Semiannual Report to Congress

April 1, 2005 through September 30, 2005

Semiannual Report to Congress

Office of Inspector General

U.S. Department of Housing and Urban Development

Office of Inspector General
Profile of Performance

Profile of Performance Profile of Performance

For the Period, April 1, 2005, through September 30, 2005 For the Period, April 1, 2005, through September 30, 2005

Audit and Investigation Results Audit Investigation Combined FY 2005

Recommendations That Funds Be Put to Better Use1-2 $232,932,139 $232,932,139 $1,173,803,375

Questioned Costs1-2 $76,095,529 $76,095,529 $166,084,390

Indictments/Informations 768 1,656 768Convictions/Pleas/Pretrial Diversions 567 1,022 567Funds Put to Better Use $147,474,143 $188,435,562 $145,461,739Collections from Audits $12,997,042 $20,758,563 $12,997,042

Administrative Actions 1,761 2,911

5 1,756

Personnel Actions 38 72 38

Arrests3 4,096 5,882 4,096

Search Warrants 31 66 31

Weapons Seized 23 28 23

Subpoenas Issued

Hotline

Civil Actions 21 21 53

769 43 812 1,218

Recoveries/Receivables $377,419,985 $877,539,815 $377,223,259

$2,021,607

$196,726

1 This represents all cost transactions during the period in which dollar amounts were reported with any recommendation.2 Most of the amounts of Recommendations that Funds be Put To Better Use and Recommended Questioned costs were agreed to by HUD management.

 These are considered Management Decisions. For recommendations that Funds Be Put To Better use, $249,184,994 had Management Decisions. Of the Recommended Questioned Costs, $53,462,902 had Management Decisions. Recommended and Management Decision amounts differ because not all Recommendations had received final determination at the end of the period, and there were some management decisions agreed to on recommendations from previous periods.

3 Included in the arrests is our focus on the nationwide Fugitive Felon Initiative.
Inspector General Inspector General Inspector General’s Message s Message

Inspector General’s Message iii Inspector General’s Message

It is with pride that I present the U.S. Department of Housing

and Urban Development Office of Inspector General Semiannual

Report that outlines our activities from April 1, 2005, to September

30, 2005.

HUD OIG is serving the American taxpayer by our constant

oversight of the administration of HUD programs, through our

audits of their financial statements, and through our internal

control reviews. In addition, we serve the American taxpayer

through our criminal and administrative investigations of whitecollar crime and program abuse. Employee misconduct is

thoroughly checked through our vigorous efforts to investigate

and mitigate reported offenses. We continue to aggressively assess

information security, report on departmental compliance and accountability, and identify

management and performance challenges.

During the past 6 months we have seen HUD OIG’s “return on investment” far

exceed our own initial goal. During this period, OIG audits and investigations reported

on or returned over 18 times more than we spent from our appropriations. I am very

pleased by our increases, but we remain highly motivated and committed to achieving

even greater results in 2006.

The destruction and aftermath of Hurricanes Katrina, Wilma, and Rita challenge

HUD OIG with a task every bit as daunting as the reconstruction of lower Manhattan

following the September 11th attack. HUD OIG’s continuing oversight of the funds

allocated to the Lower Manhattan Redevelopment Corporation has become somewhat

of a template on how to oversee funds allocated to recovery from these natural disasters.

Consequently, the HUD OIG audit, investigative and inspections staff stands ready to

provide a continuing and comprehensive review of the expenditure of funds and will

stand guard against those who would seek to defraud the government. In line with this

added responsibility, HUD OIG has established a semipermanent base of operations in

New Orleans to oversee operations in the Gulf Coast area.

Our major accomplishments for this period are highlighted in this report. HUD

OIG continues to address problems plaguing single-family housing. Through

comprehensive audits of poorly performing lenders and effective investigations, we are

showing significant results. During the 6-month reporting period, OIG’s

recommendations have sought monetary recoveries through loan indemnifications

exceeding $133 million , loss reimbursements of more than $10 million, and substantial

civil remedies. During this semiannual reporting period, HUD OIG completed 30 external

audits of Federal Housing Administration (FHA)-approved mortgage lenders and three

internal audits of single-family program activities.

Our investigative workload in FHA’s single-family fraud prevention also continues

to grow dramatically. During this timeframe, OIG opened 140 investigative cases and

closed 106 cases in this program area, resulting in 236 indictments; 222 arrests; and 169

convictions, pleas, or pretrial diversions.
Inspector General’s Message

Inspector General’s Message iv

One particular area in which we are having success is our collaboration with the

Social Security Administration in identifying FHA mortgage insured loans with false

Social Security numbers. In one such case, lenders were using false numbers to obtain

mortgages for undocumented immigrants. As a result of our investigation, the lender

and 11 mortgagors were successfully prosecuted, and a number of undocumented

immigrants are facing deportation.

Another area of concern that we have previously reported on dealt with estimate

errors. A 2000 HUD study concluded that 60 percent of all rent and subsidy calculations

contained overpayment or underpayment errors totaling more than $3.2 billion. In

2005, an update to this study estimated a gross error payment of $1.2 billion. Although

still a large amount, this represents a 62-percent reduction from the error estimate

completed in 2000. The reduction is attributed, in part, to OIG-related activities and to

enhanced program guidance, training, oversight, and enforcement, as well as improved

income verification efforts, voluntary compliance by tenants due to promotion of the

issue, an improved computer matching process, and an improved methodology for

reviewing income discrepancies.

A major highlight contained in the report is the HUD OIG activities in rooting out

public corruption. For example, East Cleveland Mayor Emmanuel Onunwor was

indicted on 22 counts of Federal Racketeering Influenced Corrupt Organizations Act

(RICO) conspiracy, mail fraud, public corruption, witness tampering, and violations of

tax laws. Moreover, HUD OIG, along with the Federal Bureau of Investigation and the

Internal Revenue Service, recently executed 13 Federal arrest warrants against a

Massachusetts executive director, his family, and associates, who stole from the

Springfield Housing Authority. The violations included conspiracy to commit RICO

crimes, conspiracy to commit bribery, bribery, conspiracy to commit theft, extortion,

conspiracy to commit mail fraud, money laundering, and obstruction of justice.

In closing, I want to acknowledge the extraordinary efforts of our auditors,

investigators, inspectors and support personnel who form the core of HUD OIG. During

the last 6 months, scores of our employees have been selected for awards and

commendations by the President, the President’s Council on Integrity and Efficiency,

U.S. Attorneys’ Offices, the Department of Justice, elected officials, and editorial boards,

providing evidence of the superior work they have performed. I again want to thank

them for their dedication and service to the American taxpayers and their commitment

to eliminate waste, fraud, and abuse.

Thank you,

Kenneth M. Donohue, Sr.

Inspector General
Information About the HUD Office of Inspector General Information About the HUD Office of Inspector General Information About the HUD Office of Inspector General

B eginning with fiscal year (FY) 2004, the Office of Inspector General (OIG)

instituted a return-on-investment (ROI) computation as one method to

measure its contribution to the Department’s mission. This measure takes the total dollars

of recommended funds to be put to better use1

 and questioned costs,2 together with

receivables and recoveries3 from Investigations and Hotline, and divides that total by

OIG’s operating costs, including salaries, for the period. The resulting ratio represents

the potential amounts that could be realized or better used per dollar of OIG expenditures

either during current or future periods. Many factors affect when and how much is

actually returned so OIG uses recommended amounts in our ROI calculation, rather

than management decisions, to better relate results to the work that was actually done

during the period. Much of this period’s ROI results from the annual financial audit

finding regarding the need to deobligate $708 million in U.S. Department of Housing

and Urban Development (HUD) funds. The majority of contributing factors to the

ROI are the results from reviews of external parties who administer or benefit from

HUD-funded programs. HUD refers many matters such as these to OIG for audit or

investigation, as appropriate.

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

Congress appropriated to OIG, we should uncover $8 that should be returned or put to

better use. The budget for FY 2005 is $103,166,236. The ROI in dollars computed on an

8 to 1 ratio would be $825,329,884 million. We are pleased to report that for FY 2005 our

ROI is 23 to 1 – far exceeding a goal of 8 to 1.

1

 “Funds to be put to better use” is an item required by Congress and is defined in the Inspector General Act as

“a recommendation by the Office that funds could be used more efficiently if management of an

establishment took actions to implement and complete the recommendation, including (1) reductions in outlays;

(2) deobligations of funds from programs or operations; (3) withdrawal of interest subsidy costs on loans or loan

guarantees, insurance, or bonds; (4) costs not incurred by implementing recommended improvements related to the

operations of the establishment, a contractor, or grantee; (5) avoidance of unnecessary expenditures noted in

preaward reviews of contractor grant agreements; or (6) any other savings which are specifically identified.”

2

 “Questioned costs” are “a cost that is questioned by the Office because of (1) an alleged violation or provision of

law, regulation, contract, grant, or cooperative agreement, or other agreement or document governing the

expenditure of funds; (2) a finding that at the time of the audit, such cost is not supported by adequate

documentation; or (3) a finding that the expenditure of funds for the intended purpose is unnecessary or

unreasonable.”

3

 “Receivables and recoveries” are based on the total dollar value of (1) criminal cases—the amount of restitution,

criminal fines, and/or special assessments based on a criminal judgment or established through a pretrial diversion

agreement; (2) civil cases—the amount of damages, penalties, and/or forfeitures resulting from judgments issued

by any court (Federal, State, local, military, or foreign government) in favor of the U.S. Government or the amount of

funds to be repaid to the U.S. Government based on any negotiated settlements by a prosecuting authority or the

amount of any assessments and/or penalties imposed, based on actions brought under the Program Fraud Civil

Remedies Act, civil money penalties, or other agency-specific civil litigation authority, or settlement agreements

negotiated by the agency while proceeding under any of these authorities; (3) voluntary repayments—the amount of

funds repaid on a voluntary basis or funds repaid based on an agency’s administrative processes by a subject of an

OIG investigation or the value of official property recovered by an OIG during an investigation before prosecutive

action is taken, any of which result from a case in which an OIG has an active investigative role; and (4)

“administrative receivables and recoveries” based on Hotline referrals to HUD program staff.

Information About the HUD Office of Inspector General v Information About Us

October 1, 2004 -

March 31, 2005

April 1, 2005 -

September 30, 2005

Fiscal Year

2005

Return on Investment 28 to 1 18 to 1 23 to 1
OIG Cost of Operations for FY 2005 OIG Cost of Operations for FY 2005

$103,166,236 $103,166,236

OIG Results for FY 2005 OIG Results for FY 2005

$2.4 Billion Captured

Administration & Operations

$6,555,822 = 6%

Personnel Services

$74,122,159 = 72%

Centrally Managed/

Funded Services

$22,488,255 = 22%

Questioned Costs

$166,084,390= 7%

Funds Put to Better Use

$1,362,238,937= 57%

Receivables/Recoveries

$877,539,815= 36%

OIG Charts

OIG Charts vi
Audit Reports Issued by Program

Public and Indian

Housing

39%

Multifamily Housing

9%

Single-Family

Housing

38%

Community Planning

& Development

9%

Other

5%

Monetary Benefits Identified by Program

Single-Family

Housing

47%

Public & Indian

Housing

26%

Multifamily

Housing

16%

Community Planning

& Development

11%

Other

0%

Audit Charts vii

Audit Charts

Monetary Benefits Identified in Millions of Dollars Monetary Benefits Identified in Millions of Dollars

160

140

120

100

8 0

6 0

4 0

2 0

0

$81

$50

$0

$34

$143

Public and

Indian

Housing

Multifamily

Housing

Other Community

Planning &

Development

Single-Family

Housing
Investigation Cases Opened by Program (Total: 591) Investigation Cases Opened by Program (Total: 591)

Investigation Charts

Investigation Charts viii

Single-Family

Housing

19%

Public & Indian

Housing

66%

Community

Planning &

Development

3%

Other/Ginnie Mae

1%

Multifamily

Housing

11%

Investigation Recoveries by Program (Total: $377,223,259) Investigation Recoveries by Program (Total: $377,223,259)

Multifamily

Housing

1%

($3,648,858)

Community Planning

& Development

11%

($42,179,216)

Public &

Indian

Housing

3%

($12,675,659)

Single-Family Housing

85%

($318,719,526)

Investigation Funds Put to Better Use (Total: $145,461,739) Investigation Funds Put to Better Use (Total: $145,461,739)

Single-Family

Housing

18%

($25,535,680)

Community Planning

& Development

29%

($42,775,121)

Other/Ginnie Mae

0%

($118,347)

Public & Indian

Housing

40%

($57,654,988)

Multifamily

Housing

13%

($19,377,603)

Other/Ginnie Mae

0%

($0)
Acronyms List Acronyms List Acronyms List

AIDS Acquired Immune Deficiency Syndrome

ARCATS Audit Resolution and Corrective Action Tracking System

ARIGA Assistant Regional Inspector General in Charge

ASAC Assistant Special Agent in Charge

CDBG Community Development Block Grant

CID Criminal Investigation Division

CPD Office of Community Planning and Development

DEA Drug Enforcement Administration

DOJ U.S. Department of Justice

FBI Federal Bureau of Investigation

FEMA Federal Emergency Management Agency

FFMIA Federal Financial Management Improvement Act of 1996

FHA Federal Housing Administration

FHASL Federal Housing Administration Subsidiary Ledger

FHASL FHA Subsidiary Ledger

FIRMS Facilities Integrated Resources Management System

FY Fiscal Year

GAO Government Accountability Office

GNMA Government National Mortgage Association (aka Ginnie Mae)

HAP Housing Assistance Payment

HHS U.S. Department of Health and Human Services

HIV Human Immunodeficiency Virus

HOME Home Ownership Made Easy

HOPWA Housing Opportunities for Persons with AIDS

HRRC Hurricane Recovery and Response Center

HUD U.S. Department of Housing and Urban Development

IAFCI International Association of Financial Crimes Investigators

IG Inspector General

IRS Internal Revenue Service

JTTF Joint Terrorism Task Force

Acronym List ix Acronym List
Acronym List

Acronym List x

LAS Loan Accounting System

MFIS Multifamily Insurance System

MTW Moving to Work

NAHRO National Association of Housing and Redevelopment Officials

OA Office of Audit

OI Office of Investigation

OIG Office of Inspector General

OMB Office of Management and Budget

OND Officer Next Door

PFCRA Program Fraud Civil Remedies Act

PHA Public Housing Authorities

PIH Office of Public and Indian Housing

PMA President’s Management Agenda

REO Real Estate Owned

RESPA Real Estate Settlement and Procedures Act

RHIIP Rental Housing Integrity Improvement Project

RIGA Regional Inspector General for Audit

SA Special Agent

SAC Special Agent in Charge

SSA Social Security Administration

SSN Social Security Number

TEAM Total Estimation and Allocation Mechanism

TND Teacher Next Door

USDA U.S. Department of Agriculture

USMS U.S. Marshal’s Service

VA U.S. Department of Veterans Affairs

VOE Verifications of Employment

VOR Verifications of Rent
Table of Contents Table of Contents Table of Contents

Chapter 1 - HUD’s Management and Performance Challenges 1

The HUD Office of Inspector General 2

Major Issues Facing HUD 2

Chapter 2 - HUD’s Single Family Housing Programs 11

Audits 12

Investigations 24

Chapter 3 - HUD’s Public and Indian Housing Programs 59

Audits 60

Investigations 77

Chapter 4 - HUD’s Multifamily Housing Programs 103

Audits 104

Investigations 110

Chapter 5 - HUD’s Community Planning and Development Programs 115

Audits 116

Investigations 121

Chapter 6 - Other Significant Audits and Investigations/OIG Hotline 129

Audits 130

Investigations 132

OIG Hotline 135

Chapter 7 - Outreach Efforts 137

Chapter 8 - Review of Policy Directives 149

Proposed Rules 150

Proposed Notices 152

Mortgagee Letter 154

Chapter 9 - Audit Resolution 157

Delayed Actions 158

Federal Financial Management Improvement Act of 1996 160

Appendix 1 - Audit Reports Issued 161

Appendix 2 - Tables 169

Table A - Audit Reports Issued Prior to Start Period with No Management

Decision as of September 30, 2005 170

Table B - Significant Audit Reports Described in Previous Semiannual Reports

in Which Final Action Had Not Been Completed as of September 30, 2005 172

Table C - Inspector General Issued Reports with Questioned and Unsupported

Costs as of September 30, 2005 182

Table D - Inspector General Issued Reports with Recommendations that Funds

Be Put to Better Use as of September 30, 2005 183

HUD OIG Operations Telephone Listing 185

Table of Contents xi Table of Contents
Reporting Requirements Reporting Requirements Reporting Requirements

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

as amended by the Inspector General Act of 1988, are listed below:

Source/Requirement Pages

Section 4(a)(2)-review of existing and proposed legislation and regulations. 149-155

Section 5(a)(1)-description of significant problems, abuses, and 1-147, 157-160

deficiencies relating to the administration of programs and operations

of the Department.

Section 5(a)(2)-description of recommendations for corrective action with 11-147

respect to significant problems, abuses, and deficiencies.

Section 5(a)(3)-identification of each significant recommendation Appendix 2, Table B

described in previous semiannual report on which corrective action

has not been completed.

Section 5(a)(4)-summary of matters referred to prosecutive authorities 11-147

and the prosecutions and convictions that have resulted.

Section 5(a)(5)-summary of reports made on instances where information No Instances

or assistance was unreasonably refused or not provided, as required by

Section 6(b)(2) of the Act.

Section 5(a)(6)-listing of each audit report completed during the Appendix 1

reporting period, and for each report, where applicable, the total

dollar value of questioned and unsupported costs and the dollar value of

recommendations that funds be put to better use.

Section 5(a)(7)-summary of each particularly significant report 11-147

and the total dollar value of questioned and unsupported costs.

Section 5(a)(8)-statistical tables showing the total number of Appendix 2, Table C

audit reports and the total dollar value of questioned and

unsupported costs.

Section 5(a)(9)-statistical tables showing the total number of audit Appendix 2, Table D

reports and the dollar value of recommendations that funds be put

to better use by management.

Section 5(a)(10)-summary of each audit report issued before the Appendix 2, Table A

commencement of the reporting period for which no management

decision had been made by the end of the period.

Section 5(a)(11)-a description and explanation of the reasons for No Instances

any significant revised management decisions made during the

reporting period.

Section 5(a)(12)-information concerning any significant management No Instances

decision with which the Inspector General is in disagreement.

Section 5(a)(13)-the information described under section 05(b) of the 160

Federal Financial Management Improvement Act of 1996.

Reporting Requirements

Reporting Requirements xii
Chapter 1

HUD’s Management

and Performance Challenges
The HUD Office of The HUD Office of The HUD Office of

Inspector General Inspector General Inspector General

T he U.S. Department of

Housing and Urban

Development (HUD) Inspector

General is one of the original 12 Inspectors

General authorized under the Inspector

General Act of 1978. Over the years, the

Office of Inspector General (OIG) has

forged a strong alliance with HUD

personnel in recommending ways to

improve departmental operations and in

prosecuting program abuses. OIG strives

to make a difference in HUD’s

performance and accountability and is

committed to its statutory mission of

detecting and preventing fraud, waste,

and abuse as well as promoting the

effectiveness and efficiency of government

operations. While organizationally OIG is

located within the Department, it operates

independently with separate budgetary

authority. This independence allows for

clear and objective reporting to the

Secretary and the Congress. HUD OIG’s

activities seek to

 Promote efficiency and effectiveness in

programs and operations,

 Detect and deter fraud and abuse,

 Investigate allegations of misconduct

by HUD employees, and

 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

Headquarters. Also, the Offices of Audit

and Investigation have staff located in eight

regions and numerous field offices.

Major Issues Facing HUD 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. At the end of fiscal year (FY)

2005, FHA’s outstanding mortgage

insurance portfolio was about $434 billion.

Ginnie Mae, through its mortgage-backed

securities program, gives issuers access to

capital markets through the pooling of

federally insured loans.

With about 8,800 staff nationwide,

HUD relies upon numerous partners for the

performance and integrity of a large

number of diverse programs. Among these

partners are hundreds of cities that manage

HUD’s Community Development Block

Grant (CDBG) funds, hundreds of public

housing authorities that manage assisted

housing funds, thousands of HUDapproved lenders that originate and service

FHA-insured loans, and hundreds of

Ginnie Mae mortgage-backed securities

issuers that provide mortgage capital.

Achieving HUD’s mission continues to

be an ambitious challenge for its limited

staff, given the agency’s diverse mission,

the thousands of program intermediaries

assisting the Department in this mission,

and the millions of beneficiaries in its

housing programs. HUD’s management

problems have for years kept it on the

Government Accountability Office’s (GAO)

list of agencies with high-risk programs.

Management & Performance Challenges

HUD’s Management and Performance Challenges 2
HUD’s management team, GAO, and OIG

share the view that improvements in

human capital, acquisitions, and

information systems are essential in

removing HUD from its high-risk

designation. More specifically, HUD must

focus these improvements on rental

housing assistance programs and singlefamily 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 (PMA) 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 HUD

on GAO’s high-risk list.

As of the end of FY 2005, HUD’s PMA

scoring status showed significant

improvement for six of the eight initiatives

applicable to HUD with a total of two

“green,” five “yellow,” and one “red”

baseline goal scores. Based upon a

comprehensive set of standards, an agency

is “green” if it meets all of the standards

for success, “yellow” if it has achieved

some but not all of the criteria, and “red”

if it has even one of the number of serious

flaws. HUD’s baseline score for improved

financial performance remains at “red”

because of material weaknesses and a

disclaimer of opinion received on HUD’s

2004 consolidated financial statements. It

is noteworthy, however, that HUD was the

first agency to receive a “green” baseline

goal score on reducing improper payments.

Each year in accordance with the

Reports Consolidated Act of 2000, HUD

OIG is required to submit a statement to

the Secretary with a summary assessment

of the most serious challenges facing the

Department. OIG submitted its latest

assessment on October 18, 2005. These

reported challenges are the continued focus

of OIG’s audit and investigative efforts.

HUD is working to address these

challenges and in some instances, has

made significant progress in correcting

them. The Department’s management

challenges and current efforts to address

these challenges are as follows.

Departmentwide 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 realigned the Department

along functional lines, separating outreach

from program administration. Also, it

placed greater reliance on automated tools,

processing centers, contracted services, and

HUD partners to administer its programs.

As HUD implemented these realignments,

many employees were assigned new

duties and responsibilities, and many new

employees were hired. The disruptions

caused by these sweeping changes

compounded problems in effectively

managing HUD operations.

Improving the efficiency and

effectiveness of HUD’s programs through

reorganization efforts requires the

Department, in part, to sustain operational

consistency in completed reforms. To better

ensure operational consistency, it is

essential that HUD execute its Strategic

Five-Year Human Capital Management

Plan. The first goal in HUD’s Plan,

developed in 2003, is to make HUD a

mission-focused agency. Getting the right

number of employees in the right

location with the right skill mix will

improve the quality of HUD programs

and services by addressing management

challenges, reducing program risks, and

HUD’s Management and Performance Challenges 3 Management & Performance Challenges
improving program performance. The

relationship between office functions and

departmentwide goals is also reinforced

through the Plan’s implementation. HUD’s

Plan recognizes that human resources

activities must be aligned with agency goals

to clearly, efficiently, and effectively

support and enable HUD to achieve its

mission.

Financial Management Systems. Since

FY 1991, OIG has annually reported that

the lack of an integrated financial system

in compliance with all Federal Financial

Management System requirements is a

weakness in internal controls. While some

progress has been made, a number of

long-standing deficiencies remain. For the

past several years, OIG’s financial audits

also reported weaknesses in internal

controls and security over HUD’s general

data processing operations and specific

applications. The effect of these weaknesses

is that HUD cannot be reasonably assured

that system information will remain

confidential, protected from loss, and

available to those who need it without

interruption.

HUD has completed certification and

accreditation for 41 of its 44 financial

management systems. However, the

quality of the underlying documents and

the actual certification and accreditation

process varied by application. While a

number of vulnerabilities were closed,

additional vulnerabilities, identified

through oversight activities, were not

corrected before accreditation. In addition,

certification and accreditation of the

general support systems on which these

applications reside has not been completed

and is ongoing.

The weaknesses noted in OIG’s FY

2004 Consolidated Financial Audit relate

to the need to

 Comply with Federal Financial

Management System requirements,

including the need to enhance FHA’s

information technology systems to

more effectively support its business

and budget processes;

 Strengthen controls over HUD’s

computing environment;

 Improve personnel security practices

for access to the Department’s

critical financial systems; and

 Improve the systems and processes for

reviewing obligation balances to

ensure that unneeded amounts are

deobligated in a timely manner.

HUD’s most significant system

challenges have existed in FHA, which

continues to conduct some day-to-day

business operations with legacy-based

systems, limiting its ability to integrate its

financial processing environment. During

FY 2003, FHA implemented the FHA

Subsidiary Ledger (FHASL) financial

system. This system automated many

previously manual processes used to

(1) consolidate the accounting data

received from the various FHA operational

legacy systems and (2) prepare summary

entries for posting to the FHASL. FHA

continues to make progress in its overall

compliance with Federal Financial

Management System requirements. In FY

2004, FHA completed the implementation

of its core financial system with the

addition of cash management, funds

control, and contract modules. By FY 2007,

FHA plans to fully integrate program

operations with its core financial system,

eliminating some legacy systems and

reengineering others to implement

budgetary controls at the source, further

reducing the need for manual processing

and improving financial operations.

Management & Performance Challenges

HUD’s Management and Performance Challenges 4
Human Capital Management. For

many years, one of the Department’s

major challenges has been to effectively

manage its limited staff resources to

accomplish its primary mission. In recent

years, the Department has contracted out

numerous functions essential to the

accomplishment of its overall mission, in

part due to staffing issues. Many of the

weaknesses facing HUD, particularly those

concerning HUD’s oversight of program

recipients, are exacerbated by HUD’s

resource management shortcomings.

Accordingly, OIG considers it critical for

the Department to address these

shortcomings through the successful

completion of ongoing plans. To operate

effectively and hold individuals responsible

for performance, HUD needs to know that

it has the right number of staff with the

proper skills in the right positions.

