

considers the maximum five percent amount as 

justified. However, the $148,000 charged to the two 

SHP projects during the audit period is not supported by actual supported costs. 

We recommended that the Coalition: (1) implement an adequate direct cost allocation system that 

properly allocates its salary and other related costs 

to the various HUD SHP grants and activities in 

conformity with HUD and OMB requirements; (2) 

revise its provisionally HUD approved indirect cost 

proposal to equitably allocate its administrative and 

indirect costs in conformity with HUD requirements; 

(3) submit its cash match during the implementation 

of the grant activities and use such monies for 

eligible program activities; and (4) repay the 

ineligible amounts charged to the HUD funded 

grants. (Report No. 2003-DE-1006) 

The OIG completed a limited review of the 1736 

Family Crisis Center’s (FCC) SHP operations and 

found that FCC, located in Los Angeles, CA, did 

not have adequate controls in place to ensure it 

would meet federal and grant agreement requirements. Specifically, FCC did not: (1) adequately 

account for grant funds; (2) sufficiently establish 

procedures to ensure only eligible and applicable 

expenditures were charged to SHP grants; and (3) 

promptly establish a cost allocation plan to properly 

allocate indirect cost pools. During the review, with 

the exception of the implementation of a cost 

allocation plan, we noted that FCC had already 

established and implemented accounting systems 

and procedures to correct these control weaknesses. 

We recommended that HUD determine the 

eligibility of about $91,000 in direct operating 

costs, and follow up on FCC’s implementation of its 

indirect cost allocation plan to ensure it is being 

implemented as planned. (Report No. 2003-LA1802) 

Investigations

During this reporting period, the OIG opened 48 

investigation cases and closed 13 cases in the 

Community Planning and Development Program 

area. Final judicial action taken on these cases 

during the period included $303,396 in recoveries/ 

receivables, $123,065 in restitution, $26,400 in 

fines, 13 convictions, pleas, and pre-trial diversions, 15 indictments/informations, 19 administrative sanctions, 16 arrests, and 108 months in 

prison. The results of our more significant investigations are described below. 

Disaster Assistance Funds – State of

New York

In our last Semiannual Report to Congress, we 

reported on both our audit and investigative work 

into the misuse of HUD funds provided in the 

aftermath of the September 11, 2001 terrorist 

attacks in New York City. During this reporting 

period, we continued to find instances of fraud and 

abuse involving these funds. Our results are as 

follows: 

Defendant Bryan Fuhr was sentenced in New

York, NY, in Federal Court for the Southern District 

of New York, to one year probation and 200 hours of 

community service, and was fined $2,000. Fuhr 
Chapter 5 - HUD’s Community Planning and Development Programs 77

previously pled guilty to theft of federal government 

money. He participated in a scheme to defraud HUD

and the Lower Manhattan Development Corporation 

(LMDC). LMDC was created by the State and City of 

New York after the September 11, 2001 terrorist 

attacks to coordinate the rebuilding and revitalization 

of Lower Manhattan. LMDC received over $2.7 billion 

from HUD to fund the grant program. 

Defendant Allan Klein pled guilty in New York,

NY, in Federal Court for the Southern District of 

New York, to one count of theft of govenment money 

and one count of mail fraud in connection with a 

scheme to defraud HUD and the LMDC. Klein devised 

a scheme to fraudulently obtain money from a grant 

program. 

In New York, NY, an attorney representing 

defendant David Zimmer submitted a check for 

$280,000 to the U.S. Attorney’s Office for the 

Southern District of New York. The check was 

made payable to the Empire State Development 

Corporation (ESDC). Zimmer, a resident of Maryland, was previously arrested and charged with theft 

of government money and wire fraud. On the same 

day, a seizure warrant was issued out of the U.S. 

Attorney’s Office, Southern District of New York, 

and $169,991 was seized from a bank account 

maintained by Zimmer. The $280,000 constitutes a 

return of the grant money on two applications 

submitted to ESDC by Zimmer. 

In New York, NY, in Federal Court for the 

Southern District of New York, an attorney for the 

mother of deceased David Corea reimbursed 

$23,396 to ESDC upon realizing that Corea’s estate 

was not entitled to the World Trade Center Business 

Recovery Grant (WTCBRG). After the terrorist 

attacks, the WTCBRG Program was established by 

ESDC to provide assistance to certain businesses in 

lower Manhattan that were adversely impacted by 

the attacks. The WTCBRG Program is funded 

through a $375 million appropriation from HUD. 

Defendants Jobim Rose, Azmay Shahzada, and 

Allan Klein were indicted in New York, NY, in 

Federal Court for the Southern District of New 

York, on charges of theft of government funds and 

mail fraud in connection with a scheme to defraud 

HUD and the LMDC of federal grant funds. The 

defendants allegedly devised a scheme to fraudulently 

obtain money from this program designed to retain 

and attract residents to Lower Manhattan. 

Investigations Involving Public

Officials

Defendant Martin Barnes, the former mayor of 

Paterson, was sentenced Newark, NJ, in Federal 

Court for the District of New Jersey, to 37 months 

in prison, three years supervised release, and 200 

hours of community service for accepting between 

$200,000 and $300,000 in bribes and gratuities 

during his tenure as mayor. Barnes accepted free 

travel to places that included Rio De Janeiro and 

Aruba; took tax deductions for trip expenses paid 

by his corrupt association with United Gunite

Construction, Inc., of Irvington, NJ; accepted 

female companionship paid for by United Gunite; 

and accepted home improvements, including a 

custom swimming pool and waterfall in his back 

yard, along with clothing and cash. Barnes’ corrupt 

behavior started on almost his first day in office and 

continued as a systematic and routine way of business during his terms as mayor. He pled guilty in 

July 2002 to one count of mail fraud and one count 

of subscribing to a false tax return. 

Defendants David W. Moore, former mayor of 

Beaumont, TX, and John K. Davis, former Beaumont city councilman, were sentenced in Federal 

Court for the Eastern District of Texas. Moore 

The Daily News, June 27, 2003 
Chapter 5 - HUD’s Community Planning and Development Programs 78

received 20 months in prison and two years supervised release, while Davis received 33 months in 

prison and three years supervised release. Both were 

ordered to pay $30,000 jointly in restitution to the City 

of Beaumont. The defendants were convicted in 

November 2002 of accepting bribes from San Antonio, TX businessman Terry Samuel in return for their 

support of Samuel’s application on a small business 

loan from the City. This City money consisted of HUD

Community Development Block Grant Program 

funds. Moore was convicted on 13 counts and Davis 

on 11 counts of conspiracy, bribery, money laundering, 

and fraud. 

Defendant Sara Bost, former mayor of 

Irvington, NJ, was sentenced in Federal Court, 

District of New Jersey, to 12 months incarceration, 

two years probation, and 150 hours of community 

service, was fined $2,000, and ordered to pay $100 

in special assessment fees. In April 2003, Bost pled 

guilty to one count of attempted corruption of a 

witness. She admitted that in April 1999, she 

attempted to persuade a government witness to 

provide false or misleading information to federal 

authorities conducting an investigation into the use 

of Community Planning and Development funds to 

rehabilitate a recreation center. Bost admitted that 

she attempted to persuade this witness into giving 

false testimony about her acceptance of a kickback 

from a paving contractor involved with the rehabilitation project. 

In Milwaukee, WI, in Federal Court for the 

Eastern District of Wisconsin, defendant LaRosa 

Roberta Cameron, also known as Roberta Allen, 

former executive director of the Williamsburg 

Heights Community Block Club Association (WH), 

and the daughter of former City of Milwaukee 

alderman Rosa Cameron, pled guilty to participating in a scheme to conceal a material fact in relation 

to the award of Community Development Block 

Grant funds by the City of Milwaukee to WH. 

LaRosa Roberta Cameron was charged in a fourcount indictment in October 2002 to which she 

ultimately pled guilty. The fourth count of that 

indictment charged both LaRosa Roberta Cameron 

and her sister, LaZanda Moore, with participating in 

a scheme with their mother, Rosa Cameron, to hide 

the immediate family conflict of interest relationship 

between the daughters on behalf of WH and the 

mother, in her positions as member of the City’s 

Community Development Committee and member of 

the Common Council, on behalf of the City. The other 

three counts of the indictment were additional charges 

against Rosa Cameron. Rosa Cameron has already 

been sentenced pursuant to this indictment and is 

currently serving her prison sentence. Trial for 

LaRosa Roberta Cameron and her sister, LaZanda 

Moore, was scheduled to begin on August 11, 2003; 

however, due to the sudden development of serious 

medical problems in the family of a defense attorney, 

Moore’s trial is now expected to be substantially 

delayed. LaRosa Roberta Cameron is scheduled to be 

sentenced on October 29, 2003. 

Theft/Embezzlement

A four-count complaint was unsealed in Manhattan, NY, in Federal Court for the Southern 

District of New York, charging Rabbi Milton 

Balkany, also known as Yahoshua Balkany, with 

misappropriating $700,000 in federal grant money. 

Balkany, president and director of Bais Yaakov, a 

Jewish day school in Brooklyn, applied for and 

later received a $700,000 Economic Development 

Initiative (EDI) grant from HUD. He allegedly 

represented to HUD that the entire grant amount 

would be used to pay off a mortgage on a building 

located on the Bais Yaakov property for an entity 

called the “Children’s Center of Brooklyn” to 

house educational and therapeutic programs for 

disabled preschool children. 

In November 2001, OIG began a preliminary 

investigation of several EDI grants that had been 

awarded in the New York metropolitan area, including the “Children’s Center” grant, and learned that 

the “Children’s Center” had failed to file any of the 

regular progress reports required by HUD. Balkany 

refused to provide OIG with access to the school’s 

books and records. Records subsequently obtained 

from Chase Manhattan Bank showed that all the 

money received from HUD in December 1999 had 

been withdrawn in early February 2000, a twomonth period in which Balkany wrote more than 

250 checks against the account. One check was 

used to pay down a mortgage against the Bais Yaakov 

property, which at the time of the grant totaled more 

than $1 million. The complaint states further that 
Chapter 5 - HUD’s Community Planning and Development Programs 79

Balkany diverted funds to several individuals and 

entities who were not entitled to the funds. For 

example, $300,000 was diverted to a corporation in 

which Balkany’s son-in-law was an officer, and 

$80,000 was diverted to a variety of other Rabbis and 

Jewish schools and organizations in Brooklyn. Another $78,000 in checks were made payable to Rabbi 

Balkany. Balkany surrendered to the authorities on 

August 26, 2003. 

In addition to the $700,000 grant, Bais Yaakov 

received over $2.7 million in other EDI grants from 

HUD for FYs 1999, 2001, and 2002. Another grant 

application in the amount of $1.5 million for FY

2003 has been withheld by HUD pending the outcome of the investigation. 

Defendant Betty Jane Anderson, former property manager of the Becker County Economic 

Development Authority (EDA), was sentenced in 

Becker County Criminal Court, Detroit Lakes,

MN, to 23 months incarceration and $73,599 in 

restitution following her earlier guilty plea to theft 

by swindle for her role in embezzling EDA funds. 

Anderson stole EDA checks made out to tenants, 

landlords, and vendors. She then set up fictitious 

bank accounts and subsequently deposited the 

stolen funds in those accounts. 

Defendant Edward Scarborough was arrested 

and pled guilty in New York, NY, in Federal Court 

for the Southern District of New York, to one count 

of theft of government property. Scarborough 

received approximately $320,545 in Supportive 

Housing Program funds from HUD’s Office of 

Community Planning and Development. He also 

received approximately $84,000 in grant monies 

from the New York State Department of Labor 

provided by the Department of Health and Human 

Services. Scarborough created an organization 

called the Institute for Development of Disabled 

Americans which was to provide training for 

disabled veterans in the culinary arts. These monies 

were converted for his own use. 

In Reno, NV, defendant Mary Long, the former 

managing director of Pahrump Family Resource 

Center, a nonprofit, pled guilty in the Fifth Judicial 

District Court of the State of Nevada to two counts of 

forgery and embezzlement. Between October 2000 

and August 2002, Long cashed checks for her personal use from the account of the nonprofit totaling 

between $60,000 and $85,000. During that period, the 

nonprofit received $29,427 in Housing Opportunities 

for Persons With AIDS funds from HUD via the City of 

Las Vegas. 

In Kansas City, MO, defendant Sylvester 

Holmes, former president of the Black Economic 

Union, pled guilty in Federal Court for the Western 

District of Missouri to two counts of theft concerning programs receiving federal funds. The Black 

Economic Union is a not-for-profit community 

development corporation dedicated to the redevelopment and revitalization of distressed or blighted 

communities within Kansas City. As president, 

Holmes solicited bribes and diverted payments from 

the Union to personal bank accounts. 

Defendant Terry Lee Rhodes was arrested in 

Las Vegas, NV, and was transported to Los Angeles, CA. Rhodes, who was indicted in 2002, was an 

employee of Toney Chisum, Jr., president of American Philanthropy Association (APA). Defendant 

Chisum was previously found guilty in Los Angeles, CA, in Federal Court for the Central District of 

California, of one count of conspiracy, five counts 

of making false claims to HUD, five counts of theft 

of federal government funds, and one count of 

making false statements to HUD. APA owned and 

operated three homeless shelters in Los Angeles. 

Chisum and Rhodes submitted homeless shelter 

attendance logs that included fraudulent and fictitious names in order to receive federal funds from 

the Los Angeles Homeless Services Authority’s 

Winter Shelter Program. The City and County of 

Los Angeles funded the Winter Shelter Program 

using Emergency Shelter Grant dollars provided by 

HUD. APA received more than $500,000 under the 

Winter Shelter Program between 1994 and 1998. 

Rhodes was a fugitive prior to his recent arrest. 

Chisum is scheduled for sentencing November 17, 

2003. 

In Salt Lake City, UT, defendant Christy 

Marie Martinez was indicted in Federal Court for 

the District of Utah on four counts of theft of government funds. Martinez, a former caseworker for the 

Salt Lake Community Action Program’s Housing 
Chapter 5 - HUD’s Community Planning and Development Programs 80

Opportunities for Persons with AIDS (HOPWA) Program, allegedly embezzled over $50,000 in program 

funds. She created false supporting documentation to 

justify HOPWA payments to “vendors” on behalf of 

HOPWA clients, and diverted payments prepared for 

HOPWA “clients” to her personal benefit. As an 

example, Martinez used HOPWA funds for her vacation, a car loan, payments to a family member, credit 

card payments, car repairs, and utility bills. 

False Statements

Defendant Thomas E. Keehn, Jr., the president 

of Certified, Inc., a home improvement company 

incorporated in the State of Maryland, was sentenced in Baltimore, MD, in Federal Court for the 

District of Maryland, to six months with an electronic monitor, five years probation, fined $20,000, 

and ordered to pay $31,000 in restitution to the 

District of Columbia’s Department of Housing and 

Community Development. Keehn was also ordered 

to notify all jurisdictions in which he holds home 

improvement licenses of his conviction and to 

provide proof to the court of those notifications. 

Keehn previously pled guilty to participating in a 

fraud scheme in which he submitted false proposals 

on behalf of other contractors to the Department of 

Housing and Community Development in order to 

win 15 home repair contracts worth over $220,000. 

Keehn used the Postal System to courier some of 

the false bids to the government agency for evaluation. 

In Albany, GA, in Federal Court for the Middle 

District of Georgia, defendant Everett Cordy was 

sentenced to two years probation, fined $1,000, and 

ordered to pay a $100 special assessment fee. 

Cordy submitted false statements to HUD on two 

grant applications on behalf of Albany State University, which requested matching funds for the benefit 

of the Consumer Credit Counseling Service of 

Southwest Georgia. 

Defendant William McQuinn Jackson pled 

guilty in San Antonio, TX, in Federal Court for 

the Western District of Texas, to one count of mail 

fraud. Jackson, a co-defendant in the case, produced false income tax return statements for other 

defendants (Pedro Octavio Estevez, vice president of 

Estevez Monroe and Associates (EMA); Juan Carlos 

Estevez, president of EMA and Estevez Monroe, Inc.

(EMI); Ricardo M. Estevez, secretary of EMI; and the 

corporations EMA and EMI). Jackson prepared these 

fraudulent tax returns for Pedro Estevez and the 

corporations EMA and EMI (to include the other two 

brothers) to secure $285,909 in Rental Rehabilitation 

funds (HUD Community Development Block Grant 

funds) from the City of San Antonio. These funds 

were provided to the City to develop the Elmhurst 

Apartments in San Antonio and provide affordable 

housing for low- and moderate-income families. 

Estevez, the principal defendant, did not meet the 

terms of the loan and misused HUD funds. The 

development was unlawfully sold on April 7, 2000, 

prior to completion of the project. Jackson produced a 

falsified income tax return statement to misrepresent 

the other defendants’ financial positions to the City 

and to HUD by making false statements that they had 

the collateral to pay for the loan and to rehabilitate 

Elmhurst Apartments. Defendants Juan Carlos 

Estevez and Ricardo Estevez pled guilty to mail 

fraud on May 13, 2002; their sentencings are 

pending. 

Illegal Disposition of Asbestos

A Coos County, NH Grand Jury returned an 

eight-count indictment against developer Kevin 

Craffey and foreman Jose Fonseca for illegally 

disposing of asbestos. Charges include endangerment and reckless conduct for exposing workers to 

asbestos hazards; conspiring to remove asbestos 

materials in violation of regulations; conspiring to 

illegally dispose of asbestos waste; and illegal 

disposal, removal, and abatement of asbestos. A $1 

million Community Development Block Grant was 

provided to the Town of Whitefield, NH, to enable 

Craffey to purchase and rehabilitate an historic 

hotel in the community. Craffey was to refurbish 

water and sewer lines. 

OIG Offices of Audit and

Investigation — Joint Efforts

Defendant Bradley D. Jones was sentenced in 

Utica, NY, in Federal Court for the Northern 

District of New York, to six months home detention, five years probation, and 100 hours of com-
Chapter 5 - HUD’s Community Planning and Development Programs 81

munity service, and was ordered to pay $63,065 in 

restitution. In February 2003, Jones pled guilty to a 

one-count felony information for theft of property 

from an organization receiving federal assistance. 

Jones was the controller for Utica Community

Action, Inc., a federally funded, nonprofit agency 

providing anti-poverty programs to the Utica area. 

This investigation into Utica Community Action’s 

financial activities was conducted in response to a 

Congressional inquiry. The audit/investigation 

found 25 suspicious checks payable to Jones. Jones 

admitted that, while employed as controller, he 

issued agency checks payable to himself, cashed 

those checks, and used the proceeds for his personal benefit. 

Defendants Nuru and Zem Zem Abdulkadir 

entered into a civil settlement with the Houston,

TX U.S. Attorney’s Office, Southern District of 

Texas, in connection with a false claims fraud 

investigation. The Abdulkadirs misrepresented their 

household income in order to receive mortgage 

down payment assistance through the City of 

Houston under the HUD HOME Program. The 

Abdulkadirs agreed to repay a lump sum of $4,250. 
Chapter 5 - HUD’s Community Planning and Development Programs 82

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Chapter 6 — Other Significant Audits and Investigations

Audits 

During this reporting period, the OIG issued 

four internal audits and one internal memorandum 

involving areas of HUD operations that do not fall

under major HUD programs reported in previous 

Chapters. 

Other Reports Issued

4

1

Internal Reports Internal Memorandum

We audited HUD’s Training Academy, Staffing

Efforts, Information Security Program, 

administration of Section 3 of the HUD Act of 1968, 

and the administrative operations of the Office of 

Federal Housing Enterprise Oversight. The results

of these audits are described below.

HUD Training Academy 

In response to an anonymous hotline complaint, 

we audited the HUD Training Academy’s (HTA) 

acquisition practices. The complaint included 

numerous allegations. However, based on the

results of our survey work, we determined that

only the allegations related to HTA’s acquisition 

practices had merit. 

HTA did not comply with applicable acquisition 

regulations when obtaining services from outside 

sources. Specifically, with assistance from HTA, 

Watson Wyatt Worldwide (WWW), a subcontractor

of Marasco Newton Group (Marasco), prepared the 

statement of work (SOW) and an unsolicited

proposal to perform the work outlined in the SOW. 

Based on the unsolicited proposal, the Office of

Personnel Management (OPM) awarded a $500,000 

contract to Marasco noncompetitively. In addition, 

HTA inappropriately acquired government specific

training. Furthermore, HTA had no documents 

supporting its decision to noncompetitively select

WWW. These deficiencies occurred because the HTA

administrator and staff circumvented the federal

acquisition regulation and HUD procurement policy 

when awarding services to WWW. As a result, 

Marasco was awarded a $500,000 contract 

noncompetitively, and WWW received nearly 

$150,000 without competing for the services. 

We recommended that the Deputy Assistant 

Secretary for Administration, Office of Human

Resource Management: (1) cancel the Marasco 

Newton Group contract for the HTA Core

Competencies Project under HUD’s Interagency 

Agreement with OPM; (2) recompete the HTA Core

Competencies Project contract but exclude Marasco 

Newton Group and WWW from the competition; (3) 

take appropriate action against the HTA

administrator and remove her authority to execute

service contracts; (4) take appropriate action 

against the HTA director for allowing the contractor 

to receive an award for a SOW it had prepared; (5) 

train the HTA administrator, directors, and

government technical monitors regarding contract 

solicitation requirements and the appropriate 

methods for acquiring contract services; and (6) 

ensure that all staff responsible for acquiring 

training services and products adhere to appropriate 

procedures. 

During our review, the Assistant Secretary for 

Administration approved several changes that 

should prevent the recurrence of the deficiencies 

described in this report. Among those changes 

were the reassignment of the HTA administrator and 

deputy administrator to positions outside the HTA, 

and the requirement that all purchases exceeding 

$2,500 must be approved by the Assistant 

Secretary or Deputy Assistant Secretary. (Report

No. 2003-AO-0002) 

Staffing 9/30 

Between July and September 2002, HUD undertook 

Staffing 9/30, a large-scale recruiting and hiring 

Chapter 6 – Other Significant Audits and Investigations 83
Chapter 6 - Other Significant Audits and Investigations 84

effort. The goal of Staffing 9/30 was to maximize the 

staffing levels of the Department before the end of FY

2002 by filling mission critical positions. An OIG audit 

found that because Staffing 9/30 was inadequately 

planned and directed, information used to track hiring 

levels was unreliable, and HUD hired too many people. 

In particular, HUD exceeded its staffing level set forth 

in the FY 2003 budget by about 300. As a result, a 

significant number of the positions filled were not 

mission critical positions as intended, and HUD had to 

reprogram over $20 million to cover additional 

personnel costs. In other words, the results of Staffing 

9/30 were inconsistent with program requirements 

and staffing needs. Moreover, the hiring actions were 

not based on the Resource Estimation and Allocation 

Process, which was to be the means to estimate, 

justify, and allocate staffing resources. 

We recommended that HUD implement the 

corrective action plan submitted to Congress to 

ensure compliance with full-time equivalent ceilings 

in the future. (Report No. 2003-AO-0004) 

HUD’s Information Security Program

The Federal Information Security Management 

Act of 2002 (FISMA) requires the OIG to perform an 

annual independent evaluation of HUD’s information 

security program and practices. Our review found 

HUD in general compliance with the requirements of 

FISMA except for Section 3544(b)(7)(C)(i). This 

section requires notification of the OIG on security 

incidents. HUD has no procedure for notifying the OIG

of such incidents. Furthermore, HUD lacks adequate 

policies and procedures for documenting incident 

response activities. In the previous fiscal year (FY

2002), HUD reported 51 denial of service attacks, 24 

probes, and 330 Internet service provider attacks. In 

FY 2003, only one incident has been reported. Given 

the number of incidents reported in FY 2002, HUD’s 

network vulnerabilities recently identified by a HUD

subcontractor, and the numerous public warnings 

about worms affecting systems using Microsoft 

products, there may have been incidents during this 

fiscal year that have gone unreported. No recommendations were made in this audit. (Report No. 2003- 

DP-0803) 

Administration of Section 3 of the

HUD Act of 1968

We completed a survey of HUD’s administration of 

Section 3 of the Housing and Urban Development Act 

of 1968 to determine if HUD is administering Section 

3 in accordance with the Act. The purpose of Section 

3 is to provide, to the greatest extent feasible, jobs and 

economic opportunities to low-income and very lowincome persons, particularly public housing residents. 

Section 3 also provides contracting opportunities for 

businesses that are owned by low-income people or 

that provide employment to low-income people. We 

found that HUD does not have adequate controls in 

place to ensure it is meeting the intended purpose of 

Section 3 of the Act. However, at the time of our 

review, HUD was in the process of taking action to 

address the control weaknesses. 

The Office of Fair Housing and Equal Opportunity needs to develop and implement necessary 

controls to ensure the Section 3 program is functioning as intended, as well as a timeframe to ensure 

controls are implemented expeditiously. At a minimum, these controls should include: (1) developing a 

system to track recipients; (2) developing a method to 

evaluate the recipient reporting system; and (3) 

developing a system to monitor recipients that ensures 

that contracts contained in the Section 3 clause, 

recipient reporting system, are effective and that 

Section 3 residents are informed of and given available job and training opportunities. 

The Office of Fair Housing and Equal Opportunity agreed with the two recommendations we made 

and developed various corrective actions and 

timeframes to correct the program weaknesses. 

(Report No. 2003-KC-0001) 

Administrative Operations, Office of

Federal Housing Enterprise Oversight

OIG audited certain administrative operations of 

the Office of Federal Housing Enterprise Oversight 

(OFHEO), the safety and soundness regulator for the 

Federal National Mortgage Association and the 

Federal Home Loan Mortgage Corporation. We found 

that OFHEO did not ensure that it used its funds at 

optimum efficiency, as the Office paid for lodging 
Chapter 6 - Other Significant Audits and Investigations 85

costs above the maximum per diem rate and leased 

office space in excess of the government recommendations and averages. In some cases, OFHEO did not 

detect travel card misuse or travel voucher errors by 

its employees. We concluded that OFHEO’s compensation levels are comparable to other regulatory organizations. 

We recommended that the Director of OFHEO

improve its policies and procedures in order to ensure 

that its funds are used efficiently, and ensure procedural changes that have been initiated for the review 

of travel related expenditures are fully implemented 

and effective. (Report No. 2003-KC-0002) 

Investigations

During this reporting period, the OIG opened 27 

investigation cases and closed 24 cases involving 

areas of HUD operations that do not fall under specific 

program categories. Final judicial action taken on 

these cases during the period included $4.4 million in 

restitution, one conviction, nine indictments/informations, one administrative sanction, and 37 months in 

prison. The results of some of these investigations are 

described below. 