To address its human capital needs

and respond to the PMA, HUD developed

a comprehensive Five-Year Strategic

Human Capital Management Plan that

identifies three strategic goals for human

capital:

 Mission-focused agency to align

employees and work to support

HUD’s mission;

 High quality workforce which

recruits, develops, manages, and

retains a diverse workforce; and

 Effective succession planning to

ensure retirees over the next 5

years are succeeded by qualified

employees.

The human capital management

plan is the Department’s primary tool

for advancing its human capital

transformation. The plan is reviewed

annually, and updates or revisions

are issued as needed to support

implementation activities. In line with its

strategic plan, HUD has increased its focus

on human capital management through a

variety of initiatives.

To address staffing imbalances and

other human capital challenges, the

Department uses the Resource Estimation

and Allocation Process (REAP) and the

Total Estimation and Allocation

Mechanism (TEAM). REAP and TEAM are

HUD’s resource management tools by

which the Department identifies, justifies,

analyzes, and makes recommendations

regarding the optimal level of resources

necessary for effective and efficient

program administration and management.

REAP obtains crucial time and workload

data necessary for viable budget estimation

and execution and to meet the

Department’s Government Performance

and Results Act requirements.

In June 2003, HUD awarded a

contract to conduct a workforce analysis

for the Department. The purposes of the

workforce analysis studies were to

establish future workforce needs, compare

them with current capabilities, determine

skill gaps, and develop human capital

strategies and actions to close the gaps. In

September 2004, the contractor completed

the analysis of HUD’s workforce and

provided HUD a consolidated report with

5-year workforce projections for planning

purposes. The contractor’s analysis and

report focused on the Department’s core

business functions, beginning with the

Office of Public and Indian Housing (PIH),

and then the Office of Community

Planning and Development (CPD), the

Office of Housing, and the Office of Fair

Housing and Equal Opportunity.

Management & Performance Challenges

HUD’s Management and Performance Challenges 5
HUD is currently in the process of

integrating REAP and the workforce

analysis so that they complement one

another and provide strategic workforce

planning direction with the objective of

comparing priority needs and making

workforce management decisions that best

serve the Department’s mission.

FHA Single-Family Origination.

FHA’s single-family insurance programs

enable millions of first-time, minority,

low-income elderly, and other underserved

households to realize the benefits of

homeownership. HUD manages about

$368 billion in single-family insured

mortgages. Effective management of this

high-risk portfolio represents a continuing

challenge for the Department. The PMA

has committed HUD to tackling

long-standing management problems that

expose FHA homebuyers to fraudulent

practices.

HUD has taken a number of actions

to reduce risks to homebuyers including the

following:

 Established an automated systems

control to preclude the predatory

lending practice of “property

flipping” on FHA-insured loans;

 Established an “appraiser watch”

process, wherein appraisers with

poor performance records are

automatically targeted for monitoring

and disqualification from program

participation if they violate FHA

standards;

 Established an automated underwriting system, the Technology Open

to Approved Lenders (TOTAL)

Scorecard, to increase lender

efficiency through more consistent,

objective evaluations of the credit

worthiness of borrowers; and

 Initiated a process for the electronic

verification of Social Security

numbers to further reduce fraud in

FHA applications.

While GAO and OIG have reported

improved monitoring of lender

underwriting and default tracking and

expanded loss mitigation to help reduce

mortgage foreclosures, HUD needs to

further strengthen lender accountability

and take strong enforcement actions

against program abusers that victimize

first-time and minority homebuyers.

In support of HUD and the PMA,

OIG’s Strategic Plan for FY 2005 gave

priority to detecting and preventing fraud

in FHA mortgage lending through targeted

audits and investigations. The audits

targeted lenders with high default rates.

OIG’s detailed testing focuses on mortgage

loans that defaulted and resulted in FHA

insurance losses. Results from these audits

have noted significant lender underwriting

deficiencies, prohibited late endorsed

loans, inadequate quality controls,

and other operational irregularities.

OIG’s recommendations have sought

monetary recoveries through loan

indemnifications exceeding $133 million,

loss reimbursements of more than $10

million, and appropriate civil remedies.

During the current semiannual reporting

period, OIG completed 30 external audits

of FHA-approved mortgage lenders as well

as three internal audits of single-family

program activities. Additionally, OIG’s

investigative workload in single-family

fraud prevention continues to grow

dramatically. During the current

semiannual period, OIG opened 140

investigative cases and closed 106 cases in

Management & Performance Challenges

HUD’s Management and Performance Challenges 6
the single-family housing program area,

resulting in 236 indictments, 222 arrests,

and 169 convictions/pleas/pretrial

conversions.

The OIG’s audit of FHA’s FY 2004

financial statements also reported a need

to place more emphasis on monitoring

lender underwriting and continuing to

improve single-family early warning and

loss prevention. OIG has tailored its audit

and investigation techniques to

complement this need, support HUD

management improvements, and provide

an added deterrence to mortgage fraud.

OIG developed a comprehensive training

course on auditing single-family lenders

and conducting single-family fraud

investigations. To date, 154 auditors have

completed the single-family lender audit

training course.

Public and Assisted Housing Program

Administration. HUD provides housing

assistance funds under various grant and

subsidy programs to public housing

agencies and multifamily project owners.

These intermediaries, in turn, provide

housing assistance to benefit primarily lowincome households. PIH and the Office of

Housing monitor these intermediaries’

administration of the assisted housing

programs.

Accurate and timely information

about households participating in HUD

housing programs is necessary to allow

HUD to monitor the effectiveness of the

program, assess agency compliance with

regulations, and analyze the impacts of

proposed program changes. The level of

reporting is a criterion for housing

agencies’ performance in both the Public

Housing Assessment System and the

Section 8 Management Assessment

Program. HUD’s goal is to obtain 85

percent reporting of tenant data into the

system.

Weaknesses in the monitoring of

housing agencies and assisted multifamily

projects continue to present obstacles in

achieving the intended statutory purposes.

These weaknesses have been reported for

a number of years in OIG’s annual audits

of HUD’s financial statements.

A 2000 HUD study concluded that 60

percent of all rent and subsidy calculations

performed by intermediaries contained

overpayment or underpayment errors

totaling more than $3.2 billion. In 2005, an

update to this study estimated a gross error

payment of $1.2 billion. Although still a

large amount, this represents a 62 percent

reduction from the error estimate completed

in 2000. The reduction is attributed to

enhanced program guidance, training,

oversight, and enforcement, as well as

improved income verification efforts,

voluntary compliance by tenants due to

promotion of the issue, an improved

computer matching process, and an

improved methodology for reviewing

income discrepancies. HUD is also

validating tenant-reported income against

other Federal sources and considering

program simplification options. In addition

to these efforts, HUD needs to enforce the

requirement that intermediaries report data

elements in the management information

system. Sanctions need to be applied if

intermediaries do not comply with this

requirement.

Paralleling HUD efforts, OIG’s

investigative and audit focus concentrates

on fraudulent practices and the lack of

compliance with the Section 8 program

statute and requirements. To comply with

a congressional request, OIG conducted 24

external audits of the Section 8 Housing

Management & Performance Challenges

HUD’s Management and Performance Challenges 7
Management & Performance Challenges

HUD’s Management and Performance Challenges 8

Choice Voucher program during the

current semiannual reporting period. OIG

also hired an additional professional

appraiser to assist in evaluating housing

quality requirements as part of our audit

efforts. In total, these external audits

addressed whether the housing agencies

are correctly calculating subsidy

amounts, correctly determining family

income, complying with housing

quality standards, fully using authorized

vouchers, and implementing controls

to prevent duplicative and fraudulent

housing assistance payments. OIG’s

recommendations for these audits

questioned costs of more than $29 million

and identified more than $29 million

that could be put to better use.

Administering Programs Directed

Toward Victims of Hurricanes Katrina and

Rita. The recent hurricanes devastated

many gulf coast communities and

displaced millions of people. Initially, the

Federal Emergency Management Agency

(FEMA) was to be responsible for the

temporary housing (up to a year) of

evacuees while HUD was to be responsible

for finding permanent housing. To date,

HUD has received $79 million to provide

transitional housing (up to 18 months) for

those individuals who had received HUD

housing assistance prior to being displaced.

HUD reports that there are more than

700,000 HUD-assisted or insured housing

units including elderly housing that housed

approximately 2 million individuals in the

affected region. This new mission of

providing transitional and permanent

housing for so many displaced people

poses significant management and

performance challenges for HUD.

HUD has taken a number of actions

to address the more immediate housing

assistance issues and challenges, including

 Establishing a Hurricane Recovery

and Response Center (HRRC), an

emergency management division

chaired by the Assistant Secretary

for Housing-Federal Housing

Commissioner that serves as the

HUD Headquarters command post

and reports directly to the Secretary;

 Establishing a field operations

office in Baton Rouge, LA, and

dispatching HUD specialists with

expertise on manufactured housing,

reconstruction, and community

planning;

 Working with the United States

Conference of Mayors and the

National Association of Counties to

coordinate the identification of

housing opportunities nationwide;

 Identifying vacant public housing

units and available vouchers

nationwide;

 Temporarily waiving numerous

program requirements to make

it easier for disaster displaced

individuals who previously received

housing assistance to obtain housing

assistance in their new locations;

 Modifying or awarding contracts to

provide various contractor services to

address the housing assistance needs

of the displaced hurricane victims;

and

 Identifying about 6,000 HUDowned properties within a 500-mile

radius of the disaster region and

authorizing management and

marketing contractors to rehabilitate

the properties to make them available

for housing.
Management & Performance Challenges

HUD’s Management and Performance Challenges 9

Now that HUD has started the

process of providing housing assistance to

displaced individuals, it is extremely

important that Agency officials work

closely with OIG to ensure that reasonable

controls over the use of funds are put in

place to mitigate, to the extent possible, the

risk of fraud, waste, and abuse. To this

  

end, OIG established a task force to deal

exclusively with audit and investigative

matters that arise from HUD’s disaster

recovery and reconstruction responsibilities. It is also important that HUD work

closely with FEMA to coordinate the

various housing actions undertaken by

both Agencies.

Chapter 2

HUD’s Single-Family

Housing Programs
T he Federal Housing

 Administration’s (FHA)

single-family programs provide mortgage

insurance to mortgage lenders that, in turn,

provide financing to enable individuals

and families to purchase new or existing

homes or to rehabilitate existing homes.

Audits

During this reporting period, the

Office of Inspector General (OIG) issued

33 reports: 3 internal audits and 30

external audits in the single-family

housing program area. These reports

disclosed more than $10 million in

questioned costs and more than $133

million in recommendations that funds be

put to better use. OIG reviewed 30 home

and branch offices of FHA single-family

mortgage lenders.

Mortgagees, Loan Correspondents,

Mortgagees, Loan Correspondents, Mortgagees, Loan Correspondents,

and Direct Endorsement Lenders and Direct Endorsement Lenders

The U.S. Department of Housing and

Urban Development (HUD) OIG audited

National City Mortgage Company of

Miamisburg, OH, a lender approved to

originate, underwrite, and submit

insurance endorsement requests under

HUD’s single-family direct endorsement

program. OIG selected National City for

audit because of its high late endorsement

rate. The objective was to determine

whether National City complied with

HUD’s regulations, procedures, and

instructions in the submission of insurance

endorsement requests.

National City submitted 2,071 late

requests for endorsement out of 68,730

loans tested. The loans were either

delinquent or otherwise did not meet

HUD’s requirement of six consecutive

timely payments after delinquency but

before submission to HUD. National City

also incorrectly certified that both the

mortgage and escrow accounts for 133

loans and the escrow account for taxes,

hazard insurance premiums, and mortgage

insurance premiums for 497 loans were

current.

OIG recommended that HUD require

National City to (1) indemnify it for any

future losses on 529 loans with a total

mortgage value of more than $63.5 million

and take other appropriate administrative

actions up to and including civil money

penalties and (2) reimburse it more than

$2.3 million for the losses it incurred on 57

loans and for any future losses from nearly

$3.2 million in claims paid on 45 insured

loans with a total mortgage value of nearly

The chart cost figures in this chapter represent the actual monetary benefits for all reports issued during this

semiannual period. The monetary benefits shown in the Profile of Performance represent only those reports with

management decisions reached during this semiannual period. Because there is a time lag between report issuance

and management decisions, the two totals will not agree.

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 12

 Questioned Costs Funds Put to Better Use

Chart 2.1: Single-Family Housing Chart 2.1: Single-Family Housing

Reports Issued

3 Internal Reports

30 External Reports

Chart 2.2: Single-Family Housing Dollars Chart 2.2: Single-Family Housing Dollars

 Internal Reports External Reports

120,000,000

100,000,000

 80,000,000

 60,000,000

 40,000,000

 20,000,000

0
$5 million, once the associated properties

are sold. OIG also recommended that HUD

take appropriate administrative action

against National City for violating the

requirements in effect when it submitted

804 loans with a total value of more than

$99.6 million without the proper 6-month

payment histories. Further, OIG

recommended that HUD determine legal

sufficiency of the certifications made. If

legally sufficient, HUD should pursue

remedies under the Program Fraud Civil

Remedies Act (PFCRA) against National

City and/or its principals for incorrectly

certifying that the mortgage and/or the

escrow account for taxes, hazard

insurance premiums, and mortgage

insurance premiums were current for 630

loans submitted for FHA insurance

endorsement. (Audit Report: 2005-CH1015)

HUD OIG audited late endorsement

payment histories at Washington Mutual

Bank, Seattle, WA, because of its high

number of late single-family loan

submissions for FHA insurance during

calendar years 2002 and 2003. The objective

was to determine whether Washington

Mutual’s late requests for endorsement

complied with HUD’s payment history

requirements.

From March 2002 to October 2004,

Washington Mutual improperly submitted

609 loans having delinquent payments

within 6 months of the submission date.

This occurred because Washington Mutual

did not have adequate controls to ensure

that its employees followed HUD’s

requirements regarding late requests for

insurance endorsement.

OIG recommended that HUD take

appropriate administrative action up to

and including recovery of losses on

approximately $1.1 million in paid claims

and indemnification of more than $18

million for loans that were not current

when submitted for endorsement. OIG also

recommended that HUD take appropriate

administrative action against Washington

Mutual for violating the requirements in

effect when it submitted loans. (Audit

Report: 2005-SE-1006)

In connection with a review of an

FHA-approved loan correspondent, HUD

OIG identified 10 loans that Washington

Mutual Bank of Seattle, WA, sponsored,

which did not appear to be properly

underwritten.

Washington Mutual did not comply

with HUD regulations, procedures, and

instructions in underwriting six of the

mortgages. The deficiencies involved

unverified property repairs required to

support the appraised value, unsupported

income, improper refund of gift funds to

the borrower, unsupported assets, and

questionable ownership of one property.

Washington Mutual also charged

prohibited fees on five loans, three of which

were also identified as improperly

underwritten loans.

OIG recommended that HUD take

appropriate administrative action against

Washington Mutual for not complying

with HUD underwriting requirements.

This action, at a minimum, should include

requiring indemnification for three actively

insured loans with original mortgage

amounts totaling more than $223,000, two

loans on which HUD has incurred losses

of more than $87,000, and one loan that is

overinsured by approximately $1,400.

(Audit Report: 2005-KC-1009)

HUD OIG reviewed FHA loans

sponsored by Wells Fargo of Des Moines,

IA. During an audit of an FHA-approved

loan correspondent, OIG identified 11

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 13
loans sponsored by Wells Fargo that did

not appear to have been properly originated

according to HUD regulations. Because the

sponsor of the loans is ultimately

responsible for loan processing deficiencies,

OIG addressed these deficiencies to Wells

Fargo to determine whether it complied

with HUD regulations, procedures, and

instructions when processing the

mortgages.

Wells Fargo did not comply with HUD

regulations, procedures, and instructions

for processing 10 of the 11 FHA-insured

single-family mortgages OIG reviewed.

Underwriting deficiencies included

overstated income, income stability not

verified, understated liabilities,

creditworthiness not fully considered,

unresolved inconsistencies, and insufficient

or ineligible compensating factors. For nine

loans, Wells Fargo did not ensure that the

appraisal met HUD requirements. In

addition, Wells Fargo allowed the loan

correspondent to charge more than $11,000

in loan discount points without reducing

the borrowers’ interest rates. As a result,

the risk to the insurance fund was

increased, four ineligible borrowers

received financing, and nine borrowers

incurred excessive costs for their loans.

OIG recommended that HUD take

appropriate administrative action against

Wells Fargo for not complying with HUD

requirements. At a minimum, this should

include indemnifying HUD more than

$383,000 for three loans, reimbursing HUD

for the more than $64,000 loss on one loan,

and reimbursing appropriate parties for the

more than $11,000 in unearned fees. OIG

further recommended that HUD ensure

Wells Fargo has implemented sufficient

controls to provide reasonable assurance

that its underwriting complies with HUD

regulations, procedures, and instructions.

(Audit Report: 2005-FW-1019)

HUD OIG audited Security Atlantic

Mortgage Company, Inc., a lender located

in Edison, NJ. The objectives of the audit

were to determine whether Security

Atlantic (1) approved loans in accordance

with HUD requirements, which include

following prudent lending practices, and

(2) developed and implemented a quality

control plan that complied with HUD

requirements.

Security Atlantic (1) did not follow

HUD requirements in the approval of 16

loans valued at more than $3.2 million,

resulting in an unnecessary risk to the FHA

insurance fund; (2) charged borrowers

more than $11,000 in ineligible and/or

unsupported fees; (3) did not comply with

HUD tier pricing regulations, resulting in

more than $60,000 in inappropriate

charges on 38 loans; and (4) could not

document that it complied with HUD

regulations regarding commitment fees.

Further, Security Atlantic did not

implement its quality control plan in

accordance with HUD’s and its own

requirements.

OIG recommended that HUD require

Security Atlantic to indemnify HUD for

potential losses and/or claims on loans with

significant underwriting deficiencies;

reimburse borrowers for ineligible,

unsupported, and inappropriate charges;

and implement a quality control process in

accordance with HUD requirements.

(Audit Report: 2005-NY-1007)

HUD OIG reviewed FHA loans

sponsored by Allied Home Mortgage

Corporation of Houston, TX. During an

audit of an FHA-approved loan

correspondent, OIG identified four loans

sponsored by Allied that did not appear to

have been properly originated according

to HUD regulations. Because the sponsor

of the loans is ultimately responsible for

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 14
loan processing deficiencies, OIG addressed

these deficiencies to Allied to determine

whether it complied with HUD

requirements.

Allied did not comply with HUD

regulations, procedures, and instructions

in the processing of the four loans. It

overstated the borrower’s income for two

loans and understated the borrower’s

liabilities for one loan. For all four loans,

Allied did not ensure that the appraisal met

HUD requirements. In addition, Allied

allowed the loan correspondent to charge

three borrowers more than $1,900 in loan

discount points without reducing their

interest rates. As a result, the risk to the

insurance fund was increased, and three

borrowers incurred excessive costs for their

loans.

OIG recommended that HUD take

appropriate administrative action against

Allied for not complying with HUD

requirements. At a minimum, this should

include indemnifying HUD more than

$123,000 for one of the loans and

reimbursement of the more than $1,900 in

unearned fees. OIG further recommend

that Allied be required to take action to

improve the quality of its appraisals. (Audit

Report: 2005-FW-1017)

HUD OIG audited the Union Federal

Bank of Indianapolis (also known as Union

Federal Savings Bank of Indianapolis) in

Fort Wayne, IN. Union Federal is a

supervised lender approved to originate

FHA mortgage loans using HUD’s singlefamily direct endorsement process. OIG

selected Union Federal for audit because

of its high late endorsement rate. The

review objectives were to determine

whether Union Federal complied with

HUD’s regulations, procedures, and

instructions in the submission of late

insurance endorsement requests and

payment of upfront mortgage insurance

premiums to HUD.

OIG’s audit tests of 662 loans identified

12 that were improperly submitted for

endorsement. Ten loans that remain FHAinsured increase the risk to the FHA

insurance fund by more than $1.1 million.

OIG recommended that HUD require

Union Federal to (1) indemnify HUD for

any future losses on nine loans with a total

mortgage value of approximately $966,000

and (2) reimburse HUD for any future loss

for a claim on one insured loan once the

property is sold. (Audit Report: 2005-CH1009)

HUD OIG audited Fairfield Financial

Mortgage Group, Inc., Danbury, CT, a

lender approved by HUD to originate

FHA-insured single-family mortgages. The

objectives were to determine whether

Fairfield Financial complied with HUD

regulations, procedures, and instructions

in the origination of FHA loans and

whether Fairfield Financial’s quality

control plan, as implemented, met HUD

requirements.

Fairfield Financial improperly

originated 4 of the 24 loans reviewed. These

four loans contained deficiencies that

affected the insurability of the loans,

including unsupported income,

underreported liabilities, excessive

qualifying ratios, and derogatory credit

information. As a result, HUD insured

loans that placed the insurance fund at risk

for more than $1.2 million. In addition,

Fairfield Financial did not properly disclose

to borrowers more than $11,000 for

commitment fees in 20 of the 24 loans

reviewed. Further, Fairfield Financial’s

quality control plan, as implemented, did

not meet HUD requirements. As a result,

HUD lacks assurance that Fairfield

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 15
Financial is able to ensure the accuracy

and completeness of its loan origination

operations.

OIG recommended that HUD require

Fairfield Financial to (1) indemnify HUD

against future losses on the four loans for

more than $1.2 million and (2) revise its

procedures to ensure that each borrower

charged a commitment fee is properly

informed, in writing, of the fee, the amount

of the fee, and the purpose of the fee and

that the fee charged coincides with the

amount disclosed to the borrower.

Additionally, HUD should require Fairfield

Financial to implement controls to ensure

that it follows HUD’s quality control

requirements and verify that it has

implemented proper controls. (Audit

Report: 2005- BO-1007)

HUD OIG audited City Bank’s

Puyallup, WA, branch office because it had

one of the highest defaults to claim

percentages for HUD-approved lenders

located within the State of Washington.

The objectives were to determine whether

City Bank’s Puyallup branch originated

HUD-insured loans in accordance with

HUD requirements and prudent lending

practices.

City Bank did not originate 10 of the

24 loans reviewed in accordance with

HUD requirements or prudent lending

practices. The 10 loans contained

deficiencies that should have precluded

their approval, including loans with

excessive debt-to-income ratios and no

valid compensating factors, lack of

borrower income stability, improper source

of funds verification, unacceptable

borrower credit histories, and deficient

appraisal reviews by the underwriter. As

a result, City Bank placed HUD’s singlefamily insurance fund at risk for 10

unacceptable loans with original

mortgages totaling more than $1.5 million.

HUD remains at risk or has incurred losses

totaling more than $1.4 million relating to

these 10 loans.

OIG recommended that HUD take

appropriate administrative action against

City Bank, as available under the Mortgage

Review Board and/or other authority. At

a minimum, this action should include

seeking appropriate reimbursement and/

or indemnification totaling more than $1.4

million for the 10 loans that were

improperly originated and underwritten,

including more than $600 in loss mitigation

costs related to one of the loans. (Audit

Report: 2005-SE-1007)

HUD OIG audited Broad Street

Mortgage Company’s San Antonio, TX,

branch office because of an unusually high

loan default rate. The objective was to

determine whether Broad Street followed

HUD loan origination requirements for the

30 loans selected for review.

Broad Street did not follow HUD loan

origination requirements for minimum

investment in approving 24 of the 26 loans

that involved nonprofit gifts. The lender

and sellers used a gift program to

circumvent the minimum investment

requirements. The sellers marked up the

sale prices of the homes and increased the

sales contracts to cover their contribution

to nonprofit downpayment assistance

programs. Broad Street then approved the

mortgages based on the marked up prices

and questionable appraised values. This

increased the borrowers’ homeownership

costs and risk of default as well as HUD’s

risk of insurance loss. In addition, Broad

Street’s quality control plan needed

improvement and was not fully

implemented.

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 16
OIG recommended that HUD require

Broad Street to indemnify HUD for 24

loans, reimburse the insurance fund for any

of the loans reviewed that have been

foreclosed, and amend and fully

implement its quality control plan. (Audit

Report: 2005-FW-1010)

HUD OIG audited Corinthian

Mortgage Corporation, a direct

endorsement lender located in Mission,

KS, because its default rate was

significantly higher than HUD’s Kansas

City field office’s average over the past 2

years. The audit objectives were to

determine whether Corinthian properly

developed and implemented a quality

control plan and whether it properly

originated FHA loans.

Corinthian’s quality control process

did not comply with HUD requirements.

It did not ensure that it conducted

sufficient and timely quality control

reviews. It also did not take prompt

corrective action when quality control

reports identified material deficiencies.

Further, it did not follow HUD

requirements when processing and

underwriting FHA loans and improperly

originated 3 of the 44 loans OIG reviewed.

Corinthian submitted one loan with a

serious misstatement. As a result, HUD

insured four loans that placed the

insurance fund at risk for more than

$472,000.

OIG recommended that HUD take

appropriate administrative action against

Corinthian, including at a minimum,

indemnification for the three actively

insured loans and reimbursement for losses

already incurred on the remaining loan.

Corinthian should also reimburse the

appropriate parties for unallowable costs

charged to borrowers. (Audit Report:

2005-KC-1006)

HUD OIG audited KB Home Mortgage

Company of Los Angeles, CA, a lender

approved to originate, underwrite, and

submit insurance endorsement requests

under HUD’s single-family direct

endorsement program. OIG selected KB for

audit because of its high late endorsement

rate. The primary objective was to

determine whether KB complied with

HUD’s regulations, procedures, and

instructions in the late submission of

insurance endorsement requests. The

secondary objective was to determine

whether KB established and implemented

a written quality control plan in

accordance with HUD requirements.

KB improperly submitted only 13 of

1,083 loans for late endorsement during the

period August 11, 2002, through April 11,

2004. By establishing a new process for loan

submission in 2003, KB substantially

reduced the number of loans submitted for

late endorsement. However, of the 13 loans

totaling more than $1.7 million, two were

conveyed to HUD and resulted in losses,

three were terminated through streamline

refinances, and eight remain active.