Defendant Enos Ying, controller of Financial

Research Services (FRS), was sentenced in Miami,

FL, in Federal Court for the Southern District of 

Florida, to 37 months imprisonment and three years 

supervised release, and was ordered to pay 

$4,414,813 in restitution to HUD/Ginnie Mae. Ying 

was previously convicted of two counts of conspiracy 

to make false statements to HUD/Ginnie Mae, one 

count of mail fraud, and 27 counts of submitting false 

statements to HUD/Ginnie Mae. Ying engaged in a 

conspiracy with Robert Barrera, the owner of FRS, to 

defraud Ginnie Mae and investors who purchased 

mortgage-backed securities. Barrera and Ying were 

able to place 15 fictitious mortgages, totaling 

$1,294,270, in several Ginnie Mae pools, resulting in 

a loss to Ginnie Mae. In addition, they kept the loan 

pay-off proceeds on 39 mortgages amounting to 

$3,173,247 and continued to make the monthly 

mortgage payments so that Ginnie Mae would not 

discover the fraudulent scheme. Ginnie Mae was 

required to reimburse investors over $4.4 million as a 

result of the scheme. Barrera pled guilty in October 

2002 to conspiring to commit mail and wire fraud and 

submitting false statements to HUD/Ginnie Mae, was 

sentenced to 27 months imprisonment and two years 

supervised release, and was ordered to pay 

$4,467,517 in restitution to HUD/Ginnie Mae. 

Defendant Andrew Johnson, a HUD construction 

analyst, was indicted in Houston, TX, in Harris 

County District Court, on two counts of felony forgery 

of a commercial instrument. Johnson allegedly 

passed two counterfeit cashiers’ checks, each for 

$10,000, as the down payment for a conventional 

home loan. Johnson has indicated that the counterfeit 

checks were given to him as payment for architectural work he allegedly performed during non-duty 

hours for an outside party. 

Defendants Frank DeMarc and Christopher 

Jones were indicted in East Brunswick, NJ, in the 

County of Middlesex Court, on 10 counts of fraudulent 

use of a credit card and burglary in connection with 

the theft of a HUD OIG credit card. In February 2003, 

DeMarc and Jones broke into an OIG vehicle and 

stole a satchel containing an OIG credit card. They 

used the credit card to make numerous purchases. 

One of the merchants had a videotape of an individual 

using the stolen card; the tape was used to identify 

Jones and he, in turn, identified DeMarc as his 

accomplice. Jones failed to appear at his May 30 

arraignment; he was subsequently arrested. 

In Oklahoma City, OK, Vernita Smith, an 

investigator with the HUD Office of Fair Housing and 

Equal Opportunity, was given a letter proposing 14 

days off without pay for misleading HUD’s National 

Relocation Center (NRC) into believing that her family 

moved with her to and from Mississippi. In June 

1998, Smith completed the standard NRC moving 

questionnaire and reported that her spouse and four 

children were moving with her to Jackson, MS. She 

subsequently filed vouchers and received funds for 

her and her family to move to Mississippi the same 

year. In reality, Smith was the only person who moved 

to Mississippi. In February 2000, Smith again filled 

out a questionnaire claiming that she and her family 

were moving back to Oklahoma from Mississippi; 

she received funds for her family to move back. Smith 

has admitted that her family did not make both moves. 

The NRC calculated the loss to be approximately 

$10,000. 
Chapter 6 - Other Significant Audits and Investigations 86

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Chapter 7 - Outreach Efforts 87

Chapter 7 — Outreach Efforts 

In order to foster cooperative, informative, and 

mutually beneficial relationships with agencies and 

organizations whose intent is to assist in the accomplishment of HUD’s mission, the OIG participates in a 

number of special outreach efforts. These efforts, as 

described below, are in addition to our regular 

coordination with federal, state, and local law enforcement agencies, other OIGs, and various Congressional Committees and Subcommittees. During these 

outreach efforts, we not only present the results of our 

audit and investigative work and discuss our goals and 

objectives, but we also provide information about the 

OIG’s role and function. 

 Inspector General Kenneth Donohue, Deputy 

Assistant Inspector General for Investigation 

Daniel Salas, Deputy Assistant Inspector General 

for Audit Michael Phelps, Regional Inspector 

General for Audit (RIGA) Heath Wolfe, and 

Assistant Special Agent in Charge (ASAC) Ray 

Espinosa met with HUD management staff and 

representatives from the U.S. Marshals Service, 

the FBI, the Secret Service, and the IRS Criminal 

Investigation Division in Columbus, OH, to 

discuss the OIG’s role in the Southern District of 

Ohio relative to our audit, fraud, and fugitive 

felon missions. 

 Inspector General Donohue addressed the annual 

meeting of the Connecticut Chapter of the National Association of Housing and Redevelopment 

Officials (NAHRO) in Uncasville, CT, and the 

HUD Supervisory Monitoring Training Group in 

Cambridge, MA. The theme of Mr. Donohue’s 

remarks was the need for cooperative efforts 

between NAHRO/HUD program staff and the OIG. 

He discussed instances where HUD, public 

housing agencies, and the OIG have been successful in working together, and noted recent collaborative efforts between HUD and the OIG, such as 

the memorandum of understanding between the 

Office of General Counsel and the OIG on enforcement issues. 

In addition, at the NAHRO meeting, ASACs 

Maureen Nelting and Diane DeChellis, along 

with Assistant Regional Inspectors General for 

Audit (ARIGAs) Cristine O’Rourke and Michael 

Motulski, made a presentation at one of the 

break-out sessions, providing an overview of the 

OIG and discussing examples of fraud in public 

housing. After Mr. Donohue’s address at the HUD

conference, ASAC Maureen Nelting and ARIGA

Cristine O’Rourke made a presentation about the 

OIG and fraud schemes in various HUD programs. 

 Inspector General Donohue addressed the Public 

Housing Authorities Directors Association at 

their conference in Las Vegas, NV. The IG asked 

the executive directors for their support for OIG’s 

initiative to reduce income underreporting by 

public housing residents. He also announced the 

OIG’s Fugitive Felon Initiative. From Las Vegas, 

Inspector General Donohue traveled to Salt Lake

City, UT, to address the Bankruptcy Fraud 

Working Group organized by the Department of 

Justice. The OIG has considerable involvement 

with bankruptcy fraud as part of our white collar 

crime investigations into both Single Family and 

Multifamily Housing Program activities. 

 In Washington, DC, Inspector General Donohue 

was host to Mark Graham, Assistant Director for 

Modernizing Services of the Northern Ireland 

Housing Executive. Their discussion touched on 

fraud by residents and developers and crime in 

multifamily housing. The Housing Executive is a 

quasi-public corporation responsible for 100,000 

units of housing in Northern Ireland and has 3,000 

employees and a $600 million budget. 

 Inspector General Donohue, Assistant Inspector 

General for Investigation (AIGI) Joe Haban, and 

Special Agent in Charge (SAC) of the Criminal 

Investigation Division John Dupuy visited the 

Financial Crimes Enforcement Center (FinCEN) 

in Vienna, VA, as the guests of FinCEN Director 

James Sloan. FinCEN briefed the group on its 
Chapter 7 - Outreach Efforts 88

mission and made presentations on the Analytical 

System for Investigative Support (AS IS) and the 

Visual Links Systems software. Inspector General 

Donohue and AIGI Haban presented plaques to 

analysts from the AS IS and Proactive Targeting 

Section of the FinCEN Office of Investigative 

Support. The plaques recognized FinCEN’s 

support for OIG efforts at FinCEN. 

 Inspector General Donohue, SAC Barry 

McLaughlin, AIGI Joe Haban, Deputy AIGA Mike 

Phelps, and RIGA Health Wolfe visited the HUD

Detroit, MI Field Office and met with the FBI, 

Marshals Service, U.S. Attorney’s Office, and 

HUD program and OIG staff. Among those items 

discussed were ongoing OIG cases, law enforcement partnerships, the Fugitive Felon Initiative, 

and OIG’s commitment to working with HUD staff 

on program related issues. 

 Following opening remarks by HUD Secretary 

Martinez and Deputy Secretary Jackson, approximately 65 OIG and HUD program staff met in 

Philadelphia, PA, for a Forum on Fraud, Waste 

and Abuse. In their remarks, the Secretary and 

Deputy Secretary reaffirmed the Department’s 

commitment to ethics and accountability in HUD

programs and operations. Inspector General 

Donohue addressed the attendees on the challenge 

of finding innovative solutions to long-standing 

Departmental problems. Forum participants were 

divided into five panels on Single Family Housing, 

Multifamily Housing, Community Planning and 

Development, Public and Indian Housing, and 

HUD Administration and Operations. Panelists 

discussed the extent of fraud, waste and abuse in 

their respective areas along with root causes and 

proposed solutions. OIG will provide a leadership 

role in working with HUD program staff on these 

issues. 

 AIGA Jim Heist made a presentation at the MidAtlantic Intergovernmental Audit Forum in Ocean

City, MD. He discussed the Mid-Atlantic 

Region’s June 2002 audit of FHA single family 

property sales to owner/occupants. The presentation illustrated how the OIG used data mining 

techniques to analyze various databases to target 

potential areas of fraud, waste, and abuse in this 

area of FHA’s property disposition process. 

 In Washington, DC, OIG conducted an orientation session for interns from Virginia Polytechnic 

Institute and State University. In addition to a 

discussion on the OIG mission given by Inspector 

General Kenneth Donohue, Mike Stephens, 

Deputy Inspector General, discussed the implementation of the President’s Management 

Agenda, Jim Heist, AIGA, and Joe Haban, AIGI, 

provided overviews of the Offices of Audit and 

Investigation, Saundra Elion, Director, Headquarters Audits Division, explained exactly what 

the OIG is about, Patrick Bannon, Senior Auditor, 

discussed HUD’s Continuum of Care Program, 

and Doris Denmon, Program Analyst, described 

the OIG Hotline and its functions. 

Participants in Virginia Tech (VT) orientation session. 

From l to r: Alvin Manalo, VT Summer Intern; Marianne 

Nazzaro, Presidential Management Intern, University of 

Pittsburgh; Kenneth M.Donohue, HUD Inspector General; 

Amber Rhodes, VT Summer Intern; and Russell Mills, VT

Summer Intern. 
Chapter 7 - Outreach Efforts 89

 Under the leadership and efforts of Saundra 

Elion, Director, OIG Headquarters Audits Division, the OIG has emerged as an active partner in 

the Norfolk, VA State University’s (NSU’s) 

Cluster Program. The Cluster Program is an 

association of academics and businesses 

partnering to offer and preserve high quality 

educational and professional experiences for 

students and faculty at NSU. The NSU president 

presented the HUD OIG with the Cluster Member 

Organization of the Year Award. This award 

represents NSU’s highest honor to a partnering 

organization. The criteria for being selected for 

this award are long-term commitment to creating 

opportunities for NSU students in the areas of 

employment, internships, mentoring, and continuing education; contributions to the academic life 

of NSU through curriculum advising and opportunities for research and professional development 

of faculty and students; and contributions to the 

Cluster Program in areas of leadership and 

broad-based participation. 

During the last semiannual reporting period, 

Director Elion hosted two NSU accounting students on a three-day job shadowing experience at 

HUD Headquarters. In addition, Elion exposed the 

students to activities outside of OIG, including a 

hearing on Capitol Hill, to expand their knowledge of accounting principles and auditor independence, a meeting with the president of a nonprofit 

organization who discussed how the results of a 

recent audit positively impacted the organization’s 

operations, and an address by HUD Secretary 

Martinez to members of the National Community 

Reinvestment Coalition. 

 OIG completed the last of five outreach sessions 

that were performed with HUD’s Office of 

Multifamily Housing over a two-week period in 

Scranton, Hershey, and Philadelphia, PA, and

Wilmington, DE. OIG representatives, including 

SAC Robert Brickley, ASAC Rene Febles, and 

Senior Special Agent Daniel Ellis, spoke to over 

300 managers and owners of HUD assisted 

developments about our mission and priorities, 

including our new Section 8 investigative initiative, and the importance of working effectively 

with both OIG and HUD program staff to reduce 

fraud, waste, and abuse in the Rental Assistance 

Program. OIG’s message dovetailed with the HUD

Office of Multifamily Housing’s presentation on 

the new occupancy guidelines that impose stricter 

Participants in Virginia Tech (VT) orientation session. 

From l to r around table: Saundra Elion, Director, OIG

Headquarters Audits Division; Alvin Manalo, VT

Summer Intern; Amber Rhodes, VT Summer Intern; 

Russell Mills, VT Summer Intern; Marianne Nazzaro, 

Presidential Management Intern, University of 

Pittsburgh; Sarah Abramson, VT Summer Intern; 

Myphoung Nguyen, Computer Specialist, OIG Technical 

Oversight and Planning Division; and Kieu-Hanh Vu, 

Computer Specialist, OIG Information Systems Audits 

Division. 

Norfolk State University President Dr. Marie V. 

McDemmond presents Cluster Member Organization of 

the Year Award to OIG. From l to r: Dr. McDemmond; 

Saundra Elion, Director, OIG Headquarters Audits 

Division; and Donna Hawkins, Assistant Director, OIG

Headquarters Audits Divison. 
Chapter 7 - Outreach Efforts 90

requirements regarding tenant leaseholds and 

income recertifications. 

 RIGA Nancy Cooper addressed members of the 

Florida Association of Housing and Redevelopment Officials (FAHRO) at their Annual Conference in St. Augustine, FL. At FAHRO’s request, 

RIGA Cooper discussed how the OIG selects 

organizations to audit, what constitutes typical 

findings at public housing authorities, what 

housing authorities can do to minimize deficiencies, and the process to resolve audit report 

findings. She also provided tips to prevent fraud in 

housing authority operations. Senior Auditors 

Tony Bailey and Barry Shulman also participated 

in the conference. 

 In Dallas, TX, ASAC Robert Tighe and ARIGA

Windell Durant represented OIG in a meeting 

with the Northern District of Texas Bankruptcy 

Fraud Working Group. U.S. Attorney Jane J. 

Boyle, Northern District of Texas, chaired the 

meeting. Other attendees included representatives from the U.S. Trustee’s Office, IRS Criminal Investigation Division, FBI, Social Security 

Administration, and the U.S. Attorney’s Office. 

The participants discussed methods to facilitate 

the investigation and prosecution of bankruptcy 

fraud cases in the Northern District of Texas. 

Also discussed was an upcoming training session 

for trustees and special agents on working these 

cases. All attendees agreed to have a representative available for monthly meetings to discuss 

referrals from the U.S. Trustee’s Office. 

 ARIGA Robert Woodard and Senior Auditor Rose 

Capalungan attended the Pacific Northwest 

Regional Workshop for the Welfare to Work 

Voucher Program (WTW) in Portland, OR. ABT

Associates sponsored the workshop. Participants 

included HUD program staff in Portland, HUD

Headquarters officials, numerous public and 

Indian housing authority representatives, state 

representatives of the Temporary Assistance for 

Needy Families (TANF) Program from Alaska, 

Oregon, and Washington, and ABT staff. The 

workshop included plenary and breakout sessions 

to discuss strategies and incentives for linking 

WTW participants to HUD’s Family Self-Sufficiency Program and TANF welfare reform, its 

impact on WTW, and challenges and opportunities 

to clarify program accomplishments and measure 

achievements. In response to workshop participants’ requests, ARIGA Woodard and Senior 

Auditor Capalungan also discussed the ongoing 

Moving to Work and upcoming Welfare to Work 

internal audits. 

 ASAC Brad Geary and RIGA Heath Wolfe made a 

presentation to a group of 20 Community Planning 

and Development representatives from various 

cities and municipalities in the Chicago, IL area. 

Specifically, they discussed the OIG’s role in 

audits and investigations of HOME funds, which 

are disbursed from HUD for the revitalization and 

rehabilitation of single family homes. 

 Senior Special Agent Daniel Ellis spoke before 

the Commonwealth of Pennsylvania’s Real Estate 

Commission in Harrisburg, PA, and the South 

Central Pennsylvania Predatory Lending Task 

Force in Middletown, PA. The State Real Estate 

Commission grants and renews real estate 

licenses and administers and enforces the laws of 

the Commonwealth relating to real estate transactions. The Predatory Lending Task Force is 

responsible for developing and implementing a 

regional program to identify and prevent predatory lending, and assisting victims of predatory 

lending. Agent Ellis spoke about the mission of 

the OIG Office of Investigation and our success in 

identifying and reporting fraudulent real estate 

activity. In addition, he discussed the OIG’s 

commitment to identifying and investigating those 

who engage in fraud. 

 ASAC Max Eamiguel and ARIGA Windell Durant 

were invited by representatives from the Offices 

of Freddie Mac and the City of Dallas, TX, to 

give a presentation on predatory lending practices. The audience was made up of public and 

private housing providers and fair housing enforcement agency representatives in the Dallas 

area. The purpose of the presentation was to 

inform attendees about OIG investigative efforts in 

addressing loan origination fraud and illegal 

property flipping. Also present were John Loza, 

Deputy Mayor, City of Dallas, Vaughn Irons, 
Chapter 7 - Outreach Efforts 91

National Director of Community Development, 

Freddie Mac, Congressional and HUD representatives, and case workers. 

 Senior Special Agent Daniel Ellis spoke to staff 

members of the Housing Authority of the City of 

York, PA. Agent Ellis discussed the OIG’s 

aggressive and proactive stance in identifying and 

prosecuting Public Housing and Housing Choice 

Voucher Program tenants who fraudulently 

receive housing assistance subsidies by failing to 

report their true income, and allowing unauthorized person(s) to reside with them in their 

subsidized residences. Agent Ellis provided 

instructions to the attendees in identifying and 

documenting fraud, how to contact the OIG and 

report suspected fraud, and how the OIG will 

work with them as a team to investigate and 

prosecute violators, as well as terminate any 

violators’ subsidies. As a result of Agent Ellis’ 

proactive enforcement activities in York public 

housing, the Housing Authority of the City of York 

has developed a fraud committee which identifies 

and gathers information on suspected tenant fraud 

and notifies the OIG. 

On the same day, Agent Ellis was invited by the 

Housing Authority of the City of York, police 

officials, and community leaders to participate in 

National Night Out. National Night Out is an 

annual event designed to heighten crime and drug 

prevention awareness; generate support and 

participation in anti-crime efforts; strengthen 

neighborhood spirit and police/community 

relations; and send a message to criminals letting 

them know that neighborhoods are organized and 

will fight back against crime. Agent Ellis was 

invited as a result of his outreach to the Housing 

Authority and police department and his proactive 

enforcement against fraud in York public housing. 

His efforts have resulted in tenants being prosecuted for fraud and/or terminated from the 

Public Housing Program for engaging in fraud, 

criminal, or drug activities. 

 ASAC Brad Geary participated in a cable television program with an FBI Agent and two representatives from Attorney’s Title Guaranty, a local 

title company in Chicago, IL. The program, 

called “Real Estate Roundtable,” discussed 

various fraud schemes, how HUD is affected by 

unscrupulous real estate transactions such as 

flipping and predatory lending, and what law 

enforcement is doing to crack down on real estate 

fraud. 

 SAC Peter Emerzian, ASAC Maureen Nelting, and 

Special Agent Brian Gosselin attended a meeting 

of the Vermont Public Housing Authority Executive Directors held at the Barre, VT Housing 

Authority. SAC Emerzian discussed the OIG’s 

mission, told the group about types of fraud in 

public housing, and solicited attendees to contact 

the OIG if they need assistance with respect to 

fraud matters. 

 ASAC Herschell Harvell, Jr., was the guest 

speaker for the Inland Empire Chapter of the 

California Association of Mortgage Brokers in 

Los Angeles, CA. ASAC Harvell provided an 

historical perspective of the OIG, our mission, 

current organizational structure, and the investigative resources of the Los Angeles OIG Office, 

and gave an overview of current mortgage fraud 

crime trends. ASAC Harvell has been asked to be 

a guest speaker at the California Association of 

Mortgage Brokers State Conference in San Diego 

in October 2003. 

 In Washington, DC, Senior Special Agent Daniel 

Ellis was selected by the Federal Trade Commission (FTC), through the American Association of 

Residential Mortgage Regulators (AARMR), to 

participate as a panelist at the FTC’s Unfair and 

Deceptive Subprime Lending Summit. Agent 

ASAC Max Eamiguel and ARIGA Windell Durant make 

presentation on predatory lending practices in Dallas, TX. 
Chapter 7 - Outreach Efforts 92

Ellis was recognized as an expert by the AARMR

in identifying and investigating mortgage fraud. 

The AARMR also nominated Ellis to serve on their 

National Mortgage Fraud Task Force Symposium. He participated on a panel that discussed 

the broadening law enforcement efforts to target 

unfair and deceptive practices of home mortgage 

brokers and appraisers. Agent Ellis spoke about 

the OIG’s proactive efforts to identify and prosecute appraisers who engage in fraudulent 

activities, how to identify fraudulent appraisals, 

and what areas to focus on in pursuing prosecution against these perpetrators. 

 ASAC Marc Montague and FBI Special Agent 

Verna Kessler made a presentation to 150 members of the American Escrow Association (AEA) 

at their National Conference in Anchorage, AK. 

The presentation was an overall view of mortgage 

fraud, including indicators and types of schemes, 

and how members of the AEA can help prevent 

and report fraudulent activities within the real 

estate industry. The presentation also focused on a 

recently completed OIG loan origination fraud 

investigation in Boise, ID. 

 In Marquette, MI, ASAC Brad Geary and ARIGA

Tom Towers participated in a public housing fraud 

panel attended by 100 representatives from public 

housing authorities around the State of Michigan. 

They discussed the OIG’s role in both audits and 

investigations of housing authorities in relation to 

embezzlements and Section 8 fraud. 

 Senior Special Agent Daniel Ellis was invited by 

the Pennsylvania Association of Housing and 

Redevelopment Associations to speak at their 

Spring Conference and Exhibition in Seven

Springs, PA. The attendees included representatives from public housing agencies (PHAs) 

throughout the Commonwealth of Pennsylvania. 

Agent Ellis discussed the OIG’s role in identifying 

and prosecuting Public Housing and Housing 

Choice Voucher Program tenants who fraudulently receive housing assistance subsidies. He 

also provided instructions on how to identify and 

document fraud, how to contact the OIG and 

report suspected fraud, and how the OIG will 

work with PHAs to investigate, prosecute, and 

terminate tenants’ subsidies. 

 ARIGA Ron Huritz made a presentation before 

existing and new grantee applicants for HUD’s 

Office of Community Planning and 

Development’s annual Supportive Housing Program Conference in Chicago, IL. ARIGA Huritz 

gave the approximately 25 attendees an overview 

of the OIG’s functions and how the audit process 

works. This overview gave potential grant recipients an understanding of the Office of Audit’s role 

and objectives when it performs an audit of a HUD

grantee. 

 In Bellaire, MI, ASAC Brad Geary made a 

presentation on real estate fraud to the Michigan 

Land Title Association. Approximately 100 people 

were in attendance. Topics included basic fraud 

found in FHA loan files, red flags, and schemes 

affecting the title industry. 

 The Chicago, IL Region OIG Office of Investigation hosted a meeting of the Association of 

Financial Crimes Investigators (AFCI). The AFCI

is a group of federal, state, and municipal investigators as well as bank and retail investigators. On 

a monthly basis, the AFCI shares information of 

interest for the purposes of combating and detecting fraud mutually beneficial throughout the AFCI

community. 

 In Burlington, VT, ASAC Maureen Nelting and 

Special Agent Brian Gosselin met with Peter 

Hall, U.S. Attorney, District of Vermont. ASAC

Nelting explained the OIG’s mission and the focus 

of our current workload, and advised about the 

positive impact of a recent federal indictment, 

which was reported in the local press, of a 

subsidized tenant for not reporting true occupancy 

and income. ASAC Nelting and Agent Gosselin 

also discussed cases currently assigned to the 

U.S. Attorney’s Office. 

 As Chapter president, RIGA Heath Wolfe presided 

over a meeting of the Association of Government 

Accountants in Chicago, IL. As part of the 

meeting, SAC Barry McLaughlin, ASAC Ray 

Espinosa, and ASAC Brad Geary gave the 30 
Chapter 7 - Outreach Efforts 93

attendees an informative presentation on mortgage fraud and identity theft. 

 In Bangor, ME, SAC Peter Emerzian, ASAC

Maureen Nelting, and Special Agent Stephen 

Tufts met with Paula Silsby, U.S. Attorney, 

District of Maine. In addition to describing the 

organization and role of the OIG New England 

Regional Office, SAC Emerzian discussed the 

OIG’s mission and the focus of our current 

workload, as well as cases currently assigned to 

the U.S. Attorney’s Office in Maine. 

 In East St. Louis, IL, Chicago ARIGA Ron Huritz 

addressed 95 members of the Illinois Association 

of Housing Authorities at their annual meeting. 

ARIGA Huritz’s presentation introduced the group 

to the OIG’s mission and objectives as they relate 

to public housing authority audits. He also 

stressed the importance of housing quality standards unit inspections, and responded to questions 

about what triggers OIG audits and how long the 

audit process generally takes. 

 As part of a HUD Headquarters sponsored training program, OIG Special Agent Steve McCool 

made a presentation on interviewing techniques to 

25 field staff from HUD’s Quality Assurance 

Division in Alexandria, VA. The presentation 

included legal aspects of interviewing, suggestions for recognizing and overcoming possible 

deception by persons being interviewed, obtaining 

written statements, and testifying in court. Over 

the past year, OIG has provided several such 

presentations as a part of Quality Assurance 

Division training classes. 

 RIGA Heath Wolfe, SAC Barry McLaughlin, 

ARIGA Tom Towers, and Special Agents Mike 

Wixted and Mike Catinella met with the new HUD

Detroit, MI Field Office Director, Toni 

Schmiegelow, and made a presentation on the 

mission, goals, and purpose of the OIG. The 

meeting and presentation gave OIG staff an 

opportunity to establish a bridge of communication and partnership between the OIG and HUD. 

 ARIGA Ron Farrell conducted an outreach session 

with HUD staff in Loudonville, OH, several of 

whom were HUD program directors. The group 

was gathered to discuss their Business Operating 

Plan for 2004. ARIGA Farrell’s presentation 

provided an overview of the role of the OIG and 

how that role impacts HUD programs. 

 RIGA Heath Wolfe and SAC Barry McLaughlin 

joined HUD’s Chicago, IL Regional Director 

Joseph Galvan, Deputy Regional Director Beverly 

Bishop, and eight of their Field Office Directors 

at HUD’s Region V Field Office Directors 

Meeting. RIGA Wolfe and SAC McLaughlin made 

a presentation on OIG operations. In addition, 

RIGA Wolfe discussed the current focus of the 

OIG’s Chicago Office of Audit on mortgagees, 

nursing homes, and equity skimming, and the 

upcoming audit resolution training. 

 RIGA Heath Wolfe and Administrative Officer 

Jennifer Houghton provided training relating to 

the HUD handbook on the Audits Management 

System. In particular, they discussed the implementation of audit recommendations. Their 

presentation provided HUD program staff in 

Detroit, MI, Minneapolis, MN, Indianapolis,

IN, and Milwaukee, WI, with specific information regarding their role, as well as the OIG’s 

role, in reaching resolution on audit recommendations. HUD staff response has been positive and 

attendance has averaged about 20 individuals per 

session. 

 In Grand Rapids, MI, Chicago RIGA Heath 

Wolfe spoke to over 100 individuals from real 

estate related areas on the mission and functions 

of the OIG. This presentation was made in conjunction with HUD sponsored training on “Buying 

and Selling HUD Homes.” 