Because the borrowers were behind on 5

of the 13 loans when they were endorsed

and there were late payments on the other

eight loans that occurred within 6 months

of being submitted, KB increased HUD’s

insurance risk. Data entered into KB’s

automated system were often erroneous

and may have contributed to the incidence

of late endorsed loans. KB’s current written

quality control plan, adopted in 2003,

meets HUD requirements.

OIG recommended that HUD take

administrative action up to and including

the recovery of losses on more than $79,000

in paid claims and indemnification of loans

with a total mortgage value of more than

$537,000. OIG also recommended that

HUD take appropriate administrative

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 17
approved insured loans in accordance with

HUD requirements, which include

following prudent lending practices, and

(2) developed and implemented a quality

control plan that complied with HUD

requirements.

Golden First did not always follow

prudent lending practices and HUD

regulations in its loan origination and

underwriting processes. In 5 of the 20

loans reviewed, Golden First did not

adequately verify employment, income,

and/or assets. As a result, the FHA

insurance fund incurred a loss associated

with one loan and continues to assume a

risk with the other four loans. Golden First

also did not ensure that (1) loans defaulting

within the first 6 months were reviewed,

(2) quality control reviews were conducted

in a timely manner, and (3) management

responses and planned corrective actions

were adequately documented.

OIG recommended that HUD require

Golden First to (1) indemnify HUD more

than $1.1 million against future losses on

the four loans currently insured with

material underwriting deficiencies; (2)

reimburse HUD more than $259,000 for the

amount of claims and associated fees paid

on one loan with a material underwriting

deficiency; (3) establish and implement

underwriting processing procedures that

comply with HUD requirements; and (4)

develop and implement quality control,

loan documentation, and retention

procedures in compliance with HUD

requirements. (Audit Report: 2005-NY1009)

HUD OIG audited KB Home Mortgage

Company’s insured loan originations in the

Phoenix, AZ, metropolitan area due to high

default and claim rates. The objective was

to determine whether KB originated HUDSingle-Family Housing Programs

HUD’s Single-Family Housing Programs 18

action against KB for violating the

requirements in effect when it submitted

loans without proper 6-month payment

histories. In addition, OIG recommended

that HUD require KB to establish and

implement written policies and procedures

to ensure loans submitted for late

endorsement meet late submission

requirements and to reasonably ensure

that valid and reliable data are obtained,

maintained, and accurate. (Audit Report:

2005-LA-1007)

HUD OIG audited the Cherry Hill,

NJ, branch of Gateway-Funding

Diversified, a direct endorsement lender

approved to originate FHA single-family

mortgage loans, because it had a high

default rate. The objective was to

determine whether Gateway complied

with HUD regulations, procedures, and

instructions in the origination of FHA

loans.

Of the 32 loans we selected for review,

the Cherry Hill branch did not fully comply

with FHA requirements for seven of the

loans valued at more than $690,000.

Gateway did not exercise due diligence in

the review of assets, liabilities, and income;

did not verify rental history; and approved

loans with excessive debt-to-income ratios.

OIG recommended that HUD request

indemnification from Gateway on FHA

loans valued at more than $690,000, which

it issued contrary to HUD’s loan

origination procedures, and require

Gateway to develop internal procedures to

more closely monitor its underwriting

process. (Audit Report: 2005-PH-1015)

HUD OIG audited Golden First

Mortgage Corporation, a lender located in

Great Neck, NY. The objectives of the audit

were to determine whether Golden First (1)
insured loans in accordance with prudent

lending practices and HUD requirements.

KB did not originate the 19 loans

reviewed in compliance with HUD

requirements or prudent lending practices.

All 19 loans involved origination

deficiencies that should have precluded

their approval, including false employment

data, overstated income, understated

liabilities, unacceptable credit histories,

improper treatment of downpayment gifts

and/or interest rate buydowns, resulting

in overinsured mortgages, inaccurate or

excessive qualifying ratios without

compensating factors, and borrower

overcharges for unsupported or unallowed

fees. As a result, KB Placed HUD’s singlefamily insurance fund at risk for 19

unacceptable loans with original

mortgages totaling more than $2.5 million,

and borrowers were overcharged $9,400.

HUD remains at risk and/or has incurred

losses totaling more than $1.2 million

related to 15 of the 19 loans.

OIG recommended that HUD take

appropriate administrative action against

KB under the Mortgagee Review Board

and/or other authority. At a minimum,

this should include seeking appropriate

monetary sanctions for 15 loans totaling

more than $1.2 million and requiring KB

to reimburse the borrowers or HUD for

$9,400 in unearned, unallowable, or

excessive fees. (Audit Report: 2005-LA1011)

HUD OIG reviewed five FHA loans

sponsored by First Magnus’ branch office

in Las Vegas, NV. During a prior review

of an FHA-approved loan correspondent,

OIG identified loans sponsored by First

Magnus that did not appear to have been

originated according to HUD regulations.

As a loan sponsor, First Magnus is

responsible for approving the loans;

therefore, OIG reviewed First Magnus’

underwriting procedures to determine

whether First Magnus complied with HUD

requirements.

First Magnus did not comply with

HUD requirements because it approved

loans for borrowers who were ineligible for

FHA-insured mortgages. Loan files

contained false and otherwise questionable

documentation. First Magnus also did not

perform quality control reviews during the

time that four of the five loans OIG

reviewed were closed. As a result, the FHA

insurance fund was placed at risk.

OIG recommended that HUD take

appropriate administrative action against

First Magnus. The action, at a minimum,

should include requiring First Magnus to

repay more than $204,000 in claims and

losses incurred on four loans and indemnify

HUD more than $127,000 for any future

losses associated with one loan that is in

foreclosure. (Audit Report: 2005-LA-1010)

HUD OIG audited loans that National

City Mortgage Company underwrote at the

Altamonte Springs, FL, and Alpharetta,

GA, branch offices for seven loan

correspondents that originated loans for

properties located in central and northern

Florida. National City is a direct

endorsement lender with headquarters

located in Miamisburg, OH. OIG selected

the two branch offices and the seven loan

correspondents because their default rates

were significantly higher than the Florida

average.

National City did not follow HUD

requirements when underwriting 9 of the

19 FHA-insured loans reviewed for

compliance. The loans contained

deficiencies that affected the credit quality

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 19
OIG recommended that First Source (1)

pay civil money penalties for originating

and processing loans with nonemployees,

having unapproved branches, cobrokering

FHA loans with another mortgage

company, allowing loan officers to

simultaneously work for real estate

companies, and Real Estate Settlement and

Procedures Act (RESPA) violations; (2)

repay more than $159,000 in losses HUD

incurred on six loans; and (3) refund

unearned yield spread premiums. (Audit

Report: 2005-LA-1003)

HUD OIG audited Aspen Home Loans

in American Fork, UT, because of loan

origination and quality control deficiencies

identified in a prior audit. Our audit

objectives were to determine whether

Aspen complied with HUD regulations,

procedures, and instructions in the

origination of insured loans selected for

review and whether Aspen’s quality

control plan, as implemented, met HUD’s

requirements.

Aspen did not comply with HUD

regulations, procedures, and instructions

in the origination of any of the 11 loans

selected for review. Self-employed

independent contractors originated loans,

and Aspen operated out of unapproved

branch offices. OIG also identified one loan

that did not have a proper verification of

employment.

Aspen’s quality control plan was

incomplete and inadequate as

implemented. For example, (1) the required

number of quality control reviews was not

performed; (2) the owner, who also

originates insured loans, was the only

quality control reviewer; (3) quality control

reviews were not performed or reported

accurately; (4) the owner did not know

about the HUD requirement that all early

default loans be reviewed in addition to the

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 20

(insurability) of the loans. National City’s

underwriters did not adequately evaluate

information presented by its loan

correspondents for compliance with

requirements before approving the loans.

The underwriters also allowed

questionable information to be entered into

the systems used for automated

underwritten loans. As a result, HUD

insured nine loans that placed the FHA

insurance fund at risk for more than

$326,000 in questioned costs and resulted

in more than $153,000 in funds that could

be put to better use.

OIG recommended that HUD take

appropriate administrative action

against National City. This action

should, at a minimum, include requiring

indemnification of more than $153,000 for

two defaulted loans, more than $159,000

for claims paid on two loans, and

reimbursement of approximately $166,000

for losses incurred for five loans. (Audit

Report: 2005-AT-1014)

HUD OIG audited First Source

Financial USA, a loan correspondent

headquartered in Henderson, NV. The

overall audit objective was to determine

whether First Source approved FHAinsured loans in accordance with HUD

requirements and to determine whether

First Source implemented an acceptable

quality control plan.

First Source (1) allowed nonemployees

and unapproved branches to originate

and process FHA-insured loans, (2)

originated and processed FHA loans

with false information and known

misrepresentations, and (3) allowed

questionable lending practices by collecting

unearned fees. As a result, there were

excessive defaults and foreclosures, an

increased risk to the FHA insurance funds,

and actual losses of more than $159,000.
normal random sample selection; and (5)

the owner was the branch manager for

three separate office locations.

OIG recommended that HUD require

Aspen to (1) change its policies and

procedures for the origination and review

of its insured loans to fully comply with all

HUD regulations, (2) obtain the necessary

branch approval, (3) cease origination of

insured loans at unapproved branches,

and (4) indemnify one insured loan not

originated in accordance with HUD

requirements. In addition, OIG

recommended that Aspen be referred to

the Mortgagee Review Board for

appropriate action since during its Title II

monitoring review, HUD identified

deficiencies similar to those OIG found in

the area of quality control. (Audit Report:

2005-DE-1004)

HUD OIG audited Citywide Home

Loans in Salt Lake City, UT, because of

loan origination and quality control

deficiencies identified in a prior audit. The

audit objectives were to determine whether

Citywide complied with HUD regulations,

procedures, and instructions in the

origination of insured loans selected for

review and whether Citywide’s quality

control plan, as implemented, met HUD’s

requirements.

Citywide did not comply with HUD

regulations, procedures, and instructions

in the origination of 20 of the 23 loans

selected for review. Citywide used

independent loan officers to originate

insured loans. HUD prohibits this practice

because it represents an increased risk to

the insurance fund.

Citywide’s quality control reviews

were not performed in a timely manner,

and corrective actions taken for deficiencies

identified were not documented. Citywide

used a contractor to implement its quality

control plan. The contractor completed only

42 percent of the required quality control

reviews of the loan files within the required

90-day timeframe.

OIG recommended that HUD require

Citywide to bring its loan origination

policies and procedures for insured loans

into full compliance with HUD regulations

and to fully implement its quality control

process. (Audit Report: 2005-DE-1003)

HUD OIG reviewed Residential

Lending Corporation, operating from its

home office in Duluth, GA. Residential was

a direct endorsement lender, approved to

originate and approve FHA-insured singlefamily mortgages. OIG selected Residential

due to its high default and claim rates.

Residential did not obtain the required

independent audit for the fiscal year

ending December 31, 2004, and planned

to liquidate company assets without

notifying HUD. Thus, Residential could

not support that it had the $250,000 net

worth needed to maintain its HUD

approval to originate and approve

FHA-insured mortgages.

OIG made no recommendations

because Residential voluntarily terminated

its HUD approval during our review on

May 9, 2005. (Audit Report: 2005-AT1801)

HUD OIG reviewed AIM Financial,

Inc., Caledonia, MI, a former loan

correspondent approved to originate FHAinsured loans. OIG initiated the review

based on a citizen’s complaint to its office.

The objective was to determine whether

AIM originated FHA-insured loans

according to HUD’s requirements.

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 21
Before its approval as an FHA lender,

AIM originated FHA-insured loans using

the name and FHA number of another

lender. AIM submitted 10 loans for

insurance, falsely certifying that it was

Bedford, an FHA-approved lender. In 6 of

the 10 cases, Charles Gahan, acting on

behalf AIM, executed the lender

certification using Bedford’s name, address,

and lender identification number.

OIG referred Mr. Gahan to HUD’s

Office of General Counsel for

administrative sanctions under PFCRA.

HUD filed a complaint against Mr. Gahan,

seeking civil penalties. HUD executed a

settlement agreement with Mr. Gahan

without an admission of wrongdoing, for

$15,000. Mr. Gahan issued a check payable

to HUD for the $15,000 settlement amount.

(Audit Report: 2005-CH-1803)

Single-Family Insurance Claims Single-Family Insurance Claims

HUD OIG audited the process HUD

uses to pay FHA single-family insurance

claims. OIG scheduled the audit because

the annual FHA dollar disbursement for

insurance claims is a significant

disbursement activity of the Department.

For most FHA single-family insurance

claims, HUD management and system

controls are adequate and effective in

ensuring that only eligible and adequately

supported costs are accepted and paid.

However, these controls are not sufficient

to prevent the payment of interest that is

disallowed for lenders’ noncompliance

with FHA foreclosure timeframes and

reporting rules. HUD paid approximately

$28.2 million in disallowed interest

accruals not identified by HUD’s systems

on claims paid from October 1, 2000, to

September 30, 2003. Payment of

disallowed interest occurred because some

lenders did not adjust their claims to

comply with FHA requirements.

OIG recommended that HUD (1)

establish and implement performance goals

for the default monitoring requirements

HUD expects lenders to meet and create a

plan to obtain additional information

necessary for HUD to establish

performance goals to accurately measure

lender performance for the foreclosure

completion timeframe or alternative

methods for measuring lender

performance, (2) create and implement a

plan of action that HUD should follow to

ensure lenders meet performance goals,

and (3) finalize disputed monetary findings

in a timely manner and collect delinquent

debts in accordance with the Debt

Collection Act. (Audit Report: 2005-DE0001)

Preforeclosure Sale Program Preforeclosure Sale Program

HUD OIG audited HUD’s

preforeclosure sale program. The objectives

of the audit were to (1) determine what

abuses occurred within the preforeclosure

sale program and how they impacted

losses to the FHA insurance fund and (2)

evaluate HUD’s controls over

preforeclosure sales and preforeclosure sale

claim processing.

Investors abused the HUD

preforeclosure sale program and obtained

properties through preforeclosure sales

below fair market value. OIG identified 102

properties that were sold through

preforeclosure for at least $2.4 million less

than their fair market value, resulting in

excessive insurance claims to HUD.

Additionally, HUD’s claims processing

system allowed for payment of at least 52

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 22
preforeclosure sale claims that were

excessive by amounts totaling

approximately $5.1 million.

OIG recommended that HUD

implement controls to minimize abuse of

the preforeclosure sale program and to

ensure excessive preforeclosure sale claims

are not paid. (Audit Report: 2005-LA0001)

Title 1 Loan Claims Title 1 Loan Claims

HUD OIG audited Title 1 loan claims

collection activity administered by HUD’s

Financial Operations Center, Asset

Recovery Division, in Albany, NY. The

objectives of the audit were to determine

whether the Center administered its Title

1 debt collection activities (1) in compliance

with applicable laws and regulations and

(2) in an effective manner to provide

optimal benefit to HUD. Our work covered

Title 1 claim collection activity during FY

2003-2004.

While the Center was generally

complying with applicable laws and

regulations, there were weaknesses in

controls over Title 1 debt collections.

Specifically, (1) significant amounts of

payments were received directly at the

Center instead of at the established lock

box or via electronic funds transfer; (2)

adequate controls had not been established

over the receipt, recording, and processing

of collections at the Center; and (3)

procedures for processing debt payments

had not been updated.

OIG recommended that the director of

the Center establish and implement

controls and procedures to ensure that (1)

debtor payments are submitted directly to

the lock box or are made via electronic

funds transfer, (2) all incoming mail

containing debt payments is opened at a

single location within the Center and in the

presence of two individuals, and (3) all

payments received at the Center are

properly recorded and reconciled to the

lock box receipts. (Audit Report: 2005-NY0001)

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 23
Loan Origination/Property-Flipping Loan Origination/Property-Flipping

After a lengthy investigation, during

which HUD OIG focused investigative

efforts on fraud that had occurred in the

origination and issuance of loans insured

through the HUD 203(k) loan program,

numerous search, seizure, and arrest

warrants were executed; and numerous

guilty pleas were entered. Defendant

Beatrice Sukdeho, also known as Ahillia

Surujballi, of New York, NY, owner of

many real estate companies that flipped

properties to various not-for-profits, was

sentenced in Federal court to 15 months

incarceration, 5 years probation,

$8,913,012 in restitution, and a $300

special assessment. Sukdeho was

sentenced on two separate counts of

making false statements to HUD for

insurance, knowing that the mortgage

applicants’/not-for-profits’ income and

sources of money used for downpayments

and closing costs were fraudulent. These

HUD 203(k) loans were originated from

Ryan’s Express Equities and Mortgage

Lending of America, both now defunct

mortgage companies that were previously

based out of Long Island, NY.

Three arrests were made in

Springfield, MA, by Federal law

enforcement officers following a Federal

indictment. The 69-count Federal

indictment charges 13 defendants with

wire fraud and conspiracy to launder

money in a property-flipping scheme. The

remaining 10 defendants surrendered on

October 5, 2005, for an initial appearance

hearing. Ten of the thirteen defendants

were previously indicted on September 2,

2004, in connection with this propertyflipping scheme. The scheme, which

included more than 70 properties in the

Springfield, MA, area, involved HUD real

estate owned (REO) properties purchased

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 24

Investigations Investigations Investigations

During this reporting period, OIG

opened 110 investigation cases and closed

212 cases in the single-family housing

program area. Judicial action taken on

these cases during the period included

$318,719,526 in investigative recoveries,

$25,535,680 in funds put to better use,

236 indictments/informations, 169

convictions/pleas/pretrial diversions, 80

administrative actions, 7 civil actions,

and 222 arrests.

Some of the investigations discussed

in this report were conducted jointly with

Federal, State, and local law enforcement

agencies. The results of OIG’s more

significant investigations are described

below.

Chart 2.4: Single-Family Funds Put to Better Use

Property

Disposition

40%

Contract Fraud

10% Flipping

21%

Loan Origination

23%

Total: $25,535,680

Chart 2.3: Single-Family Investigative Recoveries Chart 2.3: Single-Family Investigative Recoveries

Flipping

7%

Loan

Origination

10%

False

Statements

79%

Total: $318,719,526

Bribery

3% Other

1%

False Statements

6%
with FHA-insured mortgages totaling more

than $5,900,000. The indictment charges

the defendants with 68 counts of wire

fraud and one count of conspiracy to

commit money laundering. Included in

the indictment is forfeiture count for up to

$15 million. The defendants allegedly

obtained single-family properties at prices

upward to 200 percent over the purchase

price from HUD, using FHA mortgages.

In Allentown, PA, defendant Philip

Garland was sentenced in U.S. District

Court, Eastern District of Pennsylvania, to

18 months incarceration, to be followed by

3 years supervised release, and ordered to

pay restitution to HUD of $1.5 million for

losses resulting from foreclosed FHA loans.

Defendant Richard Myford, a partner of

Garland, was sentenced to 17 months

incarceration, to be followed by 3 years

supervised release, fined $3,000, and

ordered to repay $850,000 to HUD. Loan

officer Judy Gemmill of Allentown, PA,

was convicted in U.S. District Court,

Eastern District of Pennsylvania, of

conspiracy and various false statements

charges relating to her involvement with

four other defendants in the making of at

least 50 fraudulent FHA-insured mortgages

in and around Lancaster, PA. Additional

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 25

Copyright, 2005. The Republican - Springfield, MA. Reprinted with permission.

defendants who previously pled guilty

are scheduled to be sentenced. The

investigation disclosed that over a 5-year

period, the defendants conspired with a

real estate agent and two loan officers to

sell up to 100 new homes to unqualified

buyers, most of whom were

unsophisticated first-time purchasers. The

defendants provided the funds for the

required downpayments and disguised this

through the use of false letters from friends,

family members, employers, charitable

organizations, etc. In certain cases, they

required the buyers to execute a promissory

note to cover the amount of funds

improperly advanced, which was never

disclosed on official loan documents or at

settlement, as required. Real estate agent

David Herb and loan officer James

Ballantyne have previously pled guilty in

this case.

In Houston, TX, a United States

Attorney indicted Lawrence Benham for

his alleged role in a multi-million-dollar

fraud scheme. Benham was arrested on

September 9, 2005. Benham was charged

with multiple criminal counts, including

wire fraud, mail fraud, bank fraud, and

making a monetary transaction with

criminally derived property. The
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 26

indictment charged that Benham conspired

to obtain five fraudulent loans between July

2003 and April 2005, valued at

approximately $1.5 million.

This investigation was initiated on

information provided to the OIG Houston,

TX, office by the Federal Bureau of

Investigation (FBI). The FBI advised that

Benham had allegedly conspired with

several straw-borrowers to defraud

mortgage companies. Benham portrayed

himself as a successful investor to various

women and conspired with the women to

secure mortgages based on fictitious

information. The fictitious information

submitted with the loan applications

included overstated income, inflated

property appraisals, and falsification of

source of downpayments. In return for the

women’s participation in the scheme,

Benham paid each approximately $5,000.

The subsequent investigation disclosed

that Benham allegedly perpetrated a

mortgage fraud scheme in which he located

residential properties for sale and enlisted

straw-borrowers to secure fraudulent loans

to purchase the properties. Benham used

the straw-borrowers’ true identity to repay

the loans and inflated the appraised value

of the properties. Benham then directed

large sums of money from the transaction

to himself or accounts under his control.

Defendant Cenobio Rojas was

sentenced in Federal Court in Los Angeles,

CA, to 3 years and 1 month in prison and

3 years probation, fined $1,000, and

directed to pay $1,518,363 in restitution.

Rojas had pled guilty on March 24, 2004,

to 10 counts each of wire fraud and aiding

and abetting. Rojas was the owner of

Continental Termite & Investments. Rojas

was involved in a flipping scheme using

FHA properties that he sold to unqualified

buyers at inflated prices. He also supplied

the downpayment to the borrowers and

utilized fraudulent documents in the loan

files.

Defendant Kenneth Jenkins of

Camden, NJ, was sentenced in United

States District Court, District of New Jersey,

to 30 years in prison for his conviction on

conspiracy to possess and distribute a

controlled substance, 30 years for wire

fraud and conspiracy to commit wire

fraud, 20 years for conspiracy to commit

money laundering and money laundering,

and 5 years for conspiracy to commit mail

fraud and mail fraud. These sentences are

to run concurrently. In addition, Jenkins

was sentenced to 10 years of supervised

release and ordered to pay a $2,400 special

assessment fee. A restitution hearing was

scheduled.

Jenkins, a major Camden, NJ, drug

wholesaler, organized and operated a $1

million scheme that used crack cocaine

profits to buy abandoned and dilapidated

residential properties in Camden. He

arranged cosmetic repairs on the properties

by paying his contractor in crack cocaine.

He then flipped the properties at an

inflated price by securing fraudulent HUDinsured loans for unsophisticated and

unqualified borrowers. Jenkins, along with

defendant Sabena Ingalls, a licensed real

estate agent, targeted naïve and illiterate

individuals to purchase properties. Jenkins

and his coconspirators created false and

fraudulent paperwork, such as Internal

Revenue Service (IRS) W-2 forms, pay

stubs, IRS tax forms, and credit

verifications.

Jenkins and his coconspirators reaped

enormous profits from the sales of 26

properties, including 18 which involved

HUD-insured loans. Fifteen of the eighteen

HUD-insured borrowers defaulted on their

loans.
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 27

As a result of his conviction, Jenkins

was ordered to pay $1.6 million during a

forfeiture hearing. Jenkins and his five

coconspirators were indicted on October

29, 2003, as part of a 37-count indictment

and arrested on October 30, 2003. Five of

Jenkins’ coconspirators previously pled

guilty and testified against him.

Defendant Ingalls was sentenced in

U.S. District Court, District of New Jersey,

to 5 years in prison, 3 years supervised

release, and a $100 special assessment fee

for her participation in the FHA mortgage

fraud scheme and drug conspiracy

investigation. A restitution hearing has

been scheduled. Ingalls, who was charged

in a 37-count indictment, was indicted on

October 29, 2003, with five coconspirators.

Ingalls, who was arrested on October 30,

2003, had previously pled guilty to one

count of conspiracy to commit money

laundering. Ingalls and her coconspirators

purchased properties, provided faulty

repairs, and then sold them to unqualified

borrowers. Ingalls and her coconspirators

assisted the borrowers in qualifying for the

HUD-insured loans by creating fraudulent

documentation. This documentation

included IRS W-2 forms, pay stubs, gift

letters, verifications of employment (VOE),

and alternate credit reference letters.

Ingalls was involved in the fraudulent

acquisition of 26 properties, 18 of which

were HUD insured. HUD foreclosed on

15 of the 18 properties.

Defendant Walter Jenkins was

sentenced in U.S. District Court, District

of New Jersey, to 6 months home

confinement, 5 years probation, and a $200

special assessment fee. A restitution

hearing has been scheduled. Jenkins

previously pled guilty in U.S. District

Court, District of New Jersey, to one count

of conspiracy to commit money laundering

and one count of mail fraud for his

participation in an FHA mortgage fraud

and drug conspiracy. Since Jenkins had

gainful employment, Jenkins’ bank

accounts were used to conceal proceeds of

drug transactions, as well as income earned

through the flipping of 26 properties.

Jenkins and his coconspirators purchased

properties, provided faulty repairs, and

then sold them to unqualified borrowers.

Jenkins and his coconspirators assisted the

borrowers in qualifying for the HUDinsured loans by creating fraudulent

documentation.

Defendant Ronald Rogers was

sentenced in United States District Court,

District of New Jersey, to 4 years in prison,

5 years supervised release, and a $200

special assessment. A restitution hearing

has been scheduled to determine the

amount of restitution. Rogers previously

pled guilty in U.S. District Court, District

of New Jersey, to one count of conspiracy

to commit mail fraud and one count of

conspiracy to commit wire fraud for his

participation in an FHA mortgage fraud

and drug conspiracy. Rogers and his

coconspirators purchased properties,

rehabilitated them, and then sold them to

unqualified FHA borrowers. Rogers was

paid in crack cocaine by coconspirator

Kenneth Jenkins to provide minor repairs

on the properties, which were later found

to be substandard and of poor quality.

Defendant Thomas Harper was

sentenced in U.S. District Court, District

of New Jersey, to 2 years in jail, 5 years of

supervised release, and a special assessment

fee of $200. Harper previously pled guilty

to an information charging him with one

count of conspiracy to commit wire fraud

and one count of possession with the intent

to distribute 50 grams of crack cocaine.