 RIGA Mike Beard chaired the Investigative Audit 

Committee meeting at the Southwest Intergovernmental Audit Forum in South Padre Island, TX. 

RIGA Beard gave a presentation on using the mail 

fraud statute to make good criminal cases from 

good civil cases. 
Chapter 7 - Outreach Efforts 94

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Chapter 8 — Regulations and Other Directives 95

Chapter 8 — Regulations and Other Directives 

Making recommendations on legislation, regulations, and policy issues is a critical part of the OIG’s 

responsibilities under the Inspector General Act. This 

responsibility has taken on added dimension at HUD

because of the dynamics of its rapidly changing 

program and management environment. During this 

six-month reporting period, the OIG reviewed 123 

regulations, funding notices, and other HUD directives 

and proposals. This Chapter highlights some of the 

resultant OIG recommendations. 

Regulations

Empowerment Zones: Resident Benefit

and Economic Development Standards

for Grants

This rule proposes to establish review standards 

for determining whether grant funds provided to 

Empowerment Zones will provide a sufficient level of 

benefit to residents and also be used in conjunction 

with economic development activities consistent with 

the strategic plan for each Empowerment Zone. 

We noted the need for a definition of an “empowerment zone resident” in the proposed rule change. In 

some of our recent audits, i.e., audits of the Huntington, WV and Ironton, OH Empowerment Zones, we 

questioned the interpretation of who was counted as 

an “empowerment zone resident.” The earlier rule 

defined an empowerment zone resident as anyone 

within the zone either prior to or after receiving 

assistance with zone funds. Our audit questioned the 

appropriateness of creating housing within the zone 

and then bringing in residents from outside the zone. 

We requested adding a more specific definition of 

“empowerment zone resident” to ensure that empowerment zone funds serve their intended beneficiaries. 

This proposed rule had not been finalized as of 

the close of the semiannual reporting period. 

Notices

FY 2003 HOPE VI Notice of Funding

Availability (NOFA)

HUD issued a NOFA to competitively distribute 

HOPE VI funds. The draft notice stated that any public 

housing agency awarded a HOPE VI grant must use a 

portion of the funds to establish a neighborhood 

network. We questioned the authority to combine the 

HOPE VI funding with neighborhood network funding. 

HUD’s Appropriation Act allocated a separate $5 

million for neighborhood networks. The Appropriation 

Act mandated that HUD issue a separate NOFA to 

distribute the $5 million of neighborhood network 

funding. This funding assists families in obtaining job 

skills by supporting local service providers and 

assisting resident in becoming self-sufficient. 

HUD’s Office of Public Housing agreed with our 

assessment and plans to issue a separate NOFA for 

neighborhood networks. The Department plans to 

award about $180,000 to each successful grantee. 

HUD will fund 10 to 15 more neighborhood networks 

than originally planned. 

The NOFA had not been issued as of the close of 

the semiannual reporting period. 

HUD Notice: Authorization for

Approval of Compromises and WriteOffs of Secretary Held Mortgages

HUD prepared a Notice authorizing the National 

Servicing Center (NSC) to approve compromising 

offers and write-offs of Secretary held mortgages. 

The Notice also outlined certain conditions required 

before NSC can write off a mortgage. For example, 

NSC can write off costs, not to exceed $5,000, without 

government technical representative approval, if HUD

or the contractor caused an error. Authorization had 

been granted to field offices through previous Notices, 

but this Notice was prepared to grant the authority to 

NSC and therefore superseded the previous Notices. 

This Notice specifically identified the Notices it was 

to supersede, but Notice numbers were incorrect. 
Chapter 8 — Regulations and Other Directives 96

HUD’s Office of Housing had not responded to 

OIG regarding this Notice and therefore the Notice 

had not been finalized as of the close of the semiannual reporting period. 

HUD Standard Forms

Revised FHA Multifamily and Health

Care Closing Documents

As reported in our last Semiannual Report to 

Congress, the closing documents for multifamily 

rental projects and health care facilities have not been 

updated since the 1960s. Therefore, the Department 

prepared a thorough review and comparison to 

modern day instruments to offer the requisite protection to all parties to the transaction, consistent with 

modern real estate and mortgage lending laws and 

procedures. The Department now has one rental 

Regulatory Agreement for rental housing projects 

(Sections 202 and 811 will have a separate agreement 

revised at a later date) and another Regulatory 

Agreement for health care facilities. Major changes 

have been made to the Regulatory Agreements, 

including adding current policies and administrative 

procedures and incorporating the Mortgagor’s 

Certificate. Most notably, the Regulatory Agreement 

for health care facilities makes lessees responsible 

for the same level of financial reporting, securing of 

all personal property, and agreeing that the certificate 

of need and license cannot be transferred from the 

project. This change is made in part based on management decisions made in response to a prior OIG

audit. 

We nonconcurred with the health care facilities 

Regulatory Agreement because it falls short where 

program areas cross over between rental and health 

care. For example, board and care facilities have 

rental issues as well as health care issues and some 

are not required by their state or local government to 

be licensed. The health care facilities’ Regulatory 

Agreement does not cover rental issues and vice 

versa. HUD’s Offices of Housing and General Counsel stated that they would correct this by having each 

Region amend its nursing home Regulatory Agreement based on the requirement for each state at the 

time of endorsement. We accepted this based on 

guidance for preparing the amendment to ensure 

consistency and completeness. 

We also nonconcurred with the form in regard to 

where the Mortgagee’s Certificate (Form HUD92434) discusses Reserve for Replacement deposits. 

Section 232 mortgages are underwritten with a twopart Reserve for Replacement deposit due each 

month. A stated portion of this deposit is to be used 

for major moveable equipment and the balance is for 

building repairs. Owners are using the entire Reserve 

for Replacement balance on major moveable equipment without regard to reserving funds for future 

major repairs. The Offices of Housing and General 

Counsel will specifically spell out these requirements 

in the Regulatory Agreement and Mortgagee’s 

Certificate so that a bifurcated account exists limiting 

the use of each of these balances. 

We also requested that the mortgagor be responsible for submitting to HUD any transaction funds 

received after a foreclosure is finalized. This would 

reach beyond the Regulatory Agreement period to cut 

HUD’s losses and would cover excess bond funds. 

HUD made acceptable changes and we lifted our 

nonconcurrence. The closing documents had not been 

finalized as of the close of this semiannual reporting 

period. 

Testimony

Federal Debt Collection: Mid-Year

Update on Debt Collection Progress

In order to comply with the Debt Collection 

Improvement Act of 1996, the Department of Treasury has implemented a remarkably successful 

government-wide debt collection program. The 

Financial Management Service serves as the 

government’s central administrative debt collection 

agency. We are aware that HUD is one agency currently using the debt collection tool and has been 

successful in directing its efforts in the Administrative 

Wage Garnishment debt area. The Department of 

Treasury requested comments on its testimony before 

the House Government Reform Committee. 

To improve the process, we commented that the 

new debt collection tool should be tied into and 

interfaced with the Department’s new Audit Resolution and Corrective Action Tracking System 
Chapter 8 — Regulations and Other Directives 97

(ARCATS). ARCATS, along with the soon to be replaced 

Departmental Automated Audits Management 

System, are the systems for tracking management 

decisions and should be linked to the new debt collection system. This link would allow an electronic 

interface for entering these debt collection transactions from the recommendation and management 

decision system into the debt collection system. 

OIG comments were submitted to the Department 

of Treasury during this reporting period. 
Chapter 8 — Regulations and Other Directives 98

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Chapter 9 - Audit Resolution 99

Chapter 9 — Audit Resolution Chapter 9 — Audit Resolution 

In the audit resolution process, the OIG and HUD

management come to an agreement as to the needed 

actions and timeframes for resolving audit recommendations. Through this process, we hope to achieve 

measurable improvements in HUD programs and 

operations. The overall responsibility for assuring that 

the agreed upon changes are implemented rests with 

HUD managers. This Chapter describes some of the 

more significant pending issues where resolution 

action has been delayed and where management 

decisions were revised. It also contains a status 

report on HUD’s implementation of the Federal 

Financial Management Improvement Act of 1996. In 

addition to this Chapter on audit resolution, see 

Appendix 2, Table A, “Audit Reports Issued Prior to 

Start of Period With No Management Decision at 

9/30/03,” and Table B, “Significant Audit Reports 

Described in Previous Semiannual Reports Where 

Final Action Had Not Been Completed as of 

9/30/03.” 

Delayed Actions

Audits of HUD’s FY 1991 through

2002 Financial Statements

First issued June 30, 1992. HUD has been preparing consolidated financial statements under the 

requirements of the Chief Financial Officers Act for 

12 fiscal years, beginning with Fiscal Year (FY) 1991. 

Various internal control weaknesses have been 

reported in these audits. In our most recent audit 

effort for FY 2002, we were able to express an 

unqualified opinion on HUD’s principal financial 

statements. The results of our FY 2002 report on 

internal controls were consistent with results reported 

in Semiannual Reports from prior years. While there 

has been progress, material weaknesses continue 

with respect to the need to: (1) complete improvements to financial systems; (2) improve oversight and 

monitoring of subsidy calculations and intermediaries’ program performance; and (3) improve FHA’s 

controls over budget execution and funds control. 

Corrective action plans to resolve these issues have 

continued to change over the last decade. 

Audits of FHA’s FY 1991 through 2002

Financial Statements

First issued March 27, 1992. FHA has been 

preparing financial statements for 12 fiscal years 

under the Chief Financial Officers Act, beginning 

with FY 1991. The audit of FHA’s FY 2002 financial 

statements discussed problems similar to those that 

have been reported since the audit of FHA’s FY 1991 

financial statements. The audit continues to recognize 

that FHA needs to: (1) improve its information technology (primarily accounting and financial management systems) to more effectively support FHA’s 

business processes; (2) sufficiently monitor its single 

family property inventory; and (3) continue to improve 

early warning and loss prevention for single family 

insured mortgages. This third reported condition was 

expanded in FY 2002 to include the need to place 

more emphasis on monitoring lender underwriting. A 

weakness reported since the FY 1992 financial 

statement audit relates to the need for FHA to enhance 

the design and operation of information systems’ 

general and application level security controls. A 

weakness first reported in the FY 1998 financial 

statement audit relates to the need to improve controls 

over budget execution and funds control. A number of 

previously reported problems have been satisfactorily 

resolved over the years. FHA’s latest action plan 

continues to report progress toward resolving these 

remaining long-standing issues, with final actions 

targeted over the next one to three years. The FY 2003 

financial statement audit will assess FHA’s accomplishments in correcting these conditions. 

Empowerment Zone Program, Cities

of Chicago and Atlanta

Issued September 28, 1998 and October 15, 1998. 

Audits of the Cities of Chicago, IL, and Atlanta, GA, 

found that the Cities used empowerment zone funds 

inappropriately. The questioned amounts totaled about 

$2 million for the two Cities. The unique nature of the 

Empowerment Zone Program, authorized by the 

Omnibus Budget Reconciliation Act of 1993, provided 
Chapter 9 - Audit Resolution 100

HUD the authority to oversee the program, but provided funding through tax credits and Social Services 

Block Grant funds from the Department of Health 

and Human Services (HHS). HHS has responsibility 

for resolving questions concerning the permissible 

use of zone funds. In 1999, HUD management agreed 

with our findings and promised to have the Cities 

repay, by June 2000, program funds spent inappropriately. HUD, however, did not take corrective actions 

timely. In February 2000, HUD’s Community Planning 

and Development (CPD) Comptroller started taking 

corrective actions and planned to have the outstanding 

recommendations closed by July 2001. In July 2001, 

the CPD Comptroller requested that HHS decide 

whether the Cities’ use of zone funds to provide 

services to non-zone residents was an eligible use of 

funds. If HHS decides that the Cities used zone funds 

improperly, HUD plans to execute a repayment 

agreement with the Cities requiring repayment within 

two to three years. 

On September 9, 2002, the Deputy Assistant 

Secretary for Operations, CPD, sent a letter to the 

HHS Director of Community Services outlining the 

outstanding issues relating to the OIG Empowerment 

Zone audit reports. CPD requested HHS’ decision on 

the eligibility of the questioned costs for which the 

OIG recommended repayment. The letter also included HUD’s suggestions for resolving the outstanding issues. HHS did not respond to HUD’s letter. 

Therefore, on March 20, 2003, HUD’s Assistant 

Secretary for CPD sent a letter to HHS’ Assistant 

Secretary for Children and Families requesting an 

immediate response to HUD’s September 2002 letter. 

HHS’ June 30, 2003 response provided only information needed to resolve outstanding issues relating to 

the City of Philadelphia’s Empowerment Zone 

Program. Consequently, the issues regarding the 

Cities of Atlanta and Chicago remain unresolved. 

While HUD has no control over HHS’ actions, we will 

prepare a letter to the Deputy Secretary in October 

2003 suggesting that he pursue the matter with HHS. 

(Report Nos. 1998-CH-1005 and 1999-CH-1002) 

City of Lynwood, CA, Community

Development Block Grant Program

Issued August 19, 1999. The City of Lynwood 

could not demonstrate its compliance with Community Development Block Grant (CDBG) requirements 

for activities administered by subgrantees. The 

subgrantees operated a community-based program 

which provided business training and incubator space 

for the benefit of low- and moderate-income residents. The training component included businesses 

outside of the grantee’s City limits. However, the City 

could not provide documentation to support the 

number of jobs for low- and moderate-income persons created or retained, or document future benefits 

accruing to its residents. We recommended that HUD

require the grantee to submit documentation of job 

creation and retention activities or return any unsupported amounts to its letter of credit, from nonfederal funds. 