Harper admitted to traveling on a regular

basis to New York City from the

Philadelphia area to purchase and deliver
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 28

large amounts of crack cocaine to Kenneth

Jenkins. Harper delivered crack cocaine to

Ronald Rogers, a handyman, for payment

on cosmetic repairs that were performed

on properties that were being flipped by

Jenkins and his coconspirators. Harper

and his coconspirators assisted the

borrowers in qualifying for the FHAinsured loans by creating fraudulent

documentation.

Finally, defendant Rita Jackson-Paulk

was sentenced in U.S. District Court,

District of New Jersey, to 1 day in jail, 5

years of supervised release, and a special

assessment fee of $100. Jackson-Paulk

earlier pled guilty to one count of wire

fraud. Jackson-Paulk was arrested on

October 30, 2003. Jackson-Paulk’s bank

accounts were used to hide the proceeds

of mortgage flips and drug proceeds.

Jackson-Paulk and her coconspirators

purchased properties, performed minimal

repairs, and then sold them to borrowers

who were ineligible for an FHA mortgage.

Jackson-Paulk and her coconspirators

assisted the borrowers in qualifying for the

FHA-insured loans by creating fraudulent

documentation.

Defendant Nancy Jacobs of Riverside,

CA, appeared in U.S. District Court for the

Central District of California and was

sentenced to 6 years and 5 months

incarceration and 3 years probation and

was required to pay restitution of $448,313.

Jacobs was found guilty after a jury trial

on felony charges that she had flipped

more than $4 million in FHA-insured

properties by utilizing a scheme in which

she used six fictitious identities, purchasing

46 properties, and arranged for the escrows

in which she bought and sold the properties

to close the same day. Jacobs’ actions

resulted in an $850,000 loss to HUD.

Former Real Estate Agent Jerry L.

Austin of Washington, DC, was sentenced

in U.S. District Court, District of Columbia,

for his admitted involvement in a

fraudulent scheme to sell homes with FHAinsured mortgages in the Washington, DC,

metropolitan area. He was incarcerated

for a period of 2 years and 2 months, to be

followed by 3 years supervised release,

fined $40,000, and ordered to make

restitution to HUD of $279,425, which

represents the losses to date from the FHA

insurance fund on property transactions

involving the defendant. The investigation

disclosed that between December 1995 and

August 1999, the defendant participated

as a real estate agent in at least 128

fraudulent property transactions involving

FHA mortgages. He facilitated the

approval of otherwise unqualified buyers

by loaning them the money for the required

downpayment and concealing it with

fraudulent gift letters. He obtained

reimbursement for these loans from the

sellers, and this was concealed on the

settlement statements as repairs or loan

payoff. A codefendant in this case, Larry

Kraft, was previously sentenced and

ordered to make restitution of more than

$300,000.

Defendant Anthony Cocomello of

Lake Success and Hollis, NY, was

sentenced to serve 9 months of home

detention with electronic monitoring and

5 years probation, along with paying

$239,235 in restitution. Cocomello was a

licensed New York real estate appraiser

arrested on charges of conspiring to submit

false appraisals to HUD. He surrendered

and pled guilty to loan origination fraud

and was sentenced in U.S. District Court

in Central Islip. Cocomello also prepared

fraudulent appraisals that were included

in mortgage loan applications submitted to

HUD for insurance. There were more than
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 29

60 false appraisals submitted to three

separate mortgage-banking institutions.

Defendant Christopher Williams of St.

Louis, MO, husband of defendant

Kimberly Crowder-Williams, signed a

pretrial diversion agreement in Federal

Court, U.S. District Court for the Eastern

District of Missouri, in which he admitted

to aiding and abetting in bank and wire

fraud and agreed to pay $94,190 in

restitution. Defendants Williams and

Crowder-Williams, owners/operators of

KRW Capital Corporation, a St. Louis

mortgage brokerage business, were

previously charged with a 17-count

indictment of wire fraud, bank fraud, and

tax evasion. Defendant Crowder-Williams

used her business to flip properties by

obtaining inflated appraisals and selling the

properties to unqualified individuals.

Defendant Williams, who assisted his wife

in the illegal property-flipping scheme,

agreed to use the proceeds from the sale of

their $750,000 home to pay restitution.

Defendant Kim Crowder-Williams, was

sentenced in Federal Court, U.S. District

Court for the Eastern District of Missouri,

to serve 18 months in prison. Defendant

Crowder-Williams previously pled guilty

to tax evasion as a result of her

participation in a property-flipping/

mortgage fraud scheme. CrowderWilliams admitted to evading taxes on

$200,000 in income, which caused more

than $590,000 in losses due to the propertyflipping scheme. Defendant CrowderWilliams also owes the IRS $63,586 in back

taxes due to the evasion.

Defendant Joseph Maggio of

Rochester, NY, was sentenced to 5 years

supervised release and restitution in the

amount of $56,899 and ordered to pay a

$100 special fine. Maggio pled guilty to

one count of conspiracy to commit bank

fraud. Maggio conspired to enter into a

scheme to purchase homes in the

Rochester, NY, area and flip them to each

other for increased and inflated prices.

Mortgages, to include FHA mortgages,

would be obtained for the increased

amount. To obtain the mortgages, false

documentation was provided to the banks

and mortgage companies. These false

documents included false employment

verifications, false earnings statements,

false investment statements, and false IRS

W-2 forms. After receiving the mortgage

loans, these individuals would quickly

default on the loans, and the properties

were foreclosed upon. Maggio and others

in the organization defaulted on more than

$1 million in mortgage loans.

Defendant William O’Keefe of

Rochester, NY, an investor, pled guilty to

one count of filing a false loan and credit

application. Previously, O’Keefe was

charged by criminal complaint with one

count of filing a false loan and credit

application. O’Keefe, along with others,

allegedly conspired to enter into a scheme

to purchase homes in the Rochester, NY,

area and flip them to each other for

increased and inflated prices. FHA and

conventional mortgages were obtained for

the increased amount. To obtain the

mortgages, false documentation was

provided to the banks and mortgage

companies. These false documents

included VOEs, earnings statements,

investment statements, and IRS W-2

forms. After receiving the mortgage loans,

these individuals would quickly default on

the loans, and the properties were

foreclosed upon. O’Keefe and others in the

organization defaulted on more than $1

million in mortgage loans. O’Keefe could

be imprisoned for up to 30 years and

ordered to pay $1 million in restitution.
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 30

In the Circuit Court of Cook County,

Chicago, IL, Julie Fazy, a loan processor, pled

guilty to three counts of identity theft and

two counts of forgery. On the same day, she

was sentenced to 2 years probation and was

ordered to pay $45,000 in restitution.

Fazy admitted to her involvement in a

mortgage scheme with her husband Tom

Fazy, a loan officer, and Craig Hendricks, a

loan officer, wherein they used front

companies to purchase properties and then

flip the properties using the stolen identities

of deceased individuals as the end buyers.

One of the individual identities they obtained

was that of Joseph Fay, whose identity was

used as a borrower for two houses, one of

which was FHA insured. The other house

in Fazy’s name was worth approximately

$400,000 and was occupied by the Fazys for

approximately a year while it was going

through the foreclosure process.

This total scheme on the part of the

Fazys involved approximately $1 million in

fraudulent loans. Craig Hendricks previously

pled guilty and was confined. Tom Fazy was

found shot to death in his mortgage office in

December 2004.

Defendant Phillip D. Thomas of

Kansas City, MO, pled guilty in Federal

Court, Western District of Missouri, to

felony charges that he conspired with

others to commit wire fraud, money

laundering, and conspiracy related to his

role in a property-flipping scheme.

Thomas and others caused real estate

investors to purchase approximately 233

properties totaling $15 million, based on

numerous fraudulent schemes. Thomas’

coconspirators purchased inexpensive

single-family properties in inner city Kansas

City for which he created fraudulent

property appraisals inflated by tens of

thousands of dollars. The properties were

then quickly sold to investors who believed

they were buying the properties at true

market value. Further, investors believed

they were buying the properties for no

money down and that renters, including

those receiving Section 8 rental assistance,

occupied the properties. The properties

were often unrented and uninhabitable

and were purchased based on

downpayments provided by the

defendants without the buyers’

knowledge. Additionally, the defendants

falsified numerous loan application

documents, enabling investors to

unknowingly purchase more properties

than they would otherwise be qualified to

buy. The scheme resulted in significant

property foreclosures and financial losses

to investors and lending institutions.

Defendants Chauncey J. Calvert and

Avonda L. Nicodemus of Kansas City,

MO, former account executives of

Ameriquest Mortgage, Gladstone, MO,

pled guilty in U.S. District Court, Western

District of Missouri, to felony charges that

they conspired with others to commit

interstate transportation of stolen property

related to their role in a property-flipping

scheme. Calvert and Nicodemus

participated in numerous fraudulent

schemes, causing victim real estate investors

to purchase 233 properties totaling $15.6

million and 66 properties totaling $4

million, respectively. Calvert and

Nicodemus’ coconspirators purchased

inexpensive single-family properties in

inner city Kansas City and obtained

property appraisals inflated by tens of

thousands of dollars. The properties were

then quickly sold to victim investors who

believed they were buying them at true

market value. Calvert and Nicodemus

created falsified loan application

documents, enabling investors to

unknowingly purchase more properties

than they would otherwise be able to buy.

Further, investors believed they were
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 31

buying the properties for no money down

and that renters, including those receiving

Section 8 rental assistance, occupied the

properties. The properties were often

unrented and uninhabitable and were

purchased based on downpayments

provided by the defendants, without the

buyers’ knowledge. The scheme resulted

in significant property foreclosures and

financial losses to investors and lending

institutions.

Defendants Humberto Maravi and

Aura Guzman of Newark, NJ, loan

officers, surrendered to the U.S. Marshals

Service (USMS) and appeared in U.S.

District Court, District of New Jersey.

Maravi and Guzman pled guilty to a onecount information charging them with

knowingly and willfully conspiring with

others to submit and cause to be submitted

fraudulent mortgage applications to HUD.

A sentencing date was set, and Maravi and

Guzman were released on a $100,000

personal recognizance bond. The

investigation, which concerns mortgage

fraud, began with the purchase of

foreclosed properties by coconspirators.

These properties were flipped to

unqualified buyers. Maravi and Guzman

recruited the nonqualified buyers to

purchase these homes. Maravi and

Guzman completed fraudulent mortgage

applications and facilitated the submission

of fraudulent bank statements, false

employment documents, false employment

verifications, and false gift letters. This

activity resulted in fraudulent loans valued

at $4,814,936 and which to date have

resulted in a loss to HUD in the amount of

$1,818,510.

Defendant Naomi LaBrie of Topeka,

KS, doing business as Rehabers, Inc., was

indicted in U.S. District Court, District

of Kansas, for defrauding HUD,

specifically the FHA loan program. This

investigation found that defendant LaBrie

allegedly purchased homes, performed

rehabilitation, and sold those homes

to borrowers who obtained FHA-insured

mortgages. LaBrie purportedly provided

the downpayment funds to the borrowers

and instructed the borrowers to obtain false

gift letters to conceal the fact that she was

providing the funds for the downpayment.

A total of 22 FHA loans, totaling

$1,150,965, have gone into claim status.

There have also been conventional loans

that went into default.

Property speculators Earl Ginter,

Ronald Fruth, and David Walsh of

Harrisburg, PA, pled guilty in Federal

Court, Middle District of Pennsylvania, for

their involvement in a property-flipping

scheme that allegedly involved officials

of Sunset Mortgage Company. The

investigation disclosed that the defendants

were involved in a scheme to sell at least

40 homes with FHA-insured mortgages to

borrowers whom they made eligible by

paying off debts and providing funds for

downpayments, which they hid through

the use of false gift letters. To date,

$704,000 in FHA insurance claims has been

paid on the foreclosed mortgages.

The United States Attorneys Office,

Northern District of Illinois, Civil Division,

filed a civil complaint against Gordon Nelson

of Chicago, IL. The complaint seeks triple

damages from Nelson for violation of the

False Claims Act. Nelson was previously

indicted in 2004 in the Northern District of

Illinois by a grand jury, along with Jae Rank,

Linda Martz, Alfredo Busano, and Marco

Reyes, for mail fraud. Nelson’s indictment

stems from his alleged role in selling houses

he owned to unqualified buyers by providing

false loan documents, specifically gift funds

and gift affidavits, to HUD to qualify these

buyers for an FHA-insured mortgage.
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 32

The civil complaint alleges that

beginning as early as 1996 and continuing

until at least 1999, Nelson, through one of

several companies he owned and operated,

recruited buyers to purchase one of his

homes. Nelson would then refer these

buyers to Anchor Mortgage, knowing that

the recruited buyer could not legitimately

qualify for a mortgage. Nelson, with the

assistance of others, would allegedly

provide the buyer with gift funds to make

it appear the buyer was receiving these

funds from a friend or relative. Then,

according to the complaint, Nelson and

others would also instruct the buyers how

to fill out the gift affidavit associated with

these gift funds. As a result of these actions,

Nelson and others caused Anchor

Mortgage to issue loans that were insured

by HUD. Subsequently, several of the

buyers defaulted on their fraudulently

obtained HUD loans, causing a loss to

HUD in excess of $600,000.

Speculator Mazie Louise Jennings and

settlement agent Kim Blackwell-Hawkins

of Baltimore, MD, were sentenced in

Federal Court, District of Maryland, for

conspiracy to commit mail fraud in

connection with a fraudulent flipping

scheme involving FHA-insured mortgages

between 1995 and 2000. Jennings was

sentenced to prison for a period of 2 years,

to be followed by 3 years supervised

release, and ordered to repay $568,668 to

HUD. Blackwell-Hawkins was ordered to

serve 10 months home detention, to be

followed by 3 years supervised release, and

ordered to repay HUD $247,493.

Investigation by OIG uncovered a scheme

wherein Jennings would purchase

distressed properties in and around

Baltimore and resell them at inflated prices

to first-time homebuyers. She created false

employment, asset, and credit information

for most of the buyers, who would not

otherwise have qualified to purchase the

homes, especially at the inflated prices. She

steered the settlements to BlackwellHawkins, who created false settlement

statements that incorrectly showed the

necessary downpayment funds coming

from the buyer, when in fact they were

derived from Jennings as a reduction on

sales proceeds due her.

Defendant Anthony Ocasio of White

Plains, NY, was arrested in Orlando, FL,

and charged with wire fraud and

conspiracy to commit wire fraud for his role

in a property-flipping scheme between

1998 and 2001 in the New York

metropolitan area. The complaint was filed

in the Southern District of New York.

Ocasio allegedly bought and sold more

than 10 properties and flipped those

properties by preparing false and

fraudulent documents, including phony

gift letters, VOEs, downpayment checks,

and IRS W-2 forms, to qualify homebuyers

for both FHA and conventional mortgages.

In one particular property flip, Ocasio sold

a house that he did not legally own by

preparing a phony deed and title report.

Defendant Kelly Klamen of St. Louis,

MO, officer of K&K Investments, signed a

Federal civil settlement agreement in the

Eastern District of Missouri and paid

$50,000. Defendant Klamen engaged in a

property-flipping scheme in which he

submitted false gift certifications along with

other false documents to qualify purchasers

for FHA loans in violation of the False

Claims Act. Klamen previously paid

$53,265 in court-ordered restitution as a

result of a criminal conviction.

Defendant Tonya Hill of St. Louis,

MO, a mortgage broker, Residential

Building and Mortgage Resources, was

indicted in Federal Court, U.S. District

Court for Eastern Missouri, with five

counts of fraud, to include bank fraud,
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 33

misuse of a Social Security number (SSN),

bankruptcy fraud, and false statements to

HUD. Defendant Hill allegedly flipped

properties by using false documents to

secure FHA and conventional loans. She

also allegedly used a false SSN to purchase

the home in which she resides to enable

her to hide her assets from the U.S.

Bankruptcy Court. Defendant Hill

allegedly caused more than $400,000 in

losses, including more than $77,000 in

losses to HUD.

Defendant Donald Fazio, a resident of

Smithtown, NY, pled guilty in Federal

Court to one count of conspiracy and 11

counts of money laundering of a 61-count

indictment. In addition, Fazio agreed to

enter into a consent order of forfeiture and

a money judgment in the amount of $2.6

million.

Defendant Gary Konstantin, a resident

of Brookville, NY, was found guilty by jury

trial in Federal Court on all six-one counts

of an indictment of conspiracy, wire fraud,

mail fraud, money laundering, and

insurance fraud. A forfeiture hearing is

scheduled to determine disposition

regarding the forfeiture counts of the

indictment seeking monetary judgments in

the amounts of $11.6 million.

Previously Fazio and Konstantin were

indicted on 61 counts of conspiracy, wire

fraud, mail fraud, money laundering, and

insurance fraud, with forfeiture counts

seeking monetary judgments in the amount

of $11.6 million. Fazio and Konstantin

were mortgage brokers and branch

managers at a now defunct mortgage

company (Brucha Mortgage Bank) and

participated in a massive scheme to

defraud HUD regarding its 203(k)

program. Losses to HUD from this

conspiracy total $11.6 million.

Defendant Barry Fauntleroy, who was

the president of EON, a real estate

investment company in Newark, NJ, pled

guilty in Federal Court to count one of a

seven-count Federal indictment, charging

him with conspiracy to falsify documents

that were submitted to HUD. Defendants

Port, who is the owner of Port Abstract, a

title company located in Garden City, NY,

and Keith Miles, a real estate contractor and

owner of the Mid-South Atlantic Asset

Holding Company, each pled guilty in

Federal Court, Newark, NJ, to a one-count

information, charging each of them with

falsification of documents that were

submitted to HUD. In addition, Port

executed a consent judgment for $500,000

as restitution for his involvement in this

scheme, and Miles executed a consent

judgement for $26,000 as restitution for his

involvement in this scheme.

Previously, Fauntleroy and Devon

Bowie were indicted by a Federal grand

jury in the District of New Jersey and

arrested. Bowie and Fauntleroy were

indicted on one count of conspiracy, three

counts of making false statements, and

three counts of wire fraud.

Faunleroy was a real estate investor

who bought and sold real property and

controlled a bank account in the name of

Neighborhood Holdings, LLC. He was the

president of Neighborhood Mortgage

Bankers Company. In addition, he

controlled bank account in the name of

Urban Renaissance.

Fauntleroy, Bowie, and others solicited

and recruited individuals with relatively

low income to buy homes in Essex County,

NJ, with the promise that they could buy

homes with little or no money down. They

located dilapidated properties that were

available for sale; showed the borrowers

the properties; represented to the
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 34

borrowers that they owned the properties

and that they would significantly renovate

and otherwise improve the properties; and

then sold the properties to the borrowers

at an agreed-upon price, which

represented the fair market value of the

properties in the significantly improved

condition. They arranged for the borrowers

to purchase the properties, assisting them

in obtaining FHA-insured loans through

Neighborhood Mortgage in the amount of

the contract price by submitting a loan

application and supporting documents

that were false, fictitious, and fraudulent

and by approving loan applications,

knowing that they contained false,

fictitious, and fraudulent documents and

information. These mortgage loan

packages were then submitted to HUD for

FHA-insurance endorsement.

Fauntleroy, Bowie, and others

purchased the properties at reduced prices,

at times using the proceeds from FHAinsured loans obtained by the borrower,

and resold the properties to the borrowers

at the contract price. False appraisals on

the dilapidated properties were used in the

mortgage application package. These

appraisals were for inflated prices and

described properties that were habitable

and in pristine condition.

Bowie and others obtained money by

charging the borrowers high origination

and discount fees, as well as high

interest rates on the mortgages when

the borrowers secured loans with

Neighborhood Mortgage. These high

interest rates made the mortgage loans

appealing for resale to financial institutions.

This article has been shortened. Complete version is available at http://www.nj.com/archives.

Copyright, 2005. The Star-Ledger - Neward, NJ. All rights reserved. Reprinted with permission.
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 35

They obtained their illegal proceeds by

directing the proceeds from the sale of a

property to a borrower at the closing, to be

transferred to bank accounts controlled by

Fauntleroy and Bowie, including

Neighborhood Holdings, EON, and Urban

Renaissance, and to individuals with

whom Fauntleroy and Bowier maintained

a personal relationship.

This illegal activity represented

approximately $14 million dollars in

insured mortgage loans, of which 103 loans

went into default and 54 properties had to

be foreclosed on with a potential loss to

HUD in excess of $3 million.

On May 26, 2005, Bowie, Fauntleroy,

Stacie Morrero, an underwriter, and Sean

Mason, a closing attorney, were indicted

on State charges of conspiracy and theft

by deception involving $1.2 million in

fraudulent mortgage loans. The State of

New Jersey unsealed these indictments a

week later in coordination with the Federal

indictment. On July 13, 2005, Norm

Murphy was arrested and pled guilty to a

New Jersey State accusation for knowingly

engaging in the unauthorized practice of

law. Murphy, the president and chief

operator of Garden State Searches, a

licensed title company, provided title work

and services as a closing agent relating to

properties associated in this scheme.

Contractors Brad Marks and Edwin

Rivera of Philadelphia, PA, doing business

as Quality Home Remodeling and

Millenium Homes, Inc., among other

names, were charged in Federal Court,

Eastern District of Pennsylvania, with

defrauding homeowners in both HUDassisted Title I and conventional home

improvement programs. OIG investigation

disclosed that the defendants allegedly

solicited homeowners of Latino

background for Title I and conventional

home improvement loans. Although they

were paid in full by the homeowners from

loan proceeds, they failed to complete

repairs and/or performed shoddy work in

more than 100 cases, resulting in losses of

at least $200,000 to the homeowners.

Conspiracy and False Statements Conspiracy and False Statements

Defendant Gabriel Pugliese of Los

Angeles, CA, was sentenced in Federal

District Court, Central District of

California, to pay $1,984,264 in restitution

and a special assessment fee of $300.

Defendant Monica D’Angelo of Los

Angeles, CA, was sentenced in Federal

District Court, Central District of

California, to pay $1,984,264 in restitution

and a special assessment fee of $300.

D’Angeleo was also ordered to serve 1 year

of probation and 6 months of home

detention. Pugliese will be held jointly

responsible for the restitution amount along

with his coconspirators, Noemi Pugliese

and Monica D’Angelo. Gabriel Pugliese

was also ordered to serve 1 year of

probation and 4 months of home detention.

Gabriel Pugliese pled guilty to a three-count

information on December 1, 2000, which

charged him with conspiracy and two

counts of mail fraud. Gabriel Pugliese,

along with his coconspirators, Noemi and

Monica D’Angelo, operated April 8 Realty.

The investigation, which included a consent

search of April 8 Realty, revealed that 150

real estate professionals obtained forged

employment and income documents from

April 8 Realty to make ineligible applicants

appear qualified for HUD/FHA-insured

loans. The real estate professionals then

caused the false documents to be submitted

to HUD. Many real estate investors used

fraudulent documents to illegally flip

properties that were insured by FHA.

Based upon false information, HUD

insured more than 1,200 FHA loans.
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 36

Noemi Pugliese was also sentenced in

Federal District Court, Central District of

California, and is to pay $1,984,264 in

restitution and a special assessment fee of

$300. Noemi Pugliese will be held jointly

responsible for the restitution amount along

with her coconspirators. She was also

ordered to serve 1 year of probation and 4

months of home detention. Noemi Pugliese

pled guilty to a three-count information on

December 1, 2000, which charged her with

conspiracy and mail fraud.

Defendant Frank P. Acosta of Los

Angeles, CA, appeared in Federal Court

for the Central District of California and

was sentenced to serve 5 years

incarceration and pay $1.3 million in

restitution. Defendant Acosta and

coconspirators were involved in a scheme

in which FHA-insured loans were

approved for both unqualified and strawbuyers. Some of the straw-buyers included

teenagers who played on a junior college

baseball team coached by one of the

coconspirators. The jury found Acosta

guilty on 21 counts. Acosta’s wife

Elizabeth Madrigal, who was also involved

in this scheme, pled guilty in 2003 to one

charge each of wire fraud, conspiracy, and

money laundering, and she is currently

serving a 3-year, 4-month Federal sentence.

The total estimated loss to HUD in this case

is $1.5 million.

Defendant Gerard Current of Los

Angeles, CA, appeared in Federal Court

for the Central District of California and

was sentenced to 2 years probation and

ordered to pay $510,708 in restitution as a

result of his previous conviction of wire

fraud, conspiracy, and money laundering.

Fernando Garcia, also a defendant in this

case, was sentenced to 2 years probation

and ordered to pay $249,278 in restitution,

also for wire fraud, conspiracy, and money

laundering. Defendants Current, Garcia,

and their coconspirators were involved in

a scheme in which FHA loans were issued

to both unqualified and straw-buyers.

Some of the straw-buyers included

teenagers who played on a junior college

baseball team coached by one of the

coconspirators. Frank Acosta, another

coconspirator, was recently found guilty on

21 counts. Sentencing for Acosta was

scheduled. Acosta’s wife, Elizabeth

Madrigal, who was also involved in this

scheme, pled guilty in 2003 to one charge

each of wire fraud, conspiracy, and money

laundering, and she is currently serving a

3-year, 4-month Federal sentence. The total

estimated loss to HUD in this case is $1.5

million.

In Federal Court for the District of

Columbia, former real estate appraiser

Esther Story Harper of Washington, DC,

was sentenced to 4 months incarceration

and 4 months of home detention, to be

followed by 3 years of supervised release.

Additionally, Harper was ordered to pay

restitution in the amount of $1,042,156 to

HUD and commercial lenders and was

fined $100. On April 3, 2002, Harper pled

guilty to a two-count criminal information

charging conspiracy to commit crimes

against the United States and causing an

act to be done. Between 1994 and 1998,

Harper was a licensed real estate appraiser

in the District of Columbia and the State

of Maryland. During that time, Harper

conspired with Oluritimi Padanu and

Sarafa Kareem (loan officers with Allstate

Funding and Federal Home Funding),

Wilbert Brodie (an investor), Akin

Akinkoye, Dorothy Quigley, and John

Quigley (realtors), and other real estate

professionals. Harper’s coconspirators

would request her to appraise properties

located in the District of Columbia and

State of Maryland and to greatly inflate the
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 37

current value of the property. Harper’s

appraisals dramatically inflated the current

value of the properties. To support the

inflated valuation figure in the appraisal

report, Harper would falsely reflect the true

condition of the property (often indicating

that the property had been renovated

when it had not), would falsify the true

current owner of the property, and would

use false comparables. A majority of the

properties appraised by Harper were part

of flip transactions.

Defendant Akintunde Akinmurele of

Washington, DC, a certified public

accountant, was sentenced in Federal

Court, District of Columbia, to 5 years

probation and 300 hours of community

service and ordered to make restitution to

HUD totaling $747,546 for his admitted

role in a scheme to provide false

documentation on behalf of purchasers of

homes with FHA-insured mortgages. The

amount of restitution represents the losses

to date from the FHA insurance fund

based on transactions involving the

defendant. The investigation disclosed that

Akinmurele provided false pay statements,

IRS W-2 forms, and Federal tax returns on

behalf of at least 40 FHA purchasers.

In Federal Court for the Central

District of California, defendant Joseph

Fierro of Los Angeles, CA, was sentenced

to 18 months imprisonment and 3 years

supervised release and was ordered to pay

$415,265 in restitution to HUD.

Additionally, Defendant Jarreth Solomon

was sentenced to 3 months imprisonment

and 3 years supervised release and was

ordered to pay $269,524 in restitution to

HUD. Both Fierro and Solomon had

previously pled guilty to making false

statements and aiding and abetting

charges. This investigation began after

HUD OIG and the IRS received allegations

that seven real estate professionals,

including Fierro and Solomon, were

involved in producing false statements to

HUD by assisting unqualified borrowers to

obtain FHA-insured home loan mortgages.

In addition to providing downpayment gift

funds for buyers whom they represented,

Fierro and Solomon contacted forgers to

prepare false/fabricated income and

credit-related documentation. In some

cases, Fierro and Solomon would

fraudulently notarize the identities of

nonexistent borrowers and then use the

false documents to prepare fraudulent

FHA-insured home loan mortgage

applications. Approximately 62 of the 91

properties sold by the conspirators went

into claims, and the loss to HUD is

approximately $4.7 million.

Defendant Frank Pepe of Trenton, NJ,

was sentenced in U.S. District Court,

District of New Jersey, to 2 years in prison,

3 years probation, restitution of $130,495,

a $6,000 fine, and a $300 special assessment

fee. On October 15, 2004, Pepe, a HUDcertified appraiser and owner of the Home

Consultants and SSP Investments, pled

guilty to an information charging him

with three counts of conspiracy to

submit false statements. Pepe purchased

approximately 31 properties under the

names of his companies and proceeded to

flip the properties to borrowers. Contrary

to HUD regulations, he also appraised

these properties. Pepe conspired with

defendant Kim Sammartanto, branch

manager/loan officer, American Home

Loans, to create and submit fraudulent

documentation, which assisted the

borrowers in obtaining the FHA

mortgages. Sammartano pled guilty to

conspiracy to submit false statements.

Sammartano and Pepe admitted to

knowingly and willingly creating and

submitting fraudulent IRS W-2 forms, pay
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 38

stubs, false VOEs, false verifications of rent

(VOR), false gift letters, and other

qualifying documents in the borrower’s

FHA mortgage application. Pepe and

Sammartano were associated with

approximately 18 fraudulent FHA

mortgages and 13 U.S. Department of

Agriculture (USDA) loans with a value

of $2,473,744. Pepe is scheduled to

voluntarily surrender.

Defendant Daryl Collins of Denver,

CO, a home buyer who purchased a home

that was insured through the FHA 203(b)

insurance program, was arrested in

connection to his earlier indictment in

February 2005 for violations of the United

States Code relating to the misuse of an

SSN, making false statements, and aiding

and abetting. Defendant Collins was one

of many subjects who allegedly utilized

false information on their mortgage

applications when they applied for the

loans that were ultimately insured through

FHA. The indictment and subsequent

arrest of defendant Collins were related to

a larger real estate scheme involving a

group of realtors and loan officers who

assisted unqualified homebuyers in

obtaining mortgage financing that they

were not eligible to receive. To date, this

real estate scheme involves approximately

90 homes with an approximate FHAinsured loan value of $13.5 million.

Currently, this real estate fraud scheme has

resulted in a $2,310,030 loss to the FHA

insurance fund.

Defendant Watik Aleem of Denver,

CO, a homebuyer who purchased a

property insured through the FHA 203(b)

insurance program, was sentenced in the

U.S. District Court for the District of

Colorado, to 5 years probation and ordered

to pay restitution in the amount of $75,551

to HUD and a special assessment fee of $25.

Defendant Aleem previously pled guilty to

one count of making false statements to

HUD.

Defendant Aleem was one of many

subjects who participated in a larger real

estate scheme involving a group of realtors

and loan officers who assisted unqualified

homebuyers in obtaining mortgage

financing that they were not eligible to

receive. To date, this particular real estate

scheme involves approximately 90 homes

with an approximate FHA-insured loan

value of $13,500,000. Currently, this real

estate fraud scheme has resulted in a

$2,310,030 loss to the FHA insurance fund.

In the Northern District of Illinois,

defendant Deborah Bankhead, also known

as Deborah Thompson of Chicago, IL, was

sentenced to 4 years probation, 300 hours

of community service, and $119,000 in

restitution to HUD. Bankhead was

responsible for having fraudulently

provided a false name and a false SSN on

her Chapter 13 petition for bankruptcy.

She also fraudulently obtained two FHAinsured properties by providing a false SSN

and false financial information on the loan

applications and then failing to make her

mortgage payments. Bankhead then

repeatedly filed false and fraudulent

bankruptcy petitions from 1997 to 2001,

thus obtaining the benefits of the automatic

stay of collection proceedings by her

creditors. Bankhead filed these false

bankruptcy petitions, knowing that she

would continue to conceal property from

her creditors and would not complete the

requirements for repayment under the

bankruptcy plan. This was done for the

purpose of defrauding and obtaining

money and property from HUD, financial

institutions, creditors, and the bankruptcy

trustee. Bankhead ultimately defaulted on

these two properties, resulting in a loss to

HUD of approximately $119,230.
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 39

Defendant Paola Garcia of Dallas, TX,

was sentenced in the northern district of

Texas to 15 months incarceration, 3 years

supervised release, and $200 in court costs

and ordered to pay restitution of $40,397.

Garcia was found guilty of making false

statements.

Garcia purchased a residence in the Ft.

Worth area and received FHA insurance

by falsifying her SSN. Garcia then

defaulted on the loan, and HUD sustained

a loss of $40,497.

Real estate agent Joy King of Norfolk,

VA, pled guilty in Federal Court, Eastern

District of Virginia, to making a false

declaration in a bankruptcy case. The

investigation disclosed that King

participated in at least seven property

transactions involving FHA-insured

mortgages in which false information

pertaining to buyers’ employment, credit,

and SSNs was provided to make

them eligible. Further, she filed for

personal bankruptcy and significantly

underreported her assets on official

declarations. As part of her guilty plea,

she has agreed to make a lump sum

restitution of $39,820 to HUD, which

represents the net loss to the Department

on the seven mortgages.

Defendant Sean Teelucksingh of

Tampa, FL, a loan officer with Maxwell

Mortgage, pled guilty in U.S. District Court,

Middle District of Florida, to one count of

conspiracy to commit wire fraud and false

statements to HUD. Teelucksingh

coconspired with Belinda Richmond and

other employees of Maxwell Mortgage, an

FHA-approved lender, in making false

statements to obtain FHA-insured

mortgages. Richmond resided in one of the

FHA-insured properties and profited in the

scheme from serving as a straw-purchaser.

The subjects purchased eight properties,

using unsuspecting clients who were

unaware their names had been used to

purchase these properties. Teelucksingh

and Richmond falsified employment and

income verifications and originated a total

of $1.2 million in fraudulent loans.

Defendants William Broglan, Billy

Edwards, Larry Gray, Sandra Gray, and

Steven Swindall of Huntsville, AL, were

indicted in U.S. District Court, Northern

District of Alabama, on conspiracy and

making false statements to HUD. The

subjects allegedly coconspired with one

another in a property-flipping scheme by

purchasing nine HUD REO properties,

certifying to HUD that the properties

would be owner occupied, and flipping the

properties for investments by using strawbuyers. HUD suffered a “loss on sale”

totaling $771,440 as a result of their

scheme.

Defendants Ali Abdul Karim Farhat,

Amira Ali Farhat, Abdulamir Berro, Abudl

Karim Akram Berro, Sami Ahmad Berro, and

Lina Reda—also known as Lina Berro were

charged in the Eastern District of Detroit,

MI, with four counts of making false

statements. Ali Abdul Karim Farhat,

Abdulamir Berro, and Sami Ahmad Berro

were the borrowers, who secured FHA

insurance on three single family properties

totaling $368,000 by supplying multiple

fraudulent employment documents.

Amira Ali Farhat, Abdul Karim Akram

Berro, and Lina Berro allegedly provided

“backstopping” in the form of false income

verification as bogus employers for the

borrowers, who purchased the properties in

the Detroit metropolitan area. One of the

FHA-insured properties defaulted, resulting

in a claim paid by HUD.

Defendant Horace Smith of Las

Vegas, NV, a former loan officer at

Mortgage Capital Resources, had his
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 40

supervised release revoked by Judge Hicks

in the District of Nevada, following

testimony regarding Smith’s current

involvement in fraudulent real estate

transactions. Smith was sentenced to serve

an additional 18 months of incarceration,

followed by 18 months of supervised

release, and ordered not to engage in any

real estate transactions. Smith was

arrested for violating his probation. This

investigation revealed that Smith was

obtaining properties in the names of his

wife and mother-in-law using fraudulent

pay stubs and tax returns. He was released

from jail in February 2005 and within a

month was engaging once again in

fraudulent transactions. In October 2003,

Smith was sentenced in the District of

Nevada to 37 months incarceration, 3 years

of supervised release, and a $200 special

assessment and ordered to pay restitution

in the amount of $349,103. Smith was

sentenced on conspiracy to commit

mortgage fraud, making false statements

to HUD, and aiding and abetting. Smith

helped provide false income and

employment information to borrowers to

obtain FHA loans to purchase single-family

properties. The previous investigation

involved 32 FHA loans and 19 conventional

loans valued at more than $6 million.

Eighteen FHA loans valued at $1.9 million

went into default with a loss to HUD of

$533,294.

A State of Illinois grand jury in Cook

County indicted defendant De Evelyn

Hendriks of Chicago, IL, also known as

Dorothy Evelyn Hendricks, Susan Dina

Hendricks, and Dina H. Pirie, on four

counts of forgery. Hendriks is alleged to

have fraudulently provided a false name

and a false SSN on a loan application and

a 1099R (substitute Form W-2 tax

statement) to obtain an FHA-insured

property in 1996. It is further alleged that,

to obtain this FHA-insured property,

Hendriks also signed a HUD-1 settlement

statement, which falsely reflected that

Hendriks had provided $1,800 in earnest

money, and a fraudulent gift letter, which

falsely showed that Hendriks received

$3,000 in gift monies from a family member.

After obtaining her FHA-insured property,

Hendriks failed to make her mortgage

payments and then purportedly filed two

false and fraudulent bankruptcy petitions

in 1998, thus obtaining the benefits of the

automatic stay of collection proceedings by

her creditors. Hendriks ultimately

defaulted on this property, resulting in a

loss to HUD of approximately $40,410.

Hendriks, using different aliases and

different SSNs, allegedly committed similar

loan fraud schemes in 1989 and 1991 to

obtain two other FHA-insured properties.

Defendant Richard Doty of Tampa,

FL, pled guilty in U.S. District Court,

Middle District of Florida, to conspiracy

and accessory after the fact. Doty, a

licensed attorney in Philadelphia, assisted

coconspirators to elude apprehension/

punishment for committing offenses

against HUD and financial lenders. Doty

assisted in the facilitation and execution of

the subjects’ escape to Mexico and then

Belize. The subjects were under

investigation for defrauding HUD FHA

and Government National Mortgage

Association (GNMA) programs of $50

million and GNMA Financial Warehouse

Lenders of $70 million, as well as money

laundering offenses.

Defendants Thomas Bowman and

Carlos Carranza of Ft. Lauderdale, FL, pled

guilty to one count of conspiracy to commit

mail fraud in connection with a HUD FHAinsured loan. Bowman, a licensed

mortgage broker for Blue Chip Mortgage

Lending Services, Inc., an FHA-approved

loan correspondent, falsified loan
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 41

applications and gift letters to procure

mortgage financing for unqualified

borrowers. Carranza, a licensed real estate

broker, conspired with Bowman by

referring the unqualified buyers to

Bowman to obtain mortgage financing.

Bowman and Carranza were indicted. The

indictment charged the conspiracy in

connection with two loan files, one FHAinsured and one conventional loan. The

FHA-insured property was conveyed to

HUD and resold for a loss to HUD of

$6,083.

 Patricia Cuthrell of Norfolk, VA, was

charged in Federal Court, Eastern District

of Virginia, with making false statements

to HUD, fraudulent use of an SSN, and

making false declarations in connection

with an application for bankruptcy

protection. The investigation disclosed that

the defendant allegedly used an SSN

assigned to another individual to obtain a

driver’s license, bank account, and credit

card all under a false identity. She then

allegedly used the false identity along with

false employment and asset information to

purchase both an automobile and a home

with an FHA-insured mortgage. She

defaulted after making two payments on

the mortgage and attempted to forestall

foreclosure by filing for Federal bankruptcy

protection using the false identity. HUD

eventually paid a claim of $132,000 to the

lender upon adjudication of the

foreclosure.

Defendant Ahillia Ramotar, an

unlicensed real estate broker and owner of

Tri-Metro Realty, was sentenced to 15

months incarceration and 5 years

probation and ordered to pay $9,000,000

in restitution and a $300 special assessment.

She previously pled guilty in U.S. District

Court, Eastern District of New York, NY,

on two violations of making false

statements to HUD. Ramotar was

sentenced on two separate counts of

systematically using straw-buyers, not-forprofits, and several mortgage companies to

purchase and/or pass through 324

properties that were ultimately insured by

FHA for $60,619,334. The FHA 203(b)

program insured 126 of these properties,

while another 198 properties were insured

under the FHA 203(k) program.

Defendant Sandra Ruiz of Los

Angeles, CA, appeared in Federal District

Court in the Central District of California

and was sentenced to 27 months

incarceration and 3 years supervised

release and ordered to pay restitution of

$902,615 for Federal conspiracy and false

statement violations with regard to an FHA

loan origination scheme. The investigation

found that from 1995 to 1999, Ruiz, a loan

officer at North American Mortgage

Corporation, was complicit in forwarding

fraudulent FHA-insured loans for

unqualified borrowers, thus defrauding the

HUD single-family program. Ruiz

utilized forgers to fabricate false

income, employment, and credit-related

documents. Ruiz’s involvement in the

scheme led to her unlawfully originating

more than 20 FHA-insured loans, which

resulted in an approximate loss of $800,000

to HUD.

Defendants Mark Arkenau and Bradley

A. White of Indianapolis, IN, were both

sentenced in U.S. District Court for the

Southern District of Indiana. White was the

president of Regal Mortgage, who also acted

as a loan officer. White previously pled guilty

to making false statements to HUD, while

Arkenau, a loan officer with Regal, earlier

pled guilty to making false statements to

HUD.

White was sentenced to 5 months in

Federal custody and 5 months home

confinement, as well as 3 years probation,
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 42

restitution to HUD totaling $84,000, and a

fine of $169,000. Arkenau was sentenced to

2 years probation, 6 months home detention,

$38,000 in restitution to HUD, and a $2,000

fine. Both Arkenau and White accepted

responsibility for having falsified borrower

information on FHA-insured loan

applications, such as IRS W-2 forms and

VOEs, in order for the borrowers to qualify

for the loans. In addition, White created

fictitious companies and was able to secretly

obtain portions of sales proceeds from the

fraudulent deals, which in turn kicked back

cash to Arkenau. The total amount of loans

attributed to Arkenau and White exceeded

$1.7 million, while HUD’s total loss was

$850,000.

Defendant Arlene Lacey of the U.S.

Eastern District Court of NY, Central

Islip, a closing attorney working with

American International Mortgage Bankers

(AIMB) in Lake Success, was sentenced to

6 months incarceration and 3 years

probation and required to pay a courtordered restitution of $256,000. Lacey pled

guilty to conspiracy and making false

statements. Lacey helped American

International Mortgage Bankers in ensuring

that questionable homebuyers located in

the New York metropolitan area, including

Nassau and Suffolk Counties, would

qualify for the purchase of an FHA-insured

property. More than 90 percent of the FHAinsured loans from AIMB contained one or

a variety of altered documents, including

false pay stubs, bank statements, IRS W-2

forms, VORs, VOEs, verifications of

deposit, credit worthiness letters, gift letters,

and credit reports.

Defendant Matthew Francis of New

York, NY, former loan officer with AIMB

in Lake Success, NY, pled guilty in U.S.

District Court for the Eastern District of

New York to making false statements.

Francis helped AIMB in ensuring that

questionable homebuyers located in the

New York metropolitan area, including

Nassau and Suffolk Counties, would

qualify for FHA-insured loans. More than

90 percent of the FHA-insured loans from

AIMB contained one or a variety of altered

documents, including false pay stubs, bank

statements, IRS W-2 forms, VORs, VOEs

and deposit slips, credit worthiness letters,

gift letters, and credit reports.

In Denver, CO, U.S. District Court for

the District of Colorado, defendant Julius

Muhammad, a homebuyer who purchased

numerous properties insured through the

FHA 203(b) insurance program was

sentenced to 5 years probation and ordered

to pay restitution in the amount of $74,436

to HUD and a special assessment fee of

$25. Defendant Muhammad previously

pled guilty to making false statements to

HUD in relation to obtaining three FHAinsured loans with a combined loan value

of approximately $450,000 using false

SSNs as well as false income documents.

Defendant Gail Henderson of Denver,

CO, a homebuyer who purchased an FHAinsured property utilizing fraudulent

documents and a false SSN pled guilty in

U.S. District Court for the District of

Colorado to a one-count violation of making

a false statement to HUD with intent to

defraud. Defendant Randal Jones, a

homebuyer who also purchased a home

that was insured through the FHA 203(b)

insurance program utilizing a false SSN

and income information, pled guilty in

Federal Court for the District of Colorado

to making false statements to HUD.

Defendant Jones’s plea, which was the

conclusion to an earlier indictment and

arrest, resulted in the defendant being

sentenced to 5 years probation and ordered

to pay restitution in the amount of $51,533

and a special assessment fee of $25.
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 43

Defendant Dwayne Vandyke, a

homebuyer who purchased a home that

was insured through the FHA 203(b)

insurance program utilizing a false SSN

and income information, pled guilty in

Federal Court for the District of Colorado

to making false statements to HUD.

Defendant Vandyke’s plea was the

conclusion to an earlier indictment and

arrest. Defendant Denisha Walker, a

homebuyer who also purchased a home

that was insured through the FHA 203(b)

insurance program utilizing a false SSN

and income information, also pled guilty

in Federal Court for the District of

Colorado to making false statements to

HUD. Defendant Walker’s plea, which

was the conclusion to an earlier indictment

and arrest, resulted in the defendant being

sentenced to 2 years probation and ordered

to pay a fine of $250 and a special

assessment fee of $25. Defendants Jones,

Henderson, Vandyke, and Walker were

four of many subjects who participated in

a larger real estate scheme involving a

group of realtors and loan officers who

assisted unqualified homebuyers in

obtaining mortgage financing that they

were not eligible to receive. To date, this

real estate scheme involves approximately

90 homes with an approximate FHAinsured loan value of $13 million.

Currently, this real estate fraud scheme has

resulted in a $2,310,030 loss to the FHA

insurance fund.

Defendant Sheila Lockett and of

Denver, CO, homebuyer who purchased

a home that was insured through the FHA

203(b) insurance program, was arrested in

connection to her earlier indictment for

violations of the United States Code

relating to the misuse of an SSN, making

false statements, and aiding and abetting.

Defendant Lockett was one of many

subjects who utilized false information on

their mortgage applications when they

applied for loans that were ultimately

insured through the FHA loan program.

The indictment and subsequent arrest of

defendant Lockett were related to a larger

real estate scheme involving a group of

realtors and loan officers who assisted

unqualified homebuyers in obtaining

mortgage financing that they were not

eligible to receive.

Defendants Sebastian Scott, Wendy

Wilkins, and Qunell Jefferson, who also

purchased homes that were insured

through the FHA 203 (b) insurance

program utilizing a false SSN and income

information, pled guilty in Federal Court

for the District of Colorado to making false

statements to HUD. Defendants Wilkins,

Scott, and Jefferson were three of many

subjects who participated in a larger real

estate scheme involving a group of realtors

and loan officers who assisted unqualified

homebuyers in obtaining mortgage

financing that they were not eligible to

receive. To date, this real estate scheme

involves approximately 90 homes with an

approximate FHA-insured loan value of

$13,500,000. Currently, this real estate

scheme has resulted in a $2,310,030 loss to

the FHA insurance fund.

Defendants Christopher Santarsiero

and Jeff Smith, Green Castle Realty,

Newark, NJ, pled guilty to an information

in U.S. District Court, District of New

Jersey, charging them each with one count

of conspiracy to commit false statements.

Santarsiero and Smith conspired with

David Cobianchi, loan officer, U.S.

Mortgage, to create and submit fraudulent

documentation, which assisted unqualified

borrowers in obtaining FHA mortgages.

This fraudulent documentation included

IRS W-2 forms, pay stubs, credit reports,

gift letters, VORs, and VOEs. Smith and

Santarseiro were associated with

approximately six fraudulent FHA
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 44

mortgages that resulted in a net loss of

approximately $320,000 to HUD.

Cobianchi signed a plea agreement and

formally pled guilty in U.S. District Court,

District of New Jersey. Cobianchi is

associated with approximately 14

fraudulent FHA mortgages that have

resulted in a net loss of $310,000 to HUD.

In the Northern District of Illinois,

Eastern Division, a Federal grand jury

returned a 61-count indictment against

defendants Douglas Hastings, Philip

Miskimon, Edward Martins, Price Brooks,

Akia Sanders, Dale Nelson, Chad Nicks,

Shawn Flemeing, Todd Ernst, Jeffrey

Meyer, Tasha Barnes, and Julie Smith of

Rockford, IL, for conspiracy to defraud the

United States, making false statements, and

making false statements to HUD.

According to the indictment, Hastings,

Miskimon and Martins, while acting as

sellers/investors, conspired to defraud HUD

through the FHA-insured loan program by

purchasing properties at a low price, making

cosmetic repairs to the property, paying

recruiters to find new buyers, and reselling

the properties at a much higher price. To

complete the scheme, the indictment alleged

that defendants prepared false loan

documents to be placed into the loan file so

as to make it appear that the buyer was

qualified for an FHA-insured loan when the

buyer was not qualified for financing.

Other defendants, specifically Price

Brooks of Brooks Detail Shop and Todd

Ernst of Ernst Roofing, would allegedly

assist in this conspiracy by creating,

altering, or signing false documents such

as VOEs and pay stubs, while others, Julie

Smith of Eucker Insurance, Chad Nicks of

Verizon Wireless, Jeffrey Meyer of Meyer

Insurance, and Dale Nelson of AMD Sales,

allegedly used their private insurance,

computer, and cell phone companies to

create fictitious credit letters and credit

histories. The remaining defendants,

Tasha Barnes, Akia Sanders, and Shawn

Fleming, acted as straw-buyers, phony gift

donors, or straw-sellers to originate the

fraudulent loans. Many of these

individuals would be paid cash from the

sellers for their role in the scheme or would

be promised future business if they

continued to create the fraudulent

paperwork. The estimated loss to HUD at

this point in the investigation is $1.5 million.

This case involved a total of 57 alleged

fraudulent loans with 48 insured by HUD.

Following the 61-count indictment of 12

individuals for conspiracy to defraud the

United States, making false statements,

and making false statements to HUD, three

additional informations were filed in United

States District Court, Northern District of

Illinois, Western Division. These

informations were followed by guilty pleas

from defendants Adam L. Ernst, Brian A.

Fox, and Alexandrea M. Ellis of Rockford,

IL, for making a false statement to HUD.

Defendant Adam L. Ernst pled guilty to

his role in being a straw-buyer for an FHAinsured property, wherein, he received

$5,000 in cash for indicating that he would

occupy the residence when he had no

intention to honor any of the loan’s

commitments.

Defendant Brian A. Fox, a realtor, pled

guilty to providing false VOR documents.

Fox would falsely certify that he owned a

property and that he collected rent on a

timely basis from various mortgagors when

he neither owned the property nor collected

rental payments.

Finally, defendant Alexandrea M. Ellis

pled guilty to her role in being a straw-buyer

for an FHA-insured property, wherein she

assumed the identity of another person to

qualify for the loan. Further, she provided a
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 45

false employment and rental history to

originate the loan.

Defendants Jesus Bernal-Hernandez

and Salvador Bernal Hernandez of Salt

Lake City, UT, were indicted by a Federal

grand jury in the District of Utah on one

count of making false statements, two

counts of misuse of an SSN, one count of

false bankruptcy declaration, and one

count of false bankruptcy documents. The

defendants allegedly submitted voluntary

petitions, Form B1, to the Bankruptcy

Court for the District of Utah after signing

the forms under a penalty clause. The

defendants, who purchased homes insured

through the FHA 203(b) insurance

program in May 2001 utilizing fraudulent

SSNs, assumed the identity of third parties

when they filed their bankruptcy petitions.

The loss to the FHA insurance fund is

$123,068.

Defendants Sergio Lopez Hernandez,

Porfiria Ceron, Luis A. Caldera,

and Armando Caldera, Sr., of Kansas

City, KS, FHA-insured single-family

mortgagors, were sentenced in U.S. District

Court for the District of Kansas as a result

of pleading guilty to providing a false

statement in applying for an FHA-insured

loan. Defendants Hernandez and Ceron

received 2 years probation, and Caldera

and Caldera, Sr., received a 1-year

probation. These defendants are four of

several mortgagors identified in an

investigation that was initiated after it was

reported that 49 FHA-insured loans were

obtained fraudulently by undocumented

aliens utilizing false SSNs and alien

registration cards.