In December 1999, the Los Angeles Office of 

CPD agreed with our recommendations and agreed to 

complete actions by October 31, 2000. In November 

2000, the Los Angeles Office of CPD requested 

revised management decisions, because the City’s 

program benefited low- and moderate-income 

persons. Therefore, it would not be necessary for the 

City to repay the program. We disagreed with the Los 

Angeles Office of CPD and referred the matter to the 

then Acting General Deputy Assistant Secretary for 

CPD for decision in February2001. In July 2001, the 

CPD Comptroller agreed with OIG’s position and the 

Los Angeles Office of CPD advised the City to 

reimburse about $732,000 to its line of credit. A 

demand for repayment was sent to the City in February 2002. During the last year, CPD and the Office of 

General Counsel requested additional information 

from the City. The City did not provide any new 

information. In February 2003, the Acting General 

Deputy Assistant Secretary for CPD referred this 

matter to HUD’s Departmental Enforcement Center 

(DEC) for appropriate enforcement action. The DEC

staff in Los Angeles completed their review in June 

2003 and submitted their recommendations to the 

Headquarters DEC for a final determination. Additional supporting documentation was requested and 

provided to the Headquarters DEC in September 2003. 

The DEC has been evaluating the merits of the case 

for over seven months; accordingly, we plan to 

prepare a memorandum in October 2003 to the DEC

urging resolution of this long-standing matter. (Report 

No. 1999-SF-1003) 
Chapter 9 - Audit Resolution 101

Housing Authority of the City of

Miami Beach, Section 8 and Public

Housing Programs

Issued October 20, 2000. The Authority mismanaged its Section 8 and Public Housing Programs and 

incurred over $1 million in questioned and ineligible 

costs. Specifically, the Authority spent over $795,000 

of its Section 8 reserves for questionable public 

service activities, including police protection, recreation, and code enforcement that the City should have 

provided from its local tax revenues. Also, the 

Authority spent over $2 million in a failed effort to 

construct a women’s and children’s housing resource 

center, including nearly $210,000 in excessive fees 

and permits paid to the City. The delayed project put 

the Authority at risk of losing most of the $5.8 million 

in bond funds originally committed to the project, and 

deprived the low-income community of needed 

housing and social services. In addition, the Authority 

had not complied with HUD requirements concerning 

Section 8 rent reasonableness, lease execution, and 

utility allowance payments, and had not implemented 

corrective actions to comply with procurement 

requirements. We recommended that HUD require the 

Authority to: (1) obtain additional supporting documentation or recover the $1 million paid to the City; 

(2) submit evidence that it has the financial capability 

and commitment to complete construction of the 

center within a reasonable time; and (3) establish the 

necessary controls to improve its operations. 

On February 13, 2001, the OIG agreed with 

management decisions proposed by the Florida State 

Office for the 14 report recommendations. HUD

obtained final action on seven recommendations. HUD

did not meet the February 13, 2002 target completion 

dates for the remaining seven recommendations that 

are now over 18 months past due. HUD disallowed 

over $1 million in ineligible expenditures and continues to support the management decisions. For example, HUD has sent several letters to the Authority to 

obtain final resolution and the Authority and the City 

have had several meetings in an attempt to resolve the 

issues. However, the Authority has not obtained a 

repayment plan because the City refuses to pay or 

provide additional services in lieu of repayment. HUD

instructed the Authority to continue to work with the 

City to recover the funds, but did not impose milestone or target dates for the Authority to obtain a 

repayment plan or specify a plan of action should the 

City refuse to repay the funds. Meanwhile, the 

Authority and City continue to meet and debate the 

issues, while HUD has not pursued administrative 

actions to ensure collection of the funds. (Report No. 

2001-AT-1001) 

Significant Revised

Management Decisions

Section 5(a) (11) of the Inspector General Act, as 

amended, requires that the OIG report information 

concerning the reasons for any significant revised 

management decision made during the reporting 

period. During the current reporting period, there 

were significant revised management decisions on 

two audits. 

Colonial Oaks Apartments, Houston,

TX

Issued July 3, 2003. The owners of Colonial Oaks 

Apartments were not adequately managing the 

project. Although the owners kept the mortgage 

current, they did not establish or maintain controls, 

procedures or financial records that met HUD’s 

requirements. As a result, the owners were in 

technical default of their mortgage. Since these 

problems were of an ongoing nature dating from the 

owners’ assumption of the project, we recommended 

that HUD terminate the owners’ self-management and 

require them to obtain the services of an independent 

property management agent. HUD agreed with our 

recommendation and directed the owners to hire an 

independent management agent by August 1, 2003. 

The owners hired a new on-site manager on August 1, 

2003, but did not hire the required independent 

management agent. 

HUD’s Office of Asset Management, with the 

support of the Houston Multifamily Program Center 

and the Fort Worth Multifamily HUB, recommended, 

in August 2003, that HUD direct the mortgagee to 

accelerate the mortgage in order to proceed to 

foreclosure due to Regulatory Agreement violations. 

Foreclosure and sale of the property is the only 

available tool that the Department has to secure the 

asset and protect the Secretary’s interest. Therefore, 
Chapter 9 - Audit Resolution 102

the need for hiring an independent management agent 

is no longer necessary. HUD believes that it will 

potentially recover 50 percent of the mortgage amount 

at the foreclosure sale. As a result, approximately 

$500,000 will be put to better use. On September 10, 

2003, we agreed with HUD’s revised management 

decision on this audit memorandum. The revised date 

for completion of corrective actions is October 1, 

2004. (Report No. 2003-FW-1806) 

Foster and Associates, Kalispell, MT

Issued September 28, 2001. Although Foster and 

Associates, management agent for Clark Fork Manor 

and Whitefish Manor, executed the needed certifications and collected management agent fees, it had not 

fulfilled the terms of the management certificates or 

administered the projects in full compliance with 

HUD requirements. The management agent had not 

ensured that the projects established and used required accounting records and obtained required 

annual financial audits. Additionally, management 

agent officials were serving as full time project 

employees and receiving salaries from the management agent. Receiving both management agent fees 

and full time administrative salaries is a violation of 

HUD requirements. Further, the boards of directors 

for the two projects did not take adequate actions to 

meet their overall responsibilities for ensuring that the 

projects were operated in conformity with HUD

requirements. This included ensuring that the management agent was providing the required services 

for the projects. We recommended that the board of 

directors for each project take the necessary steps to 

implement proper administrative oversight for the 

projects. 

We concurred with the Denver Office of Multifamily Housing’s initial management decision, which 

was effective on January 16, 2002, with a planned 

final action target date of September 30, 2003. This 

decision stated that current management operations 

for the projects administered by Foster and Associates were not satisfactory, and HUD would require the 

projects’ board of directors to replace the management agent. 

On September 25, 2003, the Denver Office of 

Multifamily Housing requested that we agree to a 

revised management decision. Instead of replacing 

Foster and Associates as management agent, HUD

agreed with the board’s request to retain the company 

with changes to its personnel and clear definitions of 

its duties and responsibilities and fee structure. HUD

proposed that we close the recommendation based on 

HUD’s approval of these changes. On September 29, 

2003, we concurred with the revised management 

decision and closing action. (Report No. 2001-DE1003) 

Federal Financial Management

Improvement Act of 1996

(FFMIA)

FFMIA requires that HUD implement a 

remediation plan that will bring financial systems into 

compliance with federal financial system requirements within three years or obtain Office of Management and Budget (OMB) concurrence if more time is 

needed. FFMIA requires us to report, in our Semiannual Reports to the Congress, instances and reasons 

when an agency has not met the intermediate target 

dates established in their mediation plan required by 

FFMIA. In April 1998, HUD determined that 38 of its 

systems were not in substantial compliance with 

FFMIA. At the end of FY 2002, the Department 

continued to report that 17 systems were not in 

substantial compliance with FFMIA. Our audit of 

HUD’s FY 2002 financial statements cites additional 

financial management system weaknesses, which we 

reported as reasons for the Department’s FFMIA

noncompliance. These include noncompliance with: 

(1) federal financial management systems requirements; (2) federal accounting standards; and (3) the 

standard general ledger at the transaction level. HUD

has made progress by implementing a new FHA

automated general ledger in October 2002. HUD’s 

next report on the status of its financial systems will 

be included in its FY 2003 Performance and Accountability Report, currently scheduled to be completed in 

December 2003. 
Appendices
These reports are available on the HUD OIG website at www.hud.gov/offices/oig/reports/auditreports.cfm 1

APPENDIX 1 - AUDIT REPORTS ISSUED

Internal Reports

Audit Reports

FOR THE PERIOD

APRIL 1, 2003 THROUGH SEPTEMBER 30, 2003

2003-AO-0003

2003-SE-0001

Title I Loan Remittances Processed by the U. S. Department of Housing and Urban Development’s (HUD’s) Cash

Management Branch, 08/12/2003.

Federal Housing Administration (FHA) Case File Review - Underwriting Practices and Loan Characteristics Contributing

to FHA Loan Performance, 05/15/2003.

Single Family

Audit Memoranda*

2003-DP-0001

PIH

Audit Report on the Public and Indian Housing Information Center (PIC) System, 09/10/2003.

2003-CH-0001

CPD

HUD’s Oversight of the Empowerment Zone Program, 05/07/2003.

Miscellaneous

2003-AO-0002

2003-AO-0004

2003-KC-0001

2003-KC-0002

HUD Training Academy, 07/15/2003.

Review of the Department of HUD Staffing 9/30 Initiative, 08/14/2003.

Survey of HUD’s Administration of Section 3 of the HUD Act of 1968, 06/24/2003.

Administrative Operations of the Office of Federal Housing Enterprise Oversight, 07/29/2003.

Single Family

2003-KC-0802

2003-NY-0801

Inappropriate Home Ownership Center Instructions, 07/31/2003.

Corrective Action Verification, Asset Control Area Program, Audit Report Number 2002-NY-0001, 09/30/2003.

Multifamily

2003-FW-0803 Equity Skimming from HUD Supported Projects: Haverstock I, II, & III, & Colonial Oaks, Houston, TX, 04/22/2003.
These reports are available on the HUD OIG website at www.hud.gov/offices/oig/reports/auditreports.cfm 2

APPENDIX 1

Internal Reports - continued

External Reports

Audit Reports

2003-SE-0802

PIH

Review of Complaints Regarding the Alaska Office of Native American Program’s (ONAP’s) Funding of Indian Housing

Block Grants and Awarding Indian Community Development Block Grant Funds, 7/08/2003.

Miscellaneous

2003-DP-0803 Annual Evaluation of HUD’s Information Security Program, 09/22/2003.

Single Family

2003-DE-1005

2003-KC-1006

2003-KC-1007

2003-NY-1004

MortgageStream Financial Services, LLC, Non-Supervised Direct Endorsement Lender, Greenwood Village, CO,

09/15/2003. Questioned: $141,934; Unsupported: $73,843; Better Use: $940,764.

Horizon Consulting, Inc., Lansdowne, VA, 06/24/2003. Better Use: $12,360,078.

Management Solutions of America, Inc., Atlanta, GA, 07/31/2003. Better Use: $7,004,323.

Colban Funding, Inc., Non-Supervised Mortgagee, Liverpool, NY, 07/24/2003. Questioned: $214,889;

Better Use: $658,880.

Multifamily

2003-FW-1004

2003-LA-1001

2003-SE-1004

Citizen Complaint, Spanish Village Community Development Corporation, Upfront Grant and HOME Investment Partnership Program Loan, Houston, TX, 04/28/2003. Questioned: $90,509; Unsupported: $4,210; Better Use: $1,975,710.

Jack Hall Waipahu, Westlake, and Kulana Nani Projects, Managed by Chaney, Brooks and Company, Honolulu, HI,

07/28/2003. Questioned: $194,815.

CWCapital, LLC, Multifamily Accelerated Processing Lender, Needham, MA, 09/25/2003.

PIH

2003-AT-1007

2003-BO-1004

2003-CH-1018

Citizen’s Complaint, Mount Airy, NC Housing Authority, 07/31/2003.

Review of the Portability Features of the Section 8 Housing Choice Voucher Program, Brockton, MA Housing Authority,

07/17/2003. Questioned: $416,740.

Chicago, IL Housing Authority, Outsourced Property Management Contracts Review, 07/18/2003. Questioned:

$11,223,024; Unsupported: $11,223,024.

Audit Memoranda*
These reports are available on the HUD OIG website at www.hud.gov/offices/oig/reports/auditreports.cfm 3

External Reports - continued

APPENDIX 1

PIH Audit Reports - continued

2003-AT-1004

2003-AT-1005

2003-AT-1006

2003-BO-1003

2003-CH-1015

2003-CH-1016

2003-CH-1017

2003-CH-1020

Historic Westside Village, Section 108 Loan and Economic Development Initiative Grant, Atlanta, GA, 06/06/2003.

Questioned: $1,513,395; Unsupported: $148,147.

City of Montgomery, AL, Community Development Block Grant (CDBG) Program - Madison Park, 06/11/2003.

Puerto Rico Department of Housing, State HOME Investment Partnership Program, San Juan, PR, 07/30/2003.

Questioned: $2,314,499; Unsupported: $627,015; Better Use: $1,029,814.

City of Bridgeport, CT, HOME Investment Partnership Program, 05/16/2003. Questioned: $989,929;

Unsupported: $989,929.

Oakwood Neighborhood Association, CDBG Program, Kalamazoo, MI, 04/24/2003.

City of Cleveland, OH, Empowerment Zone Program, 04/25/2003. Questioned: $12,798,332; Unsupported: $5,907,087.

Housing Continuum, Inc., Homebuyers Assistance Program, Geneva, IL, 06/13/2003. Questioned: $67,541.

Indiana State Department of Health, Housing Opportunities for Persons with AIDS (HOPWA) Program, 07/29/2003.