Defendant Patricia Cuthrell of

Norfolk, VA, pled guilty in Federal Court,

Eastern District of Virginia, to making false

statements in connection with an FHA

transaction and an application for

bankruptcy. The investigation disclosed

that the defendant created a false identity,

including a false SSN and false

employment and asset information, to

purchase a home with an FHA-insured

mortgage. After she defaulted on the

mortgage, she used the same false identity

to file for bankruptcy protection. The HUD

loss resulting from the foreclosed mortgage

is $132,000.

Defendant Maria Carmen Garcia of

Phoenix, AZ, pled guilty in U.S. District

Court, District of Arizona, to the charge of

submitting false statements to HUD in

connection with the FHA single-family

home loan program. Defendant Garcia, a

loan officer, and her brother, realtor Leonel

Estrella, were indicted by a Federal grand

jury on charges of conspiracy and

submission of false statements to HUD. The

investigation found that the defendants

submitted falsified wage documents and

SSN information to HUD to obtain FHAinsured home loans for their mutual clients.

A total of 14 FHA-insured home loans,

with insured mortgages totaling $1.58

million, were involved in the scheme. Five

of these FHA-insured home loans

foreclosed, which resulted in a loss to HUD

of $140,310.

A second superseding indictment was

filed on Paul and William Peterson of Los

Angeles, CA, in the Central District of

California. Paul and William Peterson

were employed at Peterson Land and

Development, a company which developed

and sold residential properties, some of

which were sold pursuant to home

mortgage loans insured by FHA. Paul and

William Peterson allegedly conspired and

agreed to make false, fictitious, and

fraudulent statements to HUD. Both were

charged with one count of conspiracy, one
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 46

count of making false statements, and

aiding and abetting. The approximate

amount involved is a $1,123,030 loss to

HUD.

Defendant Leonel Estrella of Phoenix,

AZ, pled guilty in U.S. District Court,

District of Arizona, to the charge of

submitting false statements to HUD in

connection with the FHA single-family

home loan program. Defendant Estrella, a

real estate agent, and his sister, defendant

Maria Carmen Garcia, a loan officer, were

indicted by a Federal grand jury on the

charges of conspiracy and submission of

false statements to HUD. The grand jury

further indicted defendant Estrella on three

counts of bank fraud. This investigation

found that the defendants submitted

falsified wage documents and SSN

information to HUD to obtain FHA-insured

home loans for their mutual clients.

Investigation further disclosed that Estrella

created false wage documents for other

clients, which were used to obtain

conventional home loans from commercial

lenders. A total of 14 FHA-insured home

loans with insured mortgages totaling $1.58

million and 14 conventional home loans

with mortgages totaling $1.74 million were

involved in the scheme. Five of the FHAinsured home loans foreclosed, which

resulted in a loss to HUD of $140,310.

Mail Fraud, Wire Fraud, and Money Mail Fraud, Wire Fraud, and Money

Laundering Laundering

Defendant Javier Salazar of Los

Angeles, CA, appeared in U.S. District

Court for the Central District of California

and was sentenced to 3 months

incarceration and 3 years probation and

ordered to pay restitution of $953,242 for

two counts of wire fraud. Salazar was

previously indicted in September 29, 2002,

for having purchased fraudulent

documents through convicted forger

Maggie Cuevas, including the documents

in loan files, and then submitting the

documents to a HUD FHA-approved

lender. The loans valued at $4,731,045

subsequently went into default, which

resulted in foreclosures.

Defendant Anthony Hernandez of

Los Angeles, CA, appeared in U.S. District

Court for the Central District of California

and was sentenced to 6 months

incarceration and 3 years probation and

ordered to pay restitution of $354,861 for

one count of wire fraud. Hernandez was

previously indicted in June 25, 2003, for

having purchased fraudulent documents

through convicted forger Maggie Cuevas

and then including the documents in loan

files and submitting the documents to a

HUD FHA-approved lender. The loans

valued at $1,025,744 subsequently went

into default, which resulted in foreclosures.

Defendant John Garitta of San Diego,

CA, former chief financial officer of

PinnFund U.S.A., Inc., was sentenced to 4

years imprisonment and 5 years supervised

release and ordered to pay restitution of

$241,233,189. On August 23, 2002, Garitta

pled guilty to a Federal information

charging him with conspiracy, wire fraud,

money laundering conspiracy, income tax

evasion, false entry with intent to defraud

HUD, and aiding and abetting. The

information alleged that Garitta, with

intent to deceive an officer, auditor,

examiner, or agent of HUD, knowingly

made a false entry in the PinnFund’s

financial statements to HUD.

PinnFund was a sub-prime-lender and

a HUD-approved direct endorsement

lender. Garitta and other PinnFund

officers concealed from investors the fact

that PinnFund lost $200 million from the

mortgage business while soliciting new
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 47

investor money. From 1997 through 2000,

PinnFund gave investors money

contributed by new investors and falsely

represented to them that these funds were

earnings or returns on capital.

Defendant Phillip Cohn of East St.

Louis, MO, a real estate developer, was

sentenced in Federal Court for the

Southern District of Illinois to serve 5

years probation and ordered to pay

$347,200 in restitution. Defendant Cohn

previously pled guilty to mail fraud,

money laundering, and violating the

Environmental Clean Air Act. Defendant

Cohn was previously indicted on 20 counts

that included three counts of mail fraud,

11 counts of money laundering, three

counts of bank fraud, one count of wire

fraud, and two counts of environmental

crimes. Defendant Cohn admitted to

creating false invoices and falsely endorsing

checks to obtain portions of $1 million that

was placed in escrow for the environmental

cleanup of an East St. Louis school

property. Defendant Cohn also admitted

obtaining more than $620,000 in loans

using the environmental escrow funds as

collateral. Defendant Cohn created false

invoices to obtain the escrow funds for his

own personal use. In addition, defendant

Cohn admitted the illegal removal of

asbestos-containing materials from a

separate property he owned known as the

Spivey Building in downtown East St.

Louis, IL, for which he applied for

Empowerment Zone funding.

Michael Hutchinson was sentenced in

U.S. District Court, Springfield, MA, to 6

months at a halfway house, to be followed

by 3 months probation, and ordered to pay

a fine of $7,000. Hutchinson had previously

been convicted at trial, along with former

Copyright, 2005. The Republican - Springfield, MA. Reprinted with permission.
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 48

Defendants Arvin Weiss and Jesus

Guevara, who were previously indicted by

a Federal grand jury in the District of

Colorado on charges of mail fraud, wire

fraud, and witness tampering in connection

with an FHA mortgage fraud scheme, were

arrested in Denver, CO. Defendant Weiss,

who was charged with 12 counts of mail

fraud, five counts of wire fraud, and six

counts of tampering with a witness, and

defendant Guevara, who was charged with

nine counts of mail fraud, five counts of

wire fraud, and eight counts of witness

tampering, made their initial appearance

before a Federal magistrate judge

immediately following their arrest.

Defendant Weiss, a real estate agent doing

business as Reserve Capital Funds, Inc.,

acquired approximately 300 homes in the

Denver metropolitan area at low prices and

after some minimal improvements, sold the

properties at substantially higher prices to

Hispanic borrowers who knew little if any

English. The homes that were sold by

defendant Weiss were insured through the

FHA 203(b) insurance fund for

approximately $51 million. Defendant

Weiss knew the homebuyers would not be

able to legitimately qualify for the loans.

Defendant Weiss arranged for false

information to be provided to the mortgage

companies in order for these borrowers to

obtain the FHA-insured loans. Guevara, a

bilingual assistant who worked with Weiss,

assisted him in finding the borrowers,

translated for the borrowers, and assisted

in acquiring the false information. In the

majority of the cases, Weiss concealed the fact

that he provided the borrowers’ required

Springfield police officer Chester Ardolino,

of money laundering and bank fraud. The

charges stem from a land-flipping scheme

that Hutchinson and Ardolino were

involved in. Hutchinson and Ardolino

utilized Hutchinson’s sister as a strawbuyer.

downpayment. This fraud scheme has

resulted in losses to the FHA insurance fund

estimated to be approximately $1 million.

Defendant Robert Frank Miller of

Washington, DC, was charged in Federal

Court, District of Columbia, with allegedly

defrauding potential investors by soliciting

money from them under the guise that the

funds would be used to purchase and

improve properties for resale at a profit,

when he intended to use the money for

personal benefit. The charges follow his

recent sentencing in Baltimore County

Circuit Court to 12 years incarceration for

essentially the same scheme, in which he

represented that he owned or controlled

HUD REO properties. The investigation

determined that the defendant may have

obtained as much as $400,000 from

innocent investors.

Defendant Jean Guilbaud of Mineola,

NY, a licensed real estate broker, HUDapproved realtor, and a fugitive for more

than 2 years, was arrested on State charges

of grand larceny, scheme to defraud, and bail

jumping in connection with a $40,000

HUD-owned real estate fraud scheme.

Guilbaud was arrested on an indictment that

charged him with failing to return bid

deposits ranging from $1,000 to $13,000 to

complainants bidding on HUD-owned

properties who did not win the bid. In

addition, Guilbaud did not pass bid deposits

on to HUD that were due from winning

bidders who failed to close on HUD-owned

properties.

Kathleen Johnson pled guilty to one

count of mail fraud in U.S. District Court,

Western District of New York. Johnson

was employed as a HUD-approved real

estate broker in the Rochester, NY, area.

Johnson collected potential buyers’ earnest

deposit money and failed to deposit the

funds in an earnest deposit account as
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 49

required. Johnson kept the funds, totaling

approximately $26,000, for her own

personal use. Additionally, Johnson

prepared and mailed false prequalification

letters from mortgage companies and

banks to First Preston Management

Company, certifying that the potential

buyers could finance the purchase.

Johnson is scheduled for sentencing.

Defendant Israel Pena of White Plains,

NY, was arrested in Sunrise, FL, and

charged with wire fraud and conspiracy

to commit wire fraud for his role in a

property-flipping scheme between 1998

and 2001 in the New York metropolitan

area. The complaint was filed in the

Southern District of New York. Pena

allegedly bought and sold more than 10

properties and flipped those properties by

preparing false and fraudulent documents,

including phony gift letters, VOEs,

downpayment checks, and IRS W-2 forms,

to qualify homebuyers for both FHA and

conventional mortgages. In one particular

property flip, Pena allegedly sold a house

that he did not legally own by preparing a

phony deed and title report.

Defendant John Cash, also known as

Typhoon, was indicted in the Northern

District of Chicago, IL, on charges of

bankruptcy, wire, and mail fraud. On July

18, 2005, agents from HUD OIG and an

agent from the Department of Veterans

Affairs (VA) OIG arrested Cash in Atlanta,

GA.

According to the indictment, Cash

allegedly placed ads in local newspapers,

soliciting homeowners who found

themselves in financial distress and were

not able to pay their mortgage. Cash

would allegedly promise them that he

“could stop foreclosures dead in their

tracks.” Cash purportedly met most of the

victims at their homes and had them enter

into a contractual agreement with him and

his company, Lake Shore Group. The

defendant allegedly collected an upfront

fee of $3,500 and promised the victims that

if they continued to pay their usual

mortgage to him instead of the mortgage

company for 2 years, they would own their

home free and clear of any debt. In the

interim, the defendant allegedly filed

fraudulent bankruptcy petitions for the

homeowners, for the purpose of invoking

the automatic stay and giving the

homeowners the false belief that their

foreclosures would be ended, when they

were only temporarily delayed.

Subsequently, the homeowners lost their

homes and in some cases were evicted the

same day. As a result of Cash’s

representations and promises, he is alleged

to have received approximately $190,000

from 30 homeowners who have since lost

their homes.

Defendant Nicholas Lopez of Denver,

CO, a fraudulent document vendor who

provided false documents to real estate

agents, pled guilty in the U.S. District

Court for the District of Colorado to a

violation of wire fraud. Defendant Lopez

assisted real estate agents in the Denver

metropolitan area with the production and

distribution of fraudulent documents that

were used to assist unqualified illegal alien

homebuyers in purchasing homes that were

insured through the FHA 203(b) insurance

program. Defendant Lopez fabricated

fraudulent IRS W-2 forms and pay stubs

for these illegal aliens, who were

purchasing the FHA-insured homes. This

investigation identified more than 300 FHAinsured home loans that have been

associated with this loan origination fraud

scheme. It is estimated that the

approximate total loan value exceeds

$62,574,000. The investigation disclosed

that this fraud scheme has resulted in a loss

to the FHA insurance fund amounting to
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 50

approximately $2,350,000. Defendant

Lopez was scheduled for sentencing.

Defendants Rogasiano Caldera and

Patricia Soehnge, also known as Patty

Moreno, of Denver, CO, realtors, as well

as document vendor Nicolas Lopez, were

indicted by a Federal grand jury for the

District of Colorado in a 22-count

indictment for violations of the U.S.

Criminal Code that included making false

statements, wire fraud, and criminal

forfeiture. This investigation identified the

defendants as being allegedly involved in

a single-family fraud scheme that assisted

illegal aliens in obtaining properties that

were insured through the FHA 203(b)

program. Soehnge assisted unqualified

illegal alien homebuyers to secure

fraudulent IRS W-2 forms, pay stubs, tax

returns, and other fraudulent documents

to qualify the illegal aliens for the FHAinsured homes. This fraud scheme involved

approximately 300 FHA-insured properties

with an insured value of $62,574,000. The

investigation found that numerous FHAinsured properties have gone into

foreclosure, resulting in approximately

$2,350,000 in losses to the FHA insurance

fund.

Defendant Theresa Holt of Chicago,

IL, was sentenced to 3 years in prison, 3

years supervised release, and restitution

totaling $2,573,000 in the Northern District

of Chicago, IL.

Earlier, Holt pled guilty to 22 counts

of mail fraud and 56 counts of money

laundering for her planning of and

participation in a fraud scheme involving

100 properties with $5.7 million in loans,

in which Holt received $1.7 million in

fraudulent sales proceeds. The scheme

involved Holt, the owner of Share

Development Corporation, and North East

Austin, a HUD-approved nonprofit

and Holt’s former employer. Share

Development acquired numerous

properties, some of which were obtained

through HUD’s direct sales program and

North East Austin, and resold them. Many

of the applications for the mortgage

loans contained inflated employment

information, including information that

some buyers worked for Share

Development and Northeast Austin. In

addition, buyers, as well as loan officers

were paid $3,000 to $4,000 outside closing

for purchasing these properties. During

the course of the investigation, a search

was conducted at Holt’s personal residence

where FBI and HUD agents seized a 1998

Cadillac El Dorado along with $107,304

in cash. Lis Pendens—a lien placed on a

property by the Government, which

ensures that if the subject tries to sell it, the

subject cannot collect the proceeds—were

also placed on two of Holt’s properties

located on the north side of Chicago, IL.

After the search warrant in 2002, Holt fled

the country and was a fugitive for

approximately 2 years. In early 2004,

Chicago agents received a call from Holt’s

daughter, Athena Holt, reporting the

whereabouts of her mother in South Africa

and asking for a reward to turn her in. Holt

then surrendered to the American Embassy

in South Africa and was transported to

Chicago, IL, where she later pled guilty.

In the Northern District of Chicago,

IL, loan processor Shah Siddiqui was

sentenced, following his earlier guilty plea

to one count of mail fraud for his

participation in a fraud scheme involving

100 properties with $5.7 million in loans.

The scheme involved Theresa Holt, a

former employee of North East Austin, a

HUD-approved direct sales nonprofit, who

started her own business, known as

Share Development Corporation. Share

Development acquired numerous

properties, many of which were obtained
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 51

through HUD’s direct sales program and

North East Austin, and resold them. Many

of the applications for the mortgage loans

contained inflated employment

information, including information that

some buyers worked for Share

Development and Northeast Austin. In

addition, buyers, as well as loan officers,

were paid $3,000 to $4,000 outside closing

for purchasing these properties. Siddiqui

was sentenced to 4 months in prison and

2 years supervised release and ordered to

pay $866,077 in restitution. In addition,

Siddiqui was ordered to have a time curfew

until his surrender date.

Defendant James Thurman of St.

Louis, MO, owner of Phoenix Title, pled

guilty in Federal Court, U.S. District Court

for the Eastern District of Missouri, to wire

fraud and admitted to causing more than

$1.6 million in losses. Defendant Thurman

was previously indicted on nine counts of

wire fraud and one count of bank fraud,

charging him with defrauding his

customers and First Bank of $3.9 million.

Defendant Thurman admitted to illegally

diverting more than $3.9 million from his

title company escrow accounts from March

2002 to January 2005. The funds were

diverted to his real estate company and

personal accounts. The diversions caused

a shortage in escrow funds, which caused

the company to eventually close and

disbursements to go unpaid on several

customer transactions. Defendant

Thurman has paid back a portion of the

$3.8 million, leaving a loss of $1.6 million.

Defendant J.C. Gandy of Tupelo, MS,

appeared before the U.S. District Court,

Northern District of Mississippi, for

sentencing. He had been previously

convicted on one count of mail fraud and

one count of embezzlement. Gandy was

committed to the custody of the U.S.

Bureau of Prisons to be imprisoned for a

term of 1 year and 1 day. Upon release,

Gandy will be on supervised probation for

3 years. He was also ordered to pay

restitution in the amount of $110,213.

Defendant Odie Webster III of Denver,

CO, a real estate agent, was indicted

through a superseding indictment by the

Federal grand jury for the District of

Colorado. Defendant Webster was

charged with one count of conspiracy,

three counts of making false statements,

three counts of mail fraud, and three

counts of wire fraud. Defendant Webster

allegedly assisted unqualified homebuyers

in obtaining mortgages that were insured

through the FHA 203(b) insurance

program by utilizing false SSNs as well as

false income information. Defendant

Webster was arrested on April 27, 2005,

by special agents from the HUD OIG and

IRS-Criminal Investigation Division (CID).

In the Northern District of Chicago, IL,

defendant Michael Fedynich, a broker/seller,

pled guilty to mail fraud. Fedynich, the

owner of Westgate Realty, admitted to

having provided homebuyers with

downpayment funds in order for the

prospective buyers to qualify for Fedynichowned properties. To further the scheme,

Fedynich accepted responsibility for

personally funding the downpayment to a

friend or a relative of the homebuyer and

instructing those persons to execute a gift

affidavit, wherein they falsely stated that they

had provided the downpayment to the

homebuyer as a gift. The person executing

the gift affidavit would use the funds provided

by Fedynich to obtain a cashier’s check made

payable to the homebuyer. Following these

transactions, Fedynich provided a false

certification at closing, which indicated that

he had not provided funds to the borrower.

This investigation involved 10 FHA-insured

loans totaling $716,000 in insurance and

losses totaling $516,429.
Single-Family Housing Programs

HUD’s Single-Family Housing Programs 52

Defendant John Everett of Las Vegas,

NV, an investor, was sentenced in the U.S.

District Court for Nevada to 30 months

incarceration and 3 years of supervised

release and ordered to pay the balance of

the unpaid portion of $185,000 in restitution

ordered upon his three codefendants,

which amounts to $2,336. Everett had

previously pled guilty in the District of

Nevada to two counts of the indictment

charging him with money laundering.

Everett purchased homes, using strawbuyers, from individuals who were on the

verge of foreclosure and set up nonprofit

companies, alleging to the sellers that these

companies were purchasing the homes to

use as halfway houses. At closing, Everett

withdrew amounts equal to the equity

available in the homes, identifying these

disbursements as rehabilitation costs to

convert the homes to halfway houses.

Fraudulent documentation was prepared

and submitted for each straw-buyer

including false bank account statements,

IRS W-2 forms, gift letters, VOEs, and bills

of sale to support the source of

downpayments. Everett was involved in

18 fraudulent loans valued at more than

$6 million through National City Mortgage

Company. All of the loans have gone into

default. Three of Everett’s coconspirators

in this scheme have been prosecuted for

their part in originating fraudulent FHA

loans at Mortgage Capital Resources

(MCR). While under investigation for their

activities at MCR, they moved to National

City Mortgage, where they engaged in a

mortgage fraud scheme involving

conventional loans.

In the Northern District of Chicago, IL,

defendants Stephen Lawhorn and Virgil

Griffin were sentenced based on their guilty

pleas for mail fraud. Griffin was sentenced

to 8 months of incarceration, placed on 2

years of supervised release, and ordered to

pay restitution in the amount of $216,377.

Lawhorn was sentenced to 1 month

incarceration, placed on 3 years of supervised

release (6 months of which he has to be

confined to his residence), ordered to perform

200 hours of community service, and ordered

to pay restitution in the amount of $80,878.

Lawhorn and Griffin were part of a scheme

in which six other individuals, James Rucker,

Gregory Jacobs, Tina Hoard, Patricia Mays,

Carmen Perry, and William Scott, were also

charged.

Lawhorn admitted that as soon as he

began working with Rucker at Design

Mortgage Corporation, he assisted Rucker in

fraud by, among other things, signing

fraudulent loan applications as the loan

officer, drafting fraudulent letters for Rucker,

and providing Rucker with copies of backs

of checks which he used for fraudulent

purposes. Griffin admitted that as soon as

he began working at Comprehensive

Mortgage and continuing through his

employment at Design Mortgage

Corporation, he participated in a fraud

scheme. Griffin admitted that he created and

submitted false loan documents including

IRS W-2 forms, pay stubs, rent payment

checks, verifications of deposit, VOEs, and

other false documents to be placed into loan

files.

Equity Skimming Equity Skimming

Defendant Edwin “Andy” Kane of

Rochester, NY, was sentenced in Federal

court as a result of his guilty plea to one

count of equity skimming. Kane was

sentenced to serve a term of 2 years in

Federal prison and ordered to pay

restitution to HUD in the amount of

$747,000. Kane was also sentenced to a 3-

year term of supervised release

immediately following his prison term.
Kane devised a scheme in which he

purchased more than 20 FHA-insured

properties throughout the City of

Rochester, NY. At the time of purchase,

all of the properties were rented to tenants.

Kane continued to collect the rents on the

properties but failed to pay the FHA

mortgages, causing the properties to go into

foreclosure. Due to Kane’s actions, more

than 30 properties have been foreclosed

upon, resulting in a loss of approximately

$1,140,000 to HUD.

Speculator James Holbert of

Washington, DC, was sentenced in U.S.

District Court, District of Columbia, as a

result of his previous plea of guilty to

conspiring to commit wire fraud in

connection with a scheme to defraud FHA,

conventional mortgage companies, and

various borrowers. He was ordered to

serve 4 years in prison in addition to

agreeing to forfeit $493,000 in funds

obtained from profits he earned on the

illegal transactions to which he was

associated. An investigation determined

that from 1999 into 2001, Holbert and two

coconspirators, Terry Waterman and

Edward Robinson (both previously pled

guilty and are awaiting sentencing), sold

homes to straw-buyers at inflated prices for

purposes of cashing out their equity and

realizing inordinate profits. They recruited

another individual to prepare false

documents to qualify the buyers, who

otherwise would not have been eligible. In

several cases, Holbert secured Section 8

tenants and received rental income until

foreclosure finally occurred. One of the

straw-buyers, Ronald Ricks, was

previously convicted and sentenced to 6

months incarceration. The investigation

identified at least 50 transactions involving

Holbert or one of his coconspirators with

losses to FHA and conventional lenders

amounting to at least $2 million.

Defendants Gordon Miller and Jamen

Wood of Salt Lake City, UT, were indicted

by a Federal grand jury for the U.S. District

Court, District of Utah. Defendants Miller

and Wood were indicted on a one-count

violation of equity skimming, a five-count

violation of mail fraud, and a six-count

violation of wire fraud. The investigation

disclosed that defendants Miller and Wood

were allegedly involved in equity skimming

activity in numerous States, which included

Utah, Colorado, Idaho, Arizona,

Wyoming, Minnesota, North Carolina, and

Washington. The investigation found that

from July 2002 through December 2004,

defendants Miller and Wood allegedly

identified properties that had been

surrendered through a bankruptcy

proceeding by searching the bankruptcy

courts’ database known as PACER.

Defendants Miller and Wood would

allegedly make sure the properties were

vacant and then rent them out, in many

cases without contacting the homeowners

or the bankruptcy trustee to obtain consent.

The defendants allegedly rented some of the

properties they acquired through quit claim

deeds to other homeowners who did not

suspect that the defendants had taken

possession of the property from a secondary

homeowner. In some instances, defendants

Miller and Wood allegedly misrepresented

themselves as representatives of the bank

or bankruptcy department to convince

homeowners to sign a quit claim deed for

the property, transferring ownership to

defendants Wood and Miller. Miller and

Wood allegedly collected rent money, failed

to forward the rent money to the mortgage

company, and instead used the money for

their own personal expenses. The

defendants allegedly rented approximately

300 properties in this manner. The

properties used by the defendants had been

insured through a number of different

programs such as conventional mortgages

and FHA VA-insured mortgages. There

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 53
were approximately two dozen FHAinsured loans involved with this equityskimming scheme with an insured loan

value of approximately $2 million.

Forgery, Theft, and Embezzlement

Forgery, Theft, and Embezzlement Forgery, Theft, and Embezzlement

An Arizona State grand jury indicted

defendant Edward Carrillo of Scottsdale,

AZ, on six counts of fraudulent schemes

and six counts of theft. On February 24,

2005, Carrillo was indicted on separate

charges of three counts of fraudulent

schemes and one count of theft. Carrillo,

doing business as Sahara Investments, sold

his alleged fraudulent preforeclosure

business to three investors for $400,000 in

January 2004, 6 weeks after HUD OIG

executed a Federal search warrant at

Carrillo’s home/office. The Federal

investigation was initiated after a mortgage

company notified HUD OIG that Carrillo

allegedly had been purchasing FHAinsured properties through HUD’s

preforeclosure program at substantial

discounts, often using fraudulent

appraisals. Carrillo then allegedly sold the

houses the same day he purchased them

at market value. HUD paid substantial

claims for each property sold through the

preforeclosure program. The current

indictment alleges that Carrillo accepted

funds from five individuals, which totaled

$465,000, to be used as deposits to purchase

homes, as real estate investments, and as

fees for teaching investors the

preforeclosure business. Carrillo was

unable to acquire properties as promised

and failed to return $379,800 to the

investors. The previous indictment alleged

that Carrillo stole more than $600,000 from

other investors.

Defendant Roberto Osorio Tenorio of

Salt Lake City, UT, pled guilty in the Third

District Court for the State of Utah to one

count of forgery, a third degree felony, and

one count of communications fraud, a

second degree felony. Defendant Tenorio

pled guilty as a result of his participation

in a mortgage fraud scheme involving the

purchase of FHA-insured homes by illegal

aliens who were not qualified to participate

in the FHA insurance program. Defendant

Tenorio used an SSN of a third party to

obtain an FHA-insured single family home,

which subsequently went into default and

eventual foreclosure. This foreclosure

process was then reflected on the credit

history of the third party whose SSN had

been compromised.

Defendant Gary T. Coley of Baltimore,

MD, was found guilty in U.S. District

Court, District of Maryland, of preparing

and passing false forged U.S. Treasury

securities in connection with a scheme that

involved in major part homeowners with

FHA-insured mortgages who were in

danger of losing their homes. The

investigation determined that Coley would

contact individuals who had defaulted on

their mortgages and represent himself as

an investor/entrepreneur who would

assist them in avoiding foreclosure. He

collected fees and deposits from the

homeowners and then manufactured at

least $1.8 million in counterfeit U.S.

Treasury securities that he then passed off

to the various lenders as payment toward

bringing the mortgages current. A

majority of the homeowners eventually lost

their homes, although many foreclosures

could have been avoided had the

homeowners applied the money they paid

Coley toward mitigation of their mortgage

arrearages. Investigation identified at least

seven FHA mortgagors who dealt with

Coley and eventually lost their homes,

resulting in net claims of $800,000 on the

mortgage insurance fund. Coley was

sentenced to 15 months confinement and

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 54
3 years probation and ordered to pay a

$1,300 fine.

In the third Judicial District for the

District of Salt Lake County, defendant

Enrique Montanez of Salt Lake City, UT,

pled guilty to one count of forgery, a third

degree felony, and one count of

communications fraud, a second degree

felony, as a result of his participation in a

mortgage fraud investigation. Defendant

Montanez used an SSN of a third party to

obtain an FHA-insured single family home.

The subsequent default associated with the

mortgage was reflected on the victim’s

credit report, making future financial

transactions difficult. The actions of the

defendant resulted in the FHA insurance

fund incurring a loss of approximately

$50,817.

In the U.S. District Court of New Jersey,

defendants Joseph Nardone, Jr., former

president of Local 148, International Novelty

Workers Union, and his father Joseph

Nardone, Sr., former president of the Novelty

Production Workers Union of Newark, NJ,

were sentenced. Nardone, Jr., was sentenced

to 3 years and 4 months in prison, restitution

of $431,000, a fine of $7,500, and 2 years

probation. Nardone, Sr., was sentenced to 1

year in prison, $423,100 in restitution, a fine

of $5,000, and 2 years probation. Nardone,

Jr., and Nardone, Sr., were found guilty by a

jury in the District of New Jersey of

compsiracy to embezzle from a welfare

benefit fund.

In the same case in the U.S. District

Court of New Jersey, Steven Freeman was

sentenced to 3 years probation and ordered

to pay $266,000 in restitution. On September

24, 2004, Steven Freeman pled guilty to

conspiracy to embezzle from a welfare

benefit fund.

In the same case in the U.S. District Court

of New Jersey, Stanley Rothman was

sentenced to 3 years probation, restitution of

$356,000, and a fine of $5,000. Rothman pled

guilty to conspiracy to embezzle from a

welfare benefit fund.

Rothman and Nardone, Jr,. had beed

charged with conspiracy to steal welfare

funds, embezzlement from welfare funds,

and conspiracy to conceal material facts in

connection with HUD fraud and money

laundering. Rothman used straw-buyer

Steven Freeman to purchase HUD properties

in Florida, which he later resold for a profit

in the conspiracy. Some of the straw-buyers

used by Rothman were members of his

family, while others worked or were

associated with Novelty Production Workers

Union 148 Welfare Fund. Rothman

purchased 10 HUD properties with a value

of more than $675,000. Nardone, Jr.,

conspired with Rothman to embezzle

$350,000 from the union welfare fund

between December 1992 and May 2001.

Defendant Harold V. Fields, real estate

agent, Valley Home Experts, Glendale, AZ,

was sentenced to 6 years in jail, 7 years

probation, and revocation of his real estate

license in the Arizona Superior Court,

Phoenix, AZ. Fields was previously

indicted by an Arizona State grand jury on

three counts of fraudulent schemes, one

count of unlicensed real estate activity, and

26 counts of theft. Valley Home Experts

had been the number one seller of HUD

REO properties in Arizona for several

years. The investigation disclosed that

Fields recruited investors through

advertisements in the newspaper and

requested that each investor give him

$25,000 to $100,000 to buy HUD REO

properties. Fields told each investor that

these funds would be held in a trust

account to be used for downpayments and

closing costs for up to 12 investment

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 55
properties. Because of financing issues,

many of the loans did not close, and the

properties were recycled back into the HUD

inventory. Many of the investors began to

demand that Fields return their money after

he failed to provide closing costs for several

homes. The indictment covered 26

investors who lost $1,502,166. These funds

were never deposited into a trust account,

and the investigations disclosed that more

than $500,000 had been wired overseas to

an offshore sports betting operation. Fields

has been ordered to pay $1,437,765 in

restitution.

In Superior Court of California,

County of Ventura, a 10-count State of

California felony complaint was filed

against Jose Luis Ramirez Velasco of

Oxnard, CA, charging him with identity

theft, grand theft, forgery, and filing false

or forged real estate documents. Jose

Velasco, a licensed real estate agent for a

real estate company in Oxnard, CA, was

arrested pursuant to the complaint

being filed. Allegedly Velasco falsely

impersonated and used the identities of

four unsuspecting victims for the purpose

of obtaining an FHA-insured loan totaling

more than $250,000. The illicit transaction

was accomplished without the victims’

knowledge or consent. After acquiring and

taking possession of the residential

property, Velasco allegedly rented the

residence to tenants. Velasco purportedly

continued to collect monthly rent payments

from the tenants, but he subsequently failed

to make the monthly mortgage payments.

The property, in the innocent borrowers’

names, ultimately went into foreclosure

proceedings. If convicted of all charges,

Velasco could face a maximum sentence of

8 years in State prison.

Sheila Hubbard pled guilty to money

laundering in the Circuit Court of Cook

County, Chicago, IL. Hubbard was

previously indicted in June 2003 for theft

and money laundering as part of a

complicated mortgage scheme, which

among other things included HUD’s direct

sales program.

Hubbard admitted to her involvement

in a scheme, wherein properties were

obtained through various means, to include

HUD’s direct sales program. After

acquiring the properties, the indictment

alleged that they were sold through

various fraudulent documents to investors,

who in turn were told that the properties

would be rehabilitated and then turned

over to them following completion of the

repairs. According to the indictment, at

the sale of the properties to the investors,

the legitimate payoff checks, which were

intended for the mortgage companies,

were diverted through a fraudulent payoff

letter to Kenneth Steward, president of

K.E.E.P., a HUD-approved nonprofit;

Hubbard himself; and/or Eric Pollards,

who acted as a loan officer and an

appraiser.

Hubbard personally accepted

responsibility for accepting the diverted

checks and cashing them at a credit union

where she knew the employees. Hubbard

would then kick the proceeds back to

Steward. Approximately $1.9 million in

mortgage proceeds were allegedly diverted

during this scheme. On the same day of

her guilty plea, Hubbard was sentenced to

3 years confinement and was taken into

custody. The other individuals, who have

previously pled guilty in this scheme, are

Jocqua Carter, accountant; David Johnson,

appraiser; Fritz Fox, loan officer; and Eric

Pollards, loan officer/appraiser.

Defendants Nathan J. Brinkle and

Jonathan T. Jennings of Kansas City, MO,

real estate investors doing business as

Brighter Homes East, Inc., and JB

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 56
Renovations, and Adam T. Kerr, a

mortgage broker doing business as

Platinum Mortgage II and later Pearl

Mortgage, each waived his rights and

pleaded guilty in Federal Court for the U.S.

District of Western Missouri to a Federal

information that charges them with wire

fraud and money laundering.

Defendants Brinkle and Jennings

purchased and rehabilitated distressed

properties for resale to investors, and

defendant Kerr assisted investors in

obtaining mortgage loans. Investors were

advised by defendants Brinkle, Jennings,

and Kerr that once they took possession of

the properties, all of the rehabilitation

work would be completed and Section 8

tenants would be allowed to occupy the

homes, thereby generating cash flow

for the investors. These purchases

were represented as no-money-down

investments. To accomplish this, the

appraised values were inflated and on

some occasions, loan applications were

prepared to falsely show the source of the

downpayment was the new investor.

By pleading guilty, the defendants

admitted that they prepared various false

loan applications and supporting

documents that contained materially false

and fraudulent representations, and these

documents were submitted to lending

institutions to ensure that the loan

application would be approved. As a

result of this scheme to defraud, between

May 23, 2001, and August 30, 2002, the

defendants made and submitted to lending

institutions 94 false and fraudulent loan

applications. These misrepresentations

included false installment payment

information, falsified HUD-1 settlement

statements, phony contracts for deeds,

false source of funds information, and

other pertinent information relied on by

the lenders when making the loans. These

fraudulent loans totaled $6.4 million, funds

which were wire transferred and affected

interstate commerce.

Additionally, defendants Brinkle,

Jennings, and Kerr engaged in monetary

transactions involving criminally derived

property, through the deposits of checks

payable to Platinum Mortgage II and

drawn primarily on the accounts of

Brighter Homes East, Brinkle, and Jennings.

Under Federal statutes, each defendant

could be sentenced to up to 30 years

incarceration without parole, plus a fine

of up to $50,000, and ordered to pay

restitution.

Defendant Mary Pounds of Los

Angeles, CA, was arrested at her residence

by Federal agents from HUD OIG, Social

Security Administration (SSA) OIG, and the

Los Angeles Police Department/FBI

Fugitive Task Force due to an outstanding

felony warrant issued by the United States

District Court, Central District of

California, as a result of a four-count felony

indictment. Pounds allegedly used the

identity of her then 15-year-old daughter

to fraudulently obtain an FHA-insured

single-family home loan from Countrywide

Mortgage. While owning the FHA-insured

home, Pounds allegedly charged her

daughter monthly rent and concealed these

facts in order to receive Social Security

Insurance (SSI) benefits. The HUD OIG

case agent referred the fraudulently

obtained FHA loan to the Santa Ana

Homeownership Center (HOC), Santa

Ana, CA, for indemnification.

Countrywide Mortgage Company entered

into an indemnification agreement with the

Santa Ana HOC. In addition, Pounds was

wanted on an outstanding misdemeanor

State warrant on charges of knowingly

receiving stolen property.

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 57
Contractor Thomas Neimiller of

Towson, MD, doing business as Maryland

Real Estate Services, agreed to repay HUD

$30,000 in settlement of a potential PFCRA

action. Investigation by OIG disclosed that

from 1999 to 2001, Neimiller falsely charged

dumpster fees on at least eight properties

scheduled for foreclosure and eventual

assignment to HUD under the REO

program. The claims paid by HUD to the

lender(s) included the fraudulent dumpster

fees.

Officer Next Door Program Officer Next Door Program

In the Eastern District of Michigan,

former Detroit, MI, Police Officer Quinnon

Martin was sentenced to 3 years probation,

a $10,000 fine, and $22,500 in restitution.

Martin had previously pled guilty for his role

in a scheme to defraud HUD’s Officer Next

Door (OND) program. Martin rented out his

OND property to a Section 8 tenant in lieu of

occupying it as his sole/primary residence as

required under the rules of the program.

Former Baltimore, MD, Police Officer

Carl Clayton was charged in Federal

Court, District of Maryland, with making

false statements to enable him to purchase

an REO property under the OND program.

Investigation by OIG disclosed that

Clayton, who has since moved to New York

City, purchased the property for $18,000,

which included a discount of $18,000,

based on his certification that he would

reside in it for at least 3 years. He allegedly

never moved in but began leasing it within

30 days of settlement and lived in a HUDassisted rental unit administered by the

Housing Authority of Baltimore City. He

allegedly continued to rent the home for

almost 3 years (the period covering his

required occupancy), finally selling it for

$80,000.

In the Eastern District of Michigan,

former Detroit, MI, Police Sergeant Eileen

Martin agreed to the terms of a pretrial

diversion for a period of 1 year. Based on

the terms, Martin must repay HUD the

discount price of $9,600 and complete 40

hours of community service. Martin accepted

responsibility for purchasing a home through

HUD’s OND program and failing to occupy

it as her sole/primary residence as required

by the rules of the program. Instead, she

rented it to a Section 8 recipient.

A settlement agreement was entered

into between HUD and David H. Krueger

of Kenosha, WI, a lieutenant with the City

of Kenosha Police Department, Kenosha,

WI. This agreement is pursuant to a

complaint HUD served upon Krueger

under PFCRA. This settlement agreement,

whereby Krueger agreed to repay HUD an

additional $13,000, stems from an

investigation conducted by HUD OIG

pertaining to Krueger’s purchase of a

single-family property in Kenosha, WI.

This was done through HUD’s OND

program. Under the terms of the sale,

Krueger had agreed to reside in the

property for a minimum of 3 years but had

never resided in the property. Instead, he

rented the property out for approximately

2 years and repaid HUD 30 percent of the

discount price; i.e., $10,800, pursuant to a

letter sent to HUD by Krueger’s attorney,

which had led HUD to believe that Krueger

had completed 2 of the 3 years of his

residency requirement and caused HUD to

release him from the remainder of his 3-

year residency agreement, allowing him to

then sell the property.

Single-Family Housing Programs

HUD’s Single-Family Housing Programs 58

  
Chapter 3

HUD’s Public and Indian

Housing Programs
Section 8 Voucher Program Section 8 Voucher Program

Activities Activities

OIG audited the Section 8 Housing

Choice Voucher program administered by

the Housing Authority of the City of

Houston, TX. OIG performed the audit to

determine whether the Authority complied

with HUD regulations concerning

overhousing of tenants; correctly calculated

housing assistance payments; and ensured

that tenants reside in decent, safe, and

sanitary housing.

The Authority did not effectively

monitor the contactor it hired to manage

its Section 8 programs. The Authority

overhoused tenants; incorrectly calculated

The chart cost figures in this chapter represent the actual monetary benefits for all reports issued during

this semiannual period. The monetary benefits shown in the Profile of Performance represent only those

reports with management decisions reached during this semiannual period. Because there is a time lag

between report issuance and management decisions, the two totals will not agree.

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 60

T he U.S. Department of

 Housing and Urban

Development (HUD) provides grants and

subsidies to approximately 4,200 public

housing authorities (PHA) nationwide.

About 3,200 PHAs manage public

housing units, and another 1,000, with no

public housing, manage units under

Section 8 programs. Many PHAs

administer both public housing and

Section 8 programs. HUD also provides

assistance directly to PHAs’ 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. Programs administered by

PHAs 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

Office of Inspector General (OIG) issued 34

reports: 3 internal audits and 31 external

audits in the Public and Indian Housing

(PIH) program area. These reports

disclosed nearly $41 million in questioned

costs and about $40 million in

recommendations that funds be put to

better use. During this reporting period,

OIG reviewed the Section 8 Housing

Choice Voucher program activities and

public housing activities, including PHA

activities with related nonprofit entities,

and PHA pension plan forfeiture policy. In

addition, OIG conducted a corrective

action verification review.

Chart 3.1: Public and Indian Housing Chart 3.1: Public and Indian Housing

Reports Issued

3 Internal Reports

31 External Reports

Chart 3.2: Public and Indian Housing Dollars Chart 3.2: Public and Indian Housing Dollars

 Internal Reports External Reports 0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

$45,000,000

Questioned Costs Funds Put to Better use
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 61

housing assistance payments; and paid

assistance for tenants to reside in units that

did not meet minimal decent, safe, and

sanitary standards for at least 1 year.

OIG recommended that HUD require

the Authority to repay $7.44 million,

including $2.4 million that it retained from

its administrative fees and $5.04 million that

it paid to the contractor for which it did

not receive adequate service. OIG also

recommended that HUD require the

Authority to implement internal controls

and establish monitoring systems to ensure

compliance with its contributions contract,

which will result in more than $7.9 million

in funds being put to better use. (Audit

Report: 2005-FW-1018)

HUD OIG audited the Housing

Authority of the City of Houston, TX,

because an earlier audit indicated the

Authority’s contractor may not have been

following its abatement and termination

policy. The objective was to determine

whether the Authority enforced its policy

to deduct (abate) rental payments to

owners and/or terminate tenants whose

Section 8-assisted units repeatedly failed

inspections.

Neither the Authority nor its

contractor ensured that staff followed its

abatement and termination policies and

procedures in 8 of the 10 cases reviewed.

Although the Authority terminated the

contractor in October 2004, similar

problems could continue to occur since the

Authority now employs the contractor’s

staff. If the Authority does not improve its

abatement and termination policies,

procedures, and practices, it will expend

$1 to $6.9 million in inappropriate Section

8 assistance. In addition, the Authority

needs to revise some of its abatement and

termination policies and procedures to

address ambiguous and contradictory

provisions or a lack of policies and

procedures.

OIG recommended that HUD require

the Authority to ensure that its employees

follow its abatement and termination

policies and procedures and impose

penalties on employees if they do not. In

addition, OIG recommended that the

Authority be required to revise its

abatement policies and procedures to

address deficiencies. (Audit Report: 2005-

FW-1012)

HUD OIG audited the Housing

Authority of the City of Gary, IN’s Section

8 housing program. The audit was part of

the activities in OIG’s fiscal year (FY) 2005

annual audit plan. OIG selected the

Authority based upon a risk analysis that

identified it as having a high-risk Section 8

housing program. The objective of the audit

was to determine whether the Authority

managed its Section 8 program in

accordance with HUD’s requirements.

The Authority’s Section 8 housing units

were in poor physical condition. OIG’s

inspections noted 57 of 63 units that did

not meet HUD’s housing quality standards.

OIG also noted significant weaknesses in

using administrative fees, issuing vouchers

without proper documentation,

calculating housing assistance payments,

and abating Section 8 vouchers. In

addition, the Authority misused Section 8

funds by overpaying per diem, improperly

disallowing tenant income, and

erroneously charging expenses to its

Section 8 housing program.

OIG recommended that HUD issue a

notice of default to the Authority regarding

the administration of its Section 8 housing

program. OIG also recommended that
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 62

HUD require the Authority to contract out

its Section 8 program or transfer control to

HUD and ensure the Authority reimburses

its program for the inappropriate uses of

Section 8 funds identified. (Audit Report:

2005-CH-1020)

HUD OIG audited the Chattanooga,

TN, Housing Authority’s Section 8 Housing

Choice Voucher program to determine

whether the Authority made Section 8

subsidy payments only for units that were

decent, safe, and sanitary and whether the

Authority properly determined tenant

program eligibility and subsidy payment

amounts.

Of 60 Section 8 units reviewed, 40 did

not meet minimum housing quality

standards. Of the 40 units, 28 were in

material noncompliance with housing

quality standards. Projecting the results of

the statistical sample to the population

indicated at least 1,486 of the Authority’s

2,778 units did not meet minimum housing

quality standards. Further, 939 units were

in material noncompliance with housing

quality standards. In addition, the

Authority did not consistently determine

or verify family incomes, calculate utility

allowances, perform timely recertifications,

or correctly calculate Section 8 housing

assistance payment amounts.

OIG recommended that HUD require

the Authority to inspect all of its Section 8

housing choice voucher-assisted units

within the next 12 months and develop and

implement an internal control plan to

ensure the units meet housing quality

standards and inspections meet HUD

requirements to prevent an estimated $4.7

million from being spent on units that are

in material noncompliance with standards.

HUD should also require the Authority to

repay more than $9,000 for housing

assistance payments it made for ineligible

units. Further, since the Authority failed

to correct deficiencies identified by HUD

in September 2002, HUD should reduce

the Authority’s administrative fees by 10

percent retroactively to August 2004, or

about $125,000. HUD should continue to

monitor the Authority and withhold 10

percent of the administrative fee until the

Authority has complied with requirements.

(Audit Report: 2005-AT-1010)

HUD OIG audited portability

procedures and responsibilities, salary

allocation and procurement procedures

and administration of tenant eligibility and

housing assistance payments at Inglewood

Housing Authority in Inglewood, CA. The

objective of the portability audit was to

determine whether the Authority complied

3837 Maryland: Exposed wires in basement

junction box.

3960 Maryland: Cover on electric panel not

securely fastened; panel also missing a breaker.
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 63

with the Housing Choice Voucher

program’s portability procedures and

responsibilities and other HUD

requirements.

In 143 portable tenant files reviewed,

the initial public housing agency, Housing

Authority of the City of Los Angeles,

refused to pay the housing assistance

payments because the Authority did not

submit the initial bill within the required

timeframe, causing the Authority to absorb

these tenants and exceed its authorized

budget by $1.9 million. In addition, the

Authority did not submit the appropriate

documentation to ensure duplicate

payments were not made on behalf of the

ported tenants.

OIG recommended that HUD not

reimburse the Authority’s Section 8

program for the more than $1.9 million in

excess of its budget authority as was

requested in its FY 2004 year-end

settlement statement. OIG also

recommended that HUD ensure the

Authority submits its billings and

documentation on time. (Audit Report:

2005-LA-1008)

HUD OIG audited the salary

allocation and procurement procedures of

the Inglewood Housing Authority to

determine whether the Authority

accurately tracked and allocated its salary

expenses and whether the Authority’s

procurement policies and procedures

complied with HUD requirements.

The Authority did not track its

employees’ time by program activity or

implement a cost allocation plan to allocate

its salary expenses totaling more than $1.8

million for fiscal years 2001-2003. The

Authority also could not support the basis

for its purchase of two software packages

totaling more than $31,000.

OIG recommended that HUD require

the Authority to develop and implement

procedures to track its staff time spent on

HUD programs, develop a cost allocation

plan, and determine the portion of the more

than $1.8 million in salary expenses

applicable to each HUD program and make

the appropriate accounting adjustments.

OIG also recommended that HUD require

the Authority to develop and implement

adequate procurement policies and

procedures. (Audit Report: 2005-LA-1005)

HUD OIG audited the Inglewood

Housing Authority’s administration of

tenant eligibility and housing assistance

payments and maintenance of its housing

assistance payment register. The objectives

were to determine whether the Authority

(1) accurately determined tenant eligibility

in the Section 8 Housing Choice Voucher

program in accordance with HUD

requirements; (2) made Section 8 payments

only for units that were decent, safe, and

sanitary; and (3) maintained an accurate

housing assistance payment register.

The Authority did not always ensure

the initial tenant certifications were

completed with all the necessary

documents. Of the 72 tenant files reviewed,

43 were missing a total of 96 required

documents. In addition, the Authority’s

unit inspections did not sufficiently detect

housing quality standards violations. Of 35

units inspected, 25 contained a total of 119

violations. Also, the Authority did not

maintain an accurate housing assistance

payment register. OIG’s review of its

October 2004 register identified

inaccuracies due to problems with 20

tenants because the tenants were either

deceased, had erroneous and/or false

Social Security numbers (SSN), or were no

longer receiving assistance.
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 64

OIG recommended that HUD require

the Authority to repay from nonfederal

funds more than $261,000 in unsupported

housing assistance payments for those

tenants determined to be ineligible and

repay the appropriate HUD program

approximately $27,000 for ineligible

expenses paid for units that were not

decent, safe, and sanitary. (Audit Report:

2005-LA-1009)

OIG audited the Municipality of San

Juan, PR, Housing Authority’s Section 8

Housing Choice Voucher program as part

of the strategic plan goals to reduce

erroneous payments in rental assistance

programs. The review was initiated in

response to a request from the HUD San

Juan Office of Public and Indian Housing.

The San Juan office advised that it was not

satisfied with the Authority’s overall

performance in administering its Section 8

program.

The Authority did not have adequate

controls to ensure tenants received the

proper voucher size, assistance payments

were correct, files were properly

documented, and participants were

properly selected from the waiting list. As

a result, the Authority made erroneous

housing assistance payments totaling more

than $9,000 and could incur additional

overpayments of approximately $148,000.

OIG recommended that HUD require

the Authority to repay the approximate

$6,000 that had not been recovered for

excessive and erroneous housing assistance

payments and take measures to avoid

future estimated overpayments of

approximately $148,000. HUD should also

require the Authority to review tenant files

with inadequate income verifications,

locate missing tenant files, and determine

the appropriateness and eligibility of the

more than $121,000 in housing assistance

disbursed. Further, since the Authority

failed to correct deficiencies identified by

HUD in December 2002, HUD should

reduce the Authority’s administrative fees

earned by 10 percent retroactively to July

2003, approximately $413,000. HUD

should continue to monitor the Authority

and withhold 10 percent of the

administrative fee, approximately another

$410,000, until the Authority complies with

requirements. OIG also recommend that

HUD require the Authority to establish and

implement controls to ensure it follows

HUD requirements so that assistance

payments are correct, files are properly

documented, and participants are properly

selected from the waiting list. (Audit

Report: 2005-AT-1015)

HUD OIG reviewed the Housing

Authority of the County of Salt Lake, UT’s

internal controls over its Housing Choice

Voucher and public housing programs to

determine whether the controls provided

reasonable assurance that the Authority’s

programs complied with HUD

requirements.

The Authority’s controls provided

reasonable assurance that its staff properly

assessed tenant eligibility, verified tenant

income, calculated Section 8 subsidy

payments, calculated public housing

tenant rents, and used Section 8 housing

choice vouchers. In addition, the

Authority’s controls over housing

inspections provided reasonable assurance

of timely and well-documented inspections

and enforcement of corrective actions for

identified violations. However, the

Authority inappropriately loaned $375,000

in HUD funds to the Housing Authority of

Salt Lake City.
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 65

OIG recommended that HUD require

the Authority to establish a policy

concerning proper documentation of any

future loans and to use the funds repaid

by the Housing Authority of Salt Lake City

for HUD-related housing activities. (Audit

Report: 2005-DE-1005)

HUD OIG audited the Flint, MI,

Housing Commission’s Section 8 housing

program. OIG selected the Commission,

based upon a risk analysis that identified

it as having a high-risk Section 8 housing

program. The overall objectives were to

determine whether the Commission

managed its Section 8 housing program

effectively and followed HUD’s

requirements. OIG determined whether the

Commission had adequate procedures and

controls over its inspection of units,

abatement of housing assistance payments,

and rent reasonableness determinations.