Questioned: $171,716; Unsupported: $84,699.

CPD

Fayette County Housing Authority, Section 8 Housing Program, Connersville, IN, 07/25/2003. Questioned: $721,549;

Unsupported: $44,804.

Hamtramck, MI Housing Commission, Public Housing Program, 09/30/2003. Better Use: $60,908.

Housing Authority of the Seminole Nation of Oklahoma, Procurement of Housing Rehabilitation Services, Land, and

Mobile Homes, Wewoka, OK, 09/10/2003. Questioned: $780,447; Better Use: $90,840.

The Housing Authority of the County of San Mateo, Belmont, CA, 09/12/2003. Questioned: $323,530; Unsupported:

$90,000.

Housing Authority of Baltimore City, MD, HOPE VI Program, 09/04/2003. Questioned: $2,083,574; Unsupported:

$15,937; Better Use: $1,712,953.

Housing Authority of Baltimore City, MD, Review of the HOPE VI Relocation Process, 09/04/2003. Questioned: $97,697.

Portsmouth, VA Redevelopment and Housing Authority, 09/23/2003. Questioned: $8,092,936; Unsupported: $8,092,936.

Scranton, PA Housing Authority, Low-Income and Section 8 Programs, 09/25/2003. Questioned: $297,491.

Seattle, WA Housing Authority’s Administration of the Welfare-to-Work Section 8 Tenant-Based Assistance Program,

05/29/2003. Questioned: $130,391.

2003-CH-1019

2003-CH-1021

2003-FW-1005

2003-LA-1002

2003-PH-1003

2003-PH-1004

2003-PH-1005

2003-PH-1006

2003-SE-1003
These reports are available on the HUD OIG website at www.hud.gov/offices/oig/reports/auditreports.cfm 4

APPENDIX 1

External Reports - continued

CPD Audit Reports - continued

2003-DE-1006

2003-NY-1005

2003-NY-1006

Colorado Coalition for the Homeless, Supportive Housing Program Grants, Denver CO, 08/26/2003.

Questioned: $440,317; Unsupported: $430,786.

Empire State Development Corporation, CDBG Disaster Assistance Funds, New York, NY, 09/30/2003.

Questioned: $270,948.

Lower Manhattan Development Corporation, CDBG Disaster Assistance Funds, New York, NY, 09/30/2003.

Questioned: $82,342; Unsupported: $72,483; Better Use: $93,214.

Multifamily

2003-CH-1802

2003-FW-1806

2003-KC-1804

2003-PH-1802

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

09/29/2003. Questioned: $400,000.

Colonial Oaks Apartments, Houston, TX, 07/03/2003. Questioned: $14,627; Unsupported: $9,262; Better Use: $504,525.

Meadowbrook Manor of Topeka, KS, Section 232 Nursing Home Review, 06/04/2003.

Shawnee Hills, Inc., Charleston, WV, 09/04/2003.

Audit Memoranda*

PIH

Review of the Portability Feature of the Section 8 Housing Choice Voucher Program, Revere, MA Housing Authority,

 05/02/2003.

Citizens’ Complaint, Oneida, NY Indian Nation, 04/03/2003.

J.T. Eaton & Company, Inc., Civil False Claims, Twinsburg, OH, 09/30/2003. Questioned: $79,298.

Congressional Request, Housing Authority of the City of San Angelo, TX, 05/23/2003. Questioned: $82,554.

The Housing Authority of the City of Las Vegas, NV, Procurement and Contract Activities, 06/09/2003.

Questioned: $158,705; Unsupported: $101,705.

Union County, NJ, Division Of Community Development, Section 8 Housing Assistance and CDBG Programs,

05/12/2003. Questioned: $282,635; Unsupported: $73,165.

Philadelphia, PA Housing Authority, Utilization of Tenant-Based Section 8 Funds, 09/24/2003.

2003-BO-1801

2003-CH-1801

2003-CH-1803

2003-FW-1804

2003-LA-1801

2003-NY-1801

2003-PH-1803
These reports are available on the HUD OIG website at www.hud.gov/offices/oig/reports/auditreports.cfm 5

APPENDIX 1

External Reports - continued

CPD Audit Memoranda* - continued

2003-DE-1802

2003-FW-1805

2003-LA-1802

2003-NY-1802

Boulder, CO Community Planning and Development Programs, 07/22/2003.

Citizen Complaint, Albuquerque, NM Housing Rehabilitation Program, Department of Family and Community Services,

07/02/2003.

1736 Family Crisis Center (FCC), 09/12/2003.

Safe Space, Inc., Housing Opportunities for Persons with AIDS (HOPWA) and Supportive Housing Programs,

New York, NY, 07/24/2003. Questioned: $2,213,000; Unsupported: $2,213,000.

* The memoranda 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 interim results, or to report the results of civil

actions or settlements.
APPENDIX 2

TABLE A

AUDIT REPORTS ISSUED PRIOR TO START OF PERIOD WITH

NO MANAGEMENT DECISION AT 09/30/03

REPORT NUMBER & TITLE REASON FOR LACK OF MANAGEMENT DECISION

ISSUE DATE/

TARGET FOR

MANAGEMENT

 DECISION

Nothing to report.
1

APPENDIX 2

TABLE B

SIGNIFICANT AUDIT REPORTS DESCRIBED IN PREVIOUS SEMIANNUAL REPORTS

WHERE FINAL ACTION HAD NOT BEEN COMPLETED AS OF 09/30/03

Report

Number Report Title

Issue

Date

Decision

Date

Final

Action

1995-CH-1009

1997-CH-1010

1998-CH-1005

1999-NY-1004

1999-FO-0003

1999-SF-1003

1999-CH-1803

1999-NY-1007

1999-DE-0001

2000-DP-0002

2000-NY-1002

2000-FO-0002

2000-FO-0003

2000-AT-1005

2000-SF-0001

Alliance Mortgage Corporation, Single Family Mortgage Insurance Program, Villa Park IL

Major Mortgage Corporation, Section 203(K) Rehabilitation Home Mortgage Insurance Program,

Livonia, MI

City of Atlanta, GA, Empowerment Zone Program

Homestead Financial Services, Inc. Non-Supervised Mortgagee, Syracuse, NY

U.S. Department of HUD Fiscal Year 1998 Financial Statements

City of Lynwood, CA CDBG & Home Programs

Fairfield County, Community Housing Improvement Program, Lancaster, OH

Alliance Mortgage Banking Corp., Non-Supervised Mortgagee, Rochester, NY

Nationwide Review of HUD’s Loss Mitigation Program

Initial Development Efforts of the Departmental Grants Management System

Target V Phase I Development Associates, Multifamily Housing Program, Bronx, NY

Federal Housing Administration, Audit of Fiscal Year 1999 Financial Statements

Attempt to Audit the Fiscal Year 1999 Financial Statements, U.S. Department of HUD

Benson, NC Housing Authority, Public Housing Programs

Single Family Production

08/08/1995

09/17/1997

09/28/1998

02/17/1999

03/29/1999

08/19/1999

09/15/1999

09/27/1999

09/30/1999

11/04/1999

12/08/1999

02/29/2000

03/01/2000

03/27/2000

03/30/2000

11/30/1995

01/06/1998

09/20/1999

06/25/1999

09/30/1999

12/16/1999

01/13/2000

02/16/2000

03/31/2000

09/19/2001

05/08/2000

08/09/2000

09/29/2000

09/13/2000

01/19/2001

Note 1

06/01/2005

Note 1

Note 1

Note 2

Note 1

Note 1

Note 1

Note 2

10/31/2004

Note 1

12/31/2005

Note 2

05/30/2004

Note 2
2

APPENDIX 2, TABLE B

2000-SF-1001

2000-DP-0804

2000-KC-0002

2000-SE-0003

2001-AT-1001

2001-SF-1802

2001-DP-0801

2001-FO-0002

2001-FO-0003

2001-CH-1005

2001-SF-1803

2001-FO-0004

2001-NY-1002

2001-PH-1005

2001-SF-1804

2001-CH-1007

2001-PH-0803

2001-AT-0001

San Francisco, CA Housing Authority, Low-Income Housing and Section 8 Programs

Department’s September 2000 Purchase of COTS Financial Management System

Housing Subsidy Payments

Final Report of Nationwide Audit, Use of and Disposition of Residual Receipts

Housing Authority of the City of Miami Beach, FL

HUD Earthquake Loan Program Funds (HELP), Woodland Hills, CA

Review of the Department’s Internet Privacy Status

Federal Housing Administration, Audit of Fiscal Year 2000 Financial Statements

Audit of HUD Fiscal Year 2000 Financial Statements

London, OH Metropolitan Housing Authority, Safeguarding of Monetary Assets and Inventory

Supportive Housing Program Grant, Los Angeles, CA

Review of HUD’s Internal Controls Over Fiscal Year1999 Annual Performance Data

Belmax Management Corp., Management Agent, Brooklyn, NY

Housing Authority of the City of Pittsburgh, PA

Supportive Housing Program Grant, County of Orange, Santa Ana, CA

Detroit, MI Housing Commission, Hope VI Program

Philadelphia, PA Home Ownership Center, Single Family Disposition Activities

Nationwide Audit Results on the Officer/Teacher Next Door Program

Report

Number Report Title IssueDate

Decision

Date

Final

Action

03/31/2000

09/29/2000

09/29/2000

09/29/2000

10/20/2000

02/08/2001

02/21/2001

03/01/2001

03/01/2001

03/22/2001

03/23/2001

03/28/2001

04/17/2001

05/03/2001

05/09/2001

05/16/2001

06/14/2001

06/29/2001

09/01/2000

03/30/2001

02/21/2001

08/15/2001

02/13/2001

06/14/2001

04/23/2001

07/24/2001

07/18/2001

07/18/2001

07/24/2001

07/24/2001

07/13/2001

02/06/2002

09/26/2001

09/13/2001

06/14/2001

01/29/2002

Note 1

Note 1

09/30/2005

12/30/2003

Note 1

Note 1

Note 1

12/21/2006

Note 2

03/17/2004

Note 1

01/31/2004

Note 1

10/31/2003

Note 1

03/31/2006

Note 2

12/31/2003
3

APPENDIX 2, TABLE B

 2001-FW-1005

2001-AO-0003

2001-DP-0003

2001-KC-1005

2002-SF-0001

2002-CH-1801

2002-FO-0002

2002-NY-0001

2002-FO-0003

2002-DE-0001

2002-PH-1001

2002-NY-1001

2002-CH-1001

2002-BO-1001

2002-BO-1003

2002-PH-0002

2002-AT-1002

2002-AO-0001

Harmony House, Inc., Harrison AR, Supportive Housing Program

Drug Elimination Funds Used for the Creative Wellness Program

Real Estate Management System (REMS)

First Community Resources, Inc., St. Louis, MO, Section 203(b) Home Mortgage Insurance Program

Nonprofit Participation, HUD Single Family Program

Housing Authority of the City of Evansville, IN

Federal Housing Administration, Audit of Fiscal Years 2001 and 2000 Financial Statements

Nationwide Audit - Asset Control Area Program, Single Family Housing

U.S. Department of HUD, Audit of Fiscal Years 2001 and 2000 Financial Statements

Nationwide Review HUD’s Loss Mitigation Program (Follow-up)

City of Williamsport, PA, CDBG and HOME Investment Partnership Programs

City of Ithaca, NY, Community Planning and Development Programs

Ypsilanti, MI Housing Commission, Safeguarding Monetary Assets and Inventory

City of Worcester, MA, CDBG Program

Newport, RI Resident Council, Inc.

Single Family Sales To Owner-Occupant Purchasers

City of Tupelo, MS Housing Authority, Housing Programs Operations

The Grants Management Center’s Operations

Report

Number Report Title Issue

Date

Decision

Date

Final

Action

08/27/2001

08/29/2001

09/28/2001

09/28/2001

11/05/2001

01/29/2002

02/22/2002

02/25/2002

02/27/2002

02/28/2002

03/19/2002

03/21/2002

03/26/2002

03/27/2002

04/30/2002

06/10/2002

07/03/2002

07/12/2002

12/21/2001

01/22/2002

01/30/2002

01/17/2002

08/30/2002

05/18/2002

05/30/2002

06/17/2002

08/16/2002

06/28/2002

09/04/2002

07/23/2002

07/24/2002

08/29/2002

09/16/2002

09/30/2002

10/31/2002

11/18/2002

Note 2

12/31/2003

Note 2

03/16/2004

Note 2

05/15/2005

12/31/2006

Note 2

01/30/2004

Note 2

Note 2

Note 2

12/31/2003

07/01/2005

01/15/2008

Note 2

04/30/2010

10/31/2003
4

APPENDIX 2, TABLE B

 2002-AT-1003

2002-KC-0002

2002-SF-0801

2002-DE-1004

2002-SF-1002

2002-FW-1002

2002-KC-1003

2002-AT-1808

2002-NY-1004

2002-NY-1005

2002-DE-1005

2002-SF-1003

2002-AT-1004

2002-SF-1005

National Scholarship Service and Veteran’s Opportunity and Resource Center, Atlanta, GA,

Supportive Housing Program Grant

Nationwide Survey of HUD’s Office of Housing Section 232 Nursing Home Program

HOME Investment Partnerships Program, City of Stockton, CA, and San Joaquin County, CA

Housing Advocacy Coalition, Colorado Springs, CO, Outreach and Training Assistance Grant

Oakland, CA Housing Authority, Rehabilitation of the 49th Street Housing Development

Houma, LA Housing Authority, Low-Rent Housing Program, Cash & Procurement Controls

Iowa Coalition for Housing and the Homeless, Des Moines, IA, Outreach and Training Assistance

Grant

Homeless and Housing Coalition of Kentucky, Inc., Frankfort, KY, Outreach and Training

Assistance Grant

Ironbound Community Corporation, Newark, NJ, Outreach and Training Assistance Grant and

Public Entity Grant

The Legal Aid Society, New York, NY, Outreach and Training Assistance Grant and Public Entity

Grant

Crossroads Urban Center, Salt Lake City, UT, Outreach and Training Assistance Grants

Los Angeles, CA Community Development Bank, Economic Development Initiative Grant/ Section

108 Loan Guarantee Program

Ashley Crossings Apartment Homes, Largo, FL

Housing Rights Committee of San Francisco Tides Center, San Francisco, CA, Outreach and

Training Assistance Grants

Report

Number Report Title Issue

Date

Decision

Date

Final

Action

07/25/2002

07/31/2002

07/31/2002

08/26/2002

09/17/2002

09/18/2002

09/19/2002

09/20/2002

09/23/2002

09/23/2002

09/25/2002

09/25/2002

09/26/2002

09/26/2002

10/21/2002

11/22/2002

12/06/2002

03/31/2003

02/06/2003

01/16/2003

03/31/2003

03/31/2003

03/31/2003

03/31/2003

03/31/2003

01/27/2003

09/26/2002

03/31/2003

02/28/2004

06/30/2004

Note 2

12/31/2003

10/15/2003

11/30/2003

12/31/2003

12/31/2003

12/31/2003

12/31/2003

12/31/2003

12/01/2003

10/31/2003

12/31/2003
5

APPENDIX 2, TABLE B

 2002-AT-1005

2002-AT-1006

2002-BO-1004

2002-DE-1002

2002-FW-1003

2002-PH-1002

2002-PH-1003

2002-PH-1004

2002-PH-1006

2002-PH-1007

2002-SF-1004

2002-SF-1006

2002-SF-1007

2003-DE-1002

2003-DE-1001

2003-AT-1801

Report

Number Report Title IssueDate

Decision

Date

Final

Action

North Carolina Low-Income Housing Coalition, Inc., Raleigh, NC, Outreach and Training

Assistance Grant and Intermediary Training Assistance Grant

Ridgeview Manor Apartments, Hopkins, SC

Anti-Displacement Project, Springfield, MA, Outreach and Training Assistance Grant

Affordable Housing and Homeless Alliance, Honolulu, HI, Outreach and Training Assistance Grant

and Intermediary Outreach and Training Assistance Grant

New Mexico Public Interest Education Fund, Albuquerque MN, Outreach and Training Assistance

Grant and Public Entity Grant, Albuquerque NM

Virginia Poverty Law Center, Richmond, VA, Outreach and Training Assistance Grant

Delaware Housing Coalition, Dover, DE, Outreach and Training Assistance Grant and Intermediary

Training Assistance Grant

Tenants’ Action Group of Philadelphia, PA, Outreach and Training Assistance Grant

Legal Aid Bureau, Inc., Baltimore, MD, Outreach and Training Assistance Grant

Legal Aid Bureau, Inc., Baltimore, MD, Outreach and Training Assistance Grant

Low-Income Housing Fund, Oakland, CA, Intermediary Training Assistance Grant

Legal Aid Society of Honolulu, HI, Outreach and Training Assistance Grant

Southern Arizona People’s Law Center, Tucson, AZ, Outreach and Training Assistance Grant

Delta, CO Housing Authority, Low-Rent Housing and Section 8 Housing Assistance Payments

Sicangu Wicoti Ananyakape Corp., Rosebud, SD, Indian Housing Block Grant Program

South Carolina Regional Housing Authority No. 3, Barnwell, SC

09/27/2002

09/30/2002

09/30/2002

09/30/2002

09/30/2002

09/30/2002

09/30/2002

09/30/2002

09/30/2002

09/30/2002

09/30/2002

09/30/2002

09/30/2002

10/07/2002

10/08/2002

10/09/2002

03/31/2003

11/19/2002

03/31/2003

03/31/2003

03/31/2003

03/31/2003

03/31/2003

03/31/2003

03/31/2003

03/31/2003

03/31/2003

03/31/2003

03/31/2003

01/29/2003

02/28/2003

02/06/2003

12/31/2003

11/01/2003

12/31/2003

12/31/2003

12/31/2003

12/31/2003

12/31/2003

12/31/2003

12/31/2003

12/31/2003

12/31/2003

12/31/2003

12/31/2003

12/31/2004

12/31/2004

9/15/2004
6

APPENDIX 2, TABLE B

 2003-DE-1003

2003-CH-1003

2003-DP-0801

2003-CH-1004

2003-SE-1001

2003-KC-1801

2003-SE-1002

2003-AO-1001

2003-DP-0802

2003-AO-1002

2003-PH-1001

2003-KC-1003

2003-CH-1006

2003-CH-1007

2003-AT-1001

2003-KC-1004

Report

Number Report Title IssueDate

Decision

Date

Final

Action

Audit of June 1998 Memorandum of Understanding Between HUD’s Office of Multifamily Housing and

the Corporation for National Service, Washington, DC

Tenants United for Housing, Inc., Chicago, IL, Outreach and Training Assistance Grants

Annual Evaluation of HUD’s Information Security Program

Indiana Coalition on Housing and Homeless Issues, Indianapolis, IN, Outreach and Training Assistance

Grant

Community Alliance of Tenants, Portland, OR, Outreach and Training Assistance Grant

University Forest Nursing Care Center, University City, MO

Tenants Union, Seattle, WA, Outreach and Training Assistance Grant and Intermediary Training

Assistance Grant

National Center of Tenants Ownership, Washington, DC, Intermediary Training Assistance Grant

General Information Technology Controls at Affiliated Computer Services – Governmental Services,

Inc. (ACS)

National Housing Trust, Washington, DC, Outreach and Training Assistance Grant

Norfolk and Portsmouth VA, Review of the Joint Empowerment Zone Program

St. Louis, MO/East St. Louis, IL Empowerment Zone Program

Cities of Huntington, WV and Ironton, OH Empowerment Zone Program

City of Minneapolis, MN Empowerment Zone Program

Northwestern Regional Housing Authority, Boone, NC, Public Housing Programs

First Horizon Home Loans, Irving, TX, Non-Supervised Direct Endorsement Lender

10/28/2002

10/29/2002

10/30/2002

10/31/2002

10/31/2002

11/14/2002

12/02/2002

12/03/2002

12/03/2002

12/09/2002

12/20/2002

12/26/2002

12/31/2002

01/03/2003

01/09/2003

01/17/2003

03/31/2003

03/31/2003

01/21/2003

03/31/2003

03/31/2003

02/24/2003

03/31/2003

03/31/2003

06/05/2003

03/31/2003

03/24/2003

04/18/2003

08/08/2003

08/08/2003

06/02/2003

04/28/2003

12/31/2003

12/31/2003

11/01/2003

12/31/2003

12/31/2003

12/03/2003

12/31/2003

12/31/2003

Note 2

12/31/2003

10/30/2003

12/30/2003

01/31/2004

01/31/2004

03/10/2004

01/16/2004
7

APPENDIX 2, TABLE B

2003-FO-0002

 2003-CH-1008

2003-PH-1002

2003-CH-1009

2003-FO-0004

2003-NY-1001

2003-FW-1001

2003-AT-0001

2003-BO-1001

2003-KC-1005

2003-BO-1002

2003-KC-0801

2003-AT-1002

2003-CH-1010

2003-AT-1003

2003-CH-1011

2003-KC-1803

2003-CH-1012

Report

Number Report Title

Issue

Date

Decision

Date

Final

Action

Federal Housing Administration, Audit of Fiscal Years 2002 and 2001 Financial Statements

City of Cleveland Heights, OH, Housing Preservation Program

Philadelphia, PA Housing Authority, Contracting and Purchasing Activity

City of Cincinnati, OH Empowerment Zone Program

 Audit of HUD’s Financial Statements, Fiscal Years 2002 and 2001

Marion Scott Real Estate, Inc., Management Agent, New York, NY

Housing Authority of the City of Morgan City, LA, Low-Rent Program

Ginnie Mae Review of Internal Controls, Washington, DC

Farmington Health Care Center, Farmington, CT

Choice Enterprises, Inc., Denver, CO

People to End Homelessness, Providence, RI, Outreach and Training Assistance Grants

Inappropriate Home Ownership Center Instructions, Denver, CO

Procurement of Management Agents, Puerto Rico Public Housing Administration, San Juan, PR

Coshocton, OH Metropolitan Housing Authority, Section 8 Housing Program

Fairfield, AL Housing Authority, Housing Programs

Coshocton, OH Metropolitan Housing Authority, Comprehensive Improvement Assistance Program

Richmond Terrace Retirement Center, Richmond Heights, MO

Coshocton, OH Metropolitan Housing Authority, Tenant Opportunities Program

01/21/2003

01/23/2003

01/27/2003

01/28/2003

01/31/2003

02/12/2003

02/21/2003

03/05/2003

03/07/2003

03/10/2003

03/12/2003

03/18/2003

03/21/2003

03/21/2003

03/24/2003

03/24/2003

03/24/2003

03/25/2003

05/22/2003

06/10/2003

06/11/2003

08/08/2003

05/22/2003

06/13/2003

06/20/2003

03/05/2003

07/15/2003

08/15/2003

03/31/2003

08/08/2003

07/17/2003

05/30/2003

07/22/2003

06/10/2003

06/19/2003

05/30/2003

Note 2

12/31/2003

12/31/2003

01/31/2004

02/28/2005

12/31/2003

08/17/2004

12/30/2003

02/28/2004

03/22/2004

12/31/2003

03/18/2004

12/31/2003

12/31/2008

07/01/2004

12/31/2062

10/31/2003

12/01/2003
8

APPENDIX 2, TABLE B

AUDITS EXCLUDED:

22 audits under repayment plans

19 audits under formal judicial review, investigation, or

legislative solution

NOTES:

1 Management did not meet the target date. Target date is over 1 year old.

2 Management did not meet the target date. Target date is under 1 year old.

 2003-NY-1003

 2003-CH-1013

2003-DE-1004

2003-CH-1014

2003-DE-0001

Report

Number Report Title

Issue

Date

Decision

Date

Final

Action

Empire State Development Corporation, New York, NY, CDBG Disaster Assistance Funds

Coshocton, OH Metropolitan Housing Authority, Public Housing Drug Elimination Program

Pryme Investment and Mortgage Brokers, Inc., Murray, UT, Nonsupervised Loan Correspondent

Coshocton, OH Metropolitan Housing Authority, Public Housing Program

HUD Office of Multifamily Housing Assistance Restructuring’s (OMHAR) Oversight of the Section 514

Program Activities

03/25/2003

03/26/2003

03/27/2003

03/28/2003

03/31/2003

07/16/2003

07/01/2003

06/27/2003

07/28/2003

03/31/2003

01/15/2005

12/31/2003

12/31/2004

06/30/2005

Note 2
TABLE C 

INSPECTOR GENERAL ISSUED REPORTS WITH 

QUESTIONED AND UNSUPPORTED COSTS AT 09/30/2003 

(DOLLARS IN THOUSANDS) 

Reports Number of Audit Reports Questio

Cos

A1 For which no management decision had been made by the commencement of the reporting period 19 $11A2 For which litigation, legislation or investigation was pending at the commencement of the reporting period 7 $29A3 For which additional costs were added to reports in beginning inventory — $3A4 For which costs were added to non-cost reports 1 B1 Which were issued during the reporting period 30 $46B2 Which were reopened during the reporting period 0 

Subtotals (A + B) 57 $90

C For which a management decision was made during the reporting period 301 $46

(1) Dollar value of disallowed costs:  Due HUD  Due Program Participants 

62

25 

$41

(2) Dollar value of costs not disallowed 103 $4

D For which management decision had been made not to determine costs until completion of litigation, legislation or investigation 6 $13E For which no management decision had been made by the end of the reporting period 21 <48>4 $30

<$30,

______________________ 1 5 audit reports also contain recommendations with funds to be put to better use. 2 3 audit reports also contain recommendations with funds due program participants. 3 8 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. 
TABLE D 

INSPECTOR GENERAL ISSUED REPORTS 

WITH RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE AT 09/30/20

(DOLLARS IN THOUSANDS)

Reports Num

Audi

A1 For which no management decision had been made by the commencement of the reporting period A2 For which litigation, legislation or investigation was pending at the commencement of the reporting period A3 For which additional costs were added to reports in beginning inventory A4 For which costs were added to non-cost reports B1 Which were issued during the reporting period B2 Which were reopened during the reporting period 

Subtotals (A + B) 

C For which a management decision was made during the reporting period 

(1) Dollar value of recommendations that were agreed to by management:  Due HUD  Due Program Participants (2) Dollar value of recommendations that were not agreed to by management 

D For which management decision had been made not to determine costs until completion of litigation, legislation or investigation E For which no management decision had made by the end of the reporting period 

<

_________________ 1 5 audit reports also contain recommendations with questioned costs. 2 1 audit report also contains recommendations with funds due program participants. 3 3 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. 
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 not take recognition 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.

APPENDIX 2
Report fraud, waste and mismanagement in 

HUD programs and operations by: 

All information is confidential and

you may remain anonymous.

Sending written information to: 

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

Faxing the OIG Hotline: 202-708-4829 

Department of Housing and Urban Development 

Inspector General Hotline (GFI) 

400 Virginia Ave., SW, Room C-120 

Washington, DC 20024 

Emailing the OIG Hotline: hotline@hudoig.gov 

Internet: http://www.hud.gov/complaints/fraud_waste.cfm 
No. 50 HUD-2003-12-OIG 

Semiannual Report to Congress

as of September 30, 2003

www.hud.gov/offices/oig

U.S. Department of Housing

and Urban Development