Of 56 units inspected, 52 did not meet

HUD’s standards and/or local code. OIG

determined that more than $80,000 in

housing assistance payments and

administrative fees were improperly paid

for units not meeting HUD’s standards

and/or local code. The Commission also

did not abate approximately $50,000 in

housing assistance payments based on

units that failed inspections performed by

the Commission’s inspector. In addition,

the Commission did not properly complete

rent reasonableness certifications and

maintain adequate records or market rate

units for rent reasonableness comparisons.

OIG recommended that HUD require

the Commission to reimburse its Section 8

housing program for the inappropriately

used funds and implement procedures and

controls to correct the deficiencies

identified. (Audit Report: 2005-CH-1017)

HUD OIG audited the Housing

Authority of the County of Marin’s Section

8 project-based voucher program in

San Rafael, CA, to determine whether

the Authority (1) performed rent

reasonableness determinations and (2)

executed housing assistance payments

without HUD-required contracts.

Window has no counterweights and does not stay

up. Bottle keeps window propped up for the unit

located at 3905 Proctor.

Power strip connected to an ungrounded receptacle

near sink in unit located at 3813 Kellar.
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 66

The Authority (1) did not perform

rent reasonableness determinations to

ensure Section 8 tenants’ rent was

reasonable before entering into housing

assistance payment contracts, (2) used

tenant-based contracts and

unenforceable memorandums of

understanding to issue housing

assistance payments under its Section 8

project-based program instead of the

appropriate project-based voucher

contracts, and (3) received more than

$318,000 in Section 8 administrative fees

while inappropriately administering its

Section 8 program.

The Authority did not have policies

and procedures in effect to properly

administer the project-based program or

safeguard Section 8 resources. It’s actions

could have given participating tenants

false impressions concerning how they

were allowed to use these vouchers, and

it unnecessarily jeopardized funds

needed to provide Section 8 program

recipients affordable housing.

OIG recommended that HUD

require the Authority to (1) develop and

implement Section 8 procedures in

accordance with HUD regulations and

(2) reimburse HUD more than $318,000

from its administrative reserves for

inappropriately administering the Section

8 program. (Audit Report: 2005-LA1004)

HUD OIG audited the Housing Choice

Voucher program of the St. Louis, MO,

Housing Authority to determine whether

the Authority was operating its Section 8

program in accordance with HUD

requirements.

The Authority did not have adequate

procedures in place to ensure that its

tenants receive the proper voucher size or

to ensure the accuracy of data entry of key

tenant identification information. These

procedural deficiencies caused the

Authority to expend more than $24,000 in

excess housing assistance payments and

hindered the Authority’s ability to obtain

tenant income information from the

Enterprise Income Verification system

when calculating tenant rent and subsidy

payments.

OIG recommended that HUD require

the Authority to reimburse the more than

$24,000 in excess housing assistance

payments and ensure that the Authority

develops and implements procedures to

ensure that each tenant receives the proper

voucher size. In addition, OIG

recommended that the Authority review

the accuracy of the input of the tenant’s

identification information. (Audit Report:

2005-KC-1008)

HUD OIG audited the Housing Choice

Voucher program of the Housing

Authority of the City of Tacoma, WA, to

determine whether it had adequate

internal controls to operate its Section 8

program in accordance with HUD

requirements. While the Authority

generally had adequate internal controls,

it did not adequately address more than

$30,000 in excess housing assistance

payments to landlords and did not properly

document its Section 8 Management

Assessment Program quality control

reviews.

OIG recommended that HUD require

the Authority to institute processes to

correct these deficiencies and to recoup any

of the excess housing assistance payments

that are ineligible. (Audit Report: 2005-SE1005)

HUD OIG audited the Syracuse

Housing Authority in Syracuse, NY,
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 67

regarding administration of its Section 8

Housing Choice Voucher program. The

objectives of the audit were to determine

whether the Authority (1) implemented

Section 8 admission policies consistent with

HUD requirements, (2) verified the

accuracy of the information on Section 8

applicants’ applications and Section 8

participants’ recertification forms, (3)

properly calculated participants’ housing

assistance payments, (4) accurately

reported information to HUD, and (5)

ensured that units provided to participants

met HUD’s housing quality standards.

The Authority’s waiting list was not

maintained in accordance with HUD

requirements, recertifications were not

conducted in a timely manner, inaccurate

occupancy information was reported to

HUD, and housing units contained

deficiencies pertaining to housing quality

standards.

OIG recommended that HUD require

the Authority to (1) implement procedures

to purge its waiting list, (2) implement

procedures and controls to ensure that the

Section 8 recertification process is

conducted in a timely manner, (3) develop

and implement a quality control plan to

ensure that the information reported to

HUD is current and accurate, and (4)

ensure that the housing quality standards

deficiencies identified are corrected within

the required timeframes. (Audit Report:

2005-NY-1006)

Corrective Action Verification Corrective Action Verification

Review

HUD OIG conducted a corrective

action verification (CAV) review of the

Housing Authority of Baltimore City,

Baltimore, MD’s Section 8 certification and

Housing Choice Voucher programs to

determine whether the Authority had

implemented key recommendations

included in our March 28, 2001, audit

report (Audit Report: 2001-PH-1003).

The Authority experienced delays in

implementing its management information

system, which adversely affected its ability

to fully implement the recommendations.

The Authority had not developed and

implemented all of the financial system

controls necessary to ensure its books and

records were maintained in accordance

with HUD requirements and did not follow

adequate procedures to fully budget and

use its available Section 8 resources

effectively.

OIG again recommended that the

Authority improve its financial system

controls and key components of the

administration of its Section 8 programs

and that HUD immediately recapture $25.1

million of the $38 million in the Authority’s

reserve account and require the Authority

to repay or reimburse the program for more

than $70,000 in ineligible expenses.

Before reaching a management

decision on the CAV, the Department

executed an agreement with the Authority,

allowing it to participate in the Moving To

Work (MTW) Demonstration program,

without notifying OIG or HUD Office of

Public and Indian Housing field office staff.

In approving the Authority’s participation

in the MTW Demonstration program, the

Department rendered our audit

recommendations moot since under the

program agreement, the Authority is no

longer required to follow HUD’s

requirements and regulations. OIG has an

audit in process to review HUD’s

acceptance of the Authority into the MTW

Demonstration program. (Audit Report:

2005-PH-1004)
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 68

Public Housing Authority Activity Public Housing Authority Activity

with Nonprofit Entities with Nonprofit Entities

In our previous semiannual report, we

identified PHAs that improperly used HUD

funds to develop and support its affiliated

nonfederal entities, which in one instance

resulted in jeopardizing project stability

and could not always support expenditures

made with HUD funds. We continue to

to assess the impact of annual contributions

contract and other requirement violations

as they related to PHA activities with

related nonprofit entities. During the

current period, we completed reviews of

an additional eight PHAs. Improper

activities were found at the eight PHAs,

resulting in questioned costs of nearly $25

million and funds that could be put to

better use of about $5 million. Details of

the improper activities are discussed below.

HUD OIG audited the Housing

Authority of the City of Newark, NJ, to

determine whether it (1) complied with

HUD requirements for the disposition of

proceeds from the redemption of taxexempt bond financing and (2) properly

expended its Section 8 housing choice

voucher administrative fee reserves.

The Authority improperly (1) allowed

its Housing Finance Corporation to retain

more than $2.5 million in funds remaining

after the redemption of the Authority’s

1980 tax-exempt mortgage revenue bonds

and (2) used its Section 8 housing choice

voucher administrative fee reserves for

non-housing-related purposes by

committing more than $4.4 million, of

which $3.9 million was expended, to

acquire properties for the construction of

a hockey arena. This caused an

underreporting of the administrative fee

reserve balance as of January 31, 2003.

Consequently, more than $729,000 in

administrative fee reserves should have

been subject to recapture by HUD.

OIG recommended that HUD (1)

request the Authority to pay it the more

than $2.5 million that remained after

redemption of the Authority’s 1980

mortgage revenue bonds (2) ensure that the

Authority reimburses the housing choice

voucher administrative fee reserve account

more than $3.9 million expended for

non-housing-related purposes, and (3)

recapture more than $729,000 of the

housing choice voucher administrative fee

reserves that exceeded the allowable level

as of January 31, 2003. In addition, OIG

recommended that controls be established

to ensure the proper (1) disposition of the

proceeds from bond redemptions and (2)

use and reporting of housing choice

voucher administrative fee reserves. (Audit

Report: 2005-NY-1005)

OIG reviewed the low-income public

housing program at the Hartford, CT,

Housing Authority. The objective was to

determine whether the Authority used

low-income public housing operating

subsidies in compliance with the financial

provisions of its annual contributions

contract.

The Authority did not administer its

public housing operating subsidies in

compliance with the financial provisions

of its annual contributions contract. It used

public housing operating subsidies to pay

expenditures of its State-subsidized

housing program and other Federal

housing programs. As a result, the

Authority did not have $3.7 million

available to administer its public housing

program.

OIG recommended that HUD require

that the Authority repay the public housing

operating fund $3.7 million plus interest.
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 69

In addition, the Authority should establish

and implement policies and procedures to

ensure that public housing operating

subsidies are used only for program

purposes. (Audit Report: 2005-BO-1006)

HUD OIG reviewed the Housing

Choice Voucher, Public Housing Operating

Fund, and Public Housing Capital Fund

programs at the Fall River Housing

Authority in Fall River, MA. The objective

was to determine whether the Authority

used its Federal funds in compliance with

the financial provisions of its annual

contributions contracts.

The Authority used Federal funds to

pay expenditures for State-subsidized

housing programs. As a result, it did not

have $3.5 million available to administer

its Federal programs. Additionally, the

Authority overreported its voucher

utilization.

OIG recommended that HUD require

the Authority to (1) repay more than $3.5

million (taken from the Federal programs),

(2) strengthen its controls over tracking and

reporting of Federal funds, and (3)

establish adequate controls to ensure

accurate reporting of Section 8 housing

choice voucher utilization. (Audit Report:

2005-BO-1005)

In Canton, OH, HUD OIG audited the

Stark Metropolitan Housing Authority’s

activities with its related nonprofit

organizations. OIG selected the Authority

for audit because it was identified as having

high-risk indicators of nonprofit

development activity. The objectives were

to determine whether the Authority (1)

used annual contributions contract funds

for non-annual-contributions-contract

activities, (2) accounted for the source and

use of funds as required by its annual

contributions contract with HUD, and (3)

encumbered HUD funds for the benefit of

non-HUD development activity without

specific HUD approval.

The Authority received more than

$459,000 in Home Ownership Made Easy

(HOME) funds from Stark County between

August 2001 and September 2002 to

develop five low-income housing units.

Two of the units were for Ruthe and

Isadore Freed Housing Corporation, the

Authority’s nonprofit affiliate entity. The

Authority administered these funds and

deposited them into its general fund. It

expended more than $696,000 from its

general fund for the development of lowincome housing units but could not support

whether HUD operating subsidies or

nonfederal funds were expended.

Freed transferred more than $528,000

to the Authority, which has not

demonstrated that these funds were

reimbursed to its low-income housing

program. The transfers made to Freed were

in excess of the amount Freed had on

deposit in the Authority’s general fund for

the period between December 2000 and

March 2005. Freed lacked the funds to

transfer more than $168,000 to the

Authority as of March 2005.

The Authority also executed two loan

agreements for the purchase of properties

that encumbered $278,000 of its general

fund, including low-income housing

operating subsidies, without HUD

approval. The agreements allowed the

lender to withdraw the funds on deposit if

the loan payments were not made. In April

2004, the Authority secured $184,000 in

loan agreements with nonfederal funds.

OIG recommended that HUD require

the Authority to (1) collect the more than

$168,000 that Freed owes the Authority and

reimburse its low-income housing reserve
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 70

account or reimburse its low-income

housing reserve account from nonfederal

funds, (2) provide adequate documentation

to support that the repayment of more

than $528,000 from Freed Corporation was

from nonfederal funds or reimburse its lowincome housing reserve account from

nonfederal funds, (3) provide adequate

documentation to support that the

encumbrance for $94,000 was removed

and secured with nonfederal funds, and

(4) implement procedures and controls to

correct the weaknesses cited. (Audit

Report: 2005-CH-1011)

In Richmond, VA, HUD OIG audited

the Richmond Redevelopment and

Housing Authority in response to a

citizen’s complaint. The audit objective was

to determine whether the Authority

properly used HUD funds in accordance

with its annual contributions contract.

OIG found the Authority improperly

used more than $6 million in public housing

low-rent funds to pay the administrative

expenses of other HUD programs. Also, it

improperly used $1.5 million in HUD funds

to support its nonfederal entities and could

not support all costs.

OIG recommended HUD require the

Authority to (1) discontinue its practice of

using public housing low-rent funds to pay

the administrative expenses of its other

programs, (2) reconcile funds owed to its

public housing low-rent program from its

other HUD programs and then reduce the

appropriate programs’ funding by

approximately $6 million or the amount

certified from the reconciliation, and (3)

recover $1.5 million provided to its

nonfederal entities or repay it from

nonfederal sources. (Audit Report: 2005-

PH-1009)

HUD OIG audited the Lycoming

County Housing Authority, Williamsport,

PA, in response to a referral from the HUD

Pennsylvania State Office, Office of Public

Housing. The audit objective was to

determine whether the Authority properly

used HUD funds to develop and support

its affiliated nonfederal entity.

The Authority properly allocated

direct and indirect costs to its nonfederal

entity. However, it violated its annual

contributions contract with HUD by

guaranteeing a $3.5 million line of credit

with HUD assets to help support the

nonfederal entity. As of March 2005, the

Authority owed $2.9 million on this line of

credit, placing significant HUD assets at

risk.

OIG recommended HUD notify the

Authority that it improperly encumbered

annual contributions contract assets and

direct it to provide evidence within 30 days

that the financial instruments encumbering

the assets have been changed to exclude

the assets, thereby putting $2.9 million to

better use. (Audit Report: 2005-PH-1012)

In Fulton County, GA, HUD OIG

reviewed the Housing Authority of Fulton

County’s administration of its housing

development activities. The primary

objective was to determine whether the

Authority advanced resources subject to an

annual contributions contract or other

agreements or regulations to the benefit of

other entities without specific HUD

approval. The objective included

determining whether the Authority’s cost

allocation method complied with

provisions of Office of Management and

Budget (OMB) Circular A-87 and whether

adequate records were maintained for

public housing program expenses.
OIG found the Authority

inappropriately used public housing funds

for other programs’ and related entities’

expenses in excess of funds the programs

or entities had on deposit. As of July 31,

2004, six programs or entities owed the

public housing program more than

$640,000. In addition, the Authority

inappropriately advanced public housing

funds for some of its activities and activities

of the nonprofit entities. The Authority also

did not have a record of the time spent on

various activities and may have paid a

disproportionate share of the costs. As of

September 30, 2004, the Authority had

allocated more than $1.3 million more to

its Federal programs than had comparable

housing agencies. Further, the Authority

did not maintain adequate records for

public housing expenses totaling more than

$770,000 incurred from FY 2001 through

2004. The Authority could not provide

support for (1) more than $550,000 in

reclassified salary and benefit costs (2)

more than $181,000 in reclassified

expenses, and (3) approximately $40,000

in other expenses.

OIG recommended that HUD require

the Authority to (1) repay more than

$640,000 or the current balance owed to

its public housing program and ensure

future transactions comply with the

contract and other HUD requirements, (2)

provide documentation to justify

allocations of more than $1.3 million in

salary and benefit costs or reimburse its

public housing program, and (3) develop

internal controls to ensure that more than

$770,000 of public housing expenses are

properly supported and that supporting

documentation is made readily available

upon request. (Audit Report: 2005-AT1009)

Because of indications of violations of

HUD requirements, HUD OIG reviewed

the Town of Crossville, TN, Housing

Authority’s housing development activities.

The objectives were to determine whether

the Authority inappropriately advanced or

diverted resources in violation of its annual

contributions contract or other

requirements and whether the Authority’s

cost allocation procedures complied with

OMB requirements.

The Authority spent more than

$583,000 from its public housing programs

for ineligible activities. In violation of its

annual contributions contract, the

Authority used the funds to support its

affordable housing development activities,

including several tax credit properties

substantially owned by other entities. As a

result, the funds were not available for

operation or modernization of the

Authority’s public housing units. In

addition, the Authority did not adequately

support costs allocated to its Federal

programs as required by OMB Circular A87. Without adequate support, the

Authority cannot assure that its various

programs, including HUD programs, paid

only their fair share of costs.

OIG recommended that the Authority

reimburse HUD more than $417,000 and

that HUD recapture $130,000 in capital

funds. (Audit Report: 2005-AT-1012)

Public Housing Authority Public Housing Authority

Management of Monetary and Management of Monetary and

Physical Assets Physical Assets

HUD OIG audited the Milford

Housing Authority’s, Milford, CT, Public

Housing Capital Fund program, public

housing development grants for scattered

sites, and Section 8 Housing Choice

Voucher program. The audit objective was

to determine whether the authority

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 71
operated in an effective and efficient

manner and in compliance with HUD’s

annual contributions contract, applicable

laws, and contractual requirements.

The audit identified questioned costs

and opportunities for funds to be put to

better use of more than $1.5 million. The

Authority failed to (1) address exigent

health and safety issues; (2) manage one

project in an effective and efficient manner;

(3) use development funds for scattered site

units on necessary and needed

expenditures, maintain an inventory for

prematurely replaced or newly purchased

scattered site equipment, and comply with

Section 504 handicapped requirements for

the development of scattered site units; (4)

comply with Federal requirements and its

own contracts for legal services; (5)

implement adequate management controls

and procedures over Section 8 inspections;

(6) lease-up Section 8 units at an acceptable

rate; (7) comply with HUD procurement

regulations and its own procurement

policy; and (8) follow proper

administrative procedures relating to the

executive director’s employment contract

and performance evaluations, properly

handle personnel functions and employee

benefits, and comply with requirements for

executive sessions conducted during board

of commissioners meetings.

OIG recommended that HUD assure

the Authority (1) prioritizes repairs and/

or replacements using available operating

reserves and capital funds, which will put

approximately $838,000 in funds to better

use; (2) reimburses the scattered site

development fund more than $135,000

from nonfederal funds for the premature

replacement of various items; (3) complies

with the Section 504 handicappedaccessible regulations covering the

development of scattered sites; (4)

reimburses its applicable programs from

nonfederal funds for more than $215,000

in ineligible legal costs and develops

adequate management controls for over

$3,000 in legal expenditures that were

unsupported; (5) reimburses HUD

approximately $26,000 from nonfederal

funds for Section 8 administrative fees

collected by the Authority when its Section

8 program units did not meet housing

quality standards; (6) implements an

effective system to ensure all outstanding

housing quality standards deficiencies are

monitored and corrected within the

required time, which will put more than

$280,000 in funds to better use; (7) submits

a monitoring plan to ensure it uses all

available Section 8 funding; (8) implements

controls to ensure it complies with HUD

regulations and its own procurement policy

in awarding competitive and

noncompetitive contracts; (9) submits the

executive director’s current contract for

HUD approval and establishes specific

goals and measurements to evaluate the

executive director’s performance; and (10)

reimburses its applicable programs from

nonfederal funds more than $25,000 for the

executive director’s personal use of a

vehicle. (Audit Report: 2005-BO-1003)

HUD OIG reviewed the McKeesport,

PA, Housing Authority’s Section 8 and

public housing programs to determine

whether the Authority operated its Section

8 and public housing programs according

to HUD requirements.

OIG found no significant deficiencies

with the Authority’s administration of its

Section 8 program. However, the

Authority’s physical inspection process is

not effective in ensuring its low-rent units

are always properly maintained. The

Authority’s 1) method of scheduling lowrent inspections caused a maintenance

backlog, 2) inspections were not thorough

or adequately documented, and 3)

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 72
procedures to ensure deficiencies identified

during inspections are completed in a

timely manner were not effective. As a

result, the Authority’s low-rent housing

units were not always maintained in an

efficient and effective manner. This was

demonstrated when five of the Authority’s

eight low-rent properties received

individual failing scores ranging from 45

to 59 points on its fiscal year 2004 Real

Estate Assessment Center (REAC)

inspection for its Public Housing

Assessment System review.

OIG recommended the Authority

implement a number of policies and

procedures to improve its low-rent

inspection process. These policies should

ensure that low-rent inspections are

scheduled throughout the year, thoroughly

completed, and properly documented, with

a followup inspection procedure to ensure

previous deficiencies are corrected in a

timely manner. (Audit Report: 2005-PH1014)

HUD OIG audited the Bridgeport, CT,

Housing Authority’s Section 8 Housing

Choice Voucher and low-income public

housing programs. The audit was

conducted because recent HUD rental

integrity management reviews and

independent public accountant audit

reports identified program deficiencies. The

audit objective was to determine whether

the programs were administered according

to program requirements.

The programs were not administered

according to program requirements. As a

result, the Authority mismanaged the $1.5

million purchase and renovation of

additional office space; spent $2.6 million

on the Pembroke Green Development

Project, of which $1.3 million failed to

benefit eligible families; improperly used

more than $636,000 in low-income public

housing funds for voucher program

expenses; improperly charged

approximately $410,000 in administrative

costs to the voucher program; and

improperly calculated and supported

housing assistance payments.

OIG identified questioned costs and

opportunities for funds to be put to better

use totaling $3.8 million and recommended

that HUD require the Authority to justify

the acquisition and use of the 215 Warren

Street office space or sell the property,

implement procedures to ensure that only

eligible families own and rent Pembroke

Green housing units or repay the $1.3

million in HUD funds used to develop the

project that did not benefit eligible families,

repay more than $636,000 to the lowincome public housing program for funds

used for the voucher program, implement

an equitable cost allocation plan and

accounting procedures to allocate expenses

to the benefiting programs and reimburse

its voucher program approximately

$410,000 for ineligible costs charged to the

program, and adequately implement its

quality control procedures to ensure

housing assistance payments are properly

calculated and supported. (Audit Report:

2005-BO-1004)

HUD OIG audited the procurement

practices of the Housing Authority of the City

of High Point, NC, to determine whether the

Authority solicited and awarded contracts

in accordance with procurement regulations

and other requirements.

The Authority paid at least

$524,000 without following procurement

requirements. As a result, the Authority

cannot ensure it received the resulting goods

and services at the best price or that it properly

used HUD funds to meet its mission of

providing safe and sanitary housing.

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 73
OIG recommended that HUD (1) require

the Authority to develop and implement

procurement policies and procedures that

ensure future procurements are in

accordance with requirements, thus

providing assurance that at least $524,000

will be put to better use during the next 12

months; (2) require the Authority to

discontinue paying vendors who do not have

valid contracts or purchase orders; and (3)

monitor the Authority to ensure it complies

with procurement requirements and, if

necessary, implement appropriate sanctions

to ensure compliance. (Audit Report: 2005-

AT-1011)

In Kankakee, IL, HUD OIG audited

the Kankakee County Housing Authority’s

low-rent housing program in response to

a citizen’s complaint and as part of a

comprehensive audit of the Authority. The

objective of the audit was to determine

whether the Authority administered its

low-rent housing program in an efficient

and effective manner and had adequate

procedures and controls over its subsidy

requests, preventive maintenance,

admission and occupancy, personnel

practices, and Turnkey III Homeownership

Opportunity program.

OIG found the Authority (1)

improperly included Turnkey III units in

its calculation of its low-rent performance

funding operating subsidy, resulting in the

Authority receiving more than $119,000 in

excess operating subsidies; (2) did not

follow its annual contributions contract

with HUD to implement an effective

maintenance program, resulting in lost

rental proceeds of more than $69,000; (3)

failed to improve its low-rent housing

program’s admission and occupancy

controls over maintaining proper

documentation in tenant files, conducting

timely reexaminations, accurately

calculating total tenant payments, and

assigning proper unit sizes for tenants; (4)

did not follow its personnel policies related

to maintaining documentation in personnel

files, conducting performance appraisals in

a timely manner, and properly

administering personnel benefits; and (5)

failed to provide adequate oversight of its

Turnkey III Homeownership Opportunity

program.

OIG recommended that HUD require

the Authority to (1) reduce its low-rent

performance funding operating subsidy for

the inappropriately used monies and (2)

implement procedures and controls to

correct the weaknesses cited. (Audit

Report: 2005-CH-1010)

HUD OIG conducted a second audit

of the Kankakee County Housing

Authority in Kankakee, IL. The objective

was to determine whether the Authority

maintained its low-rent housing units in

accordance with HUD’s requirements and

ensured that they complied with the City

of Kankakee’s ordinance on rental

licensing.

OIG inspected 39 family housing units

and identified 693 deficiencies causing the

unit not to be in good repair, order, and

condition, as well as health and safety

issues for 36 of the 39 units. The Authority

improperly used HUD funds to pay more

than $10,000 in fines for its low-rent

housing family units that did not have valid

rental licenses issued by the City.

OIG recommended that HUD require

the Authority to (1) reduce its low-rent

housing operating subsidy for the

inappropriately used funds, (2) seek

reimbursement from the City for fines that

may have been improperly paid, and (3)

implement procedures and controls to

correct the weaknesses identified. (Audit

Report: 2005-CH-1014)

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 74
Public Housing Mortgages and Public Housing Mortgages and

Security Interest Program Security Interest Program

HUD OIG audited HUD’s Public

Housing Mortgages and Security Interest

program’s process for granting security

interest in unappropriated Public Housing

Capital Fund grants. An earlier audit on

the Capital Fund program administered by

a Connecticut Housing Authority,

disclosed potential weaknesses in the HUD

Office of Public and Indian Housing’s

internal controls over its Public Housing

Mortgages and Security Interest program.

The objective was to determine whether

HUD established adequate internal controls

to safeguard funding before allowing

public housing authorities to use security

interests in future program grants.

HUD’s Office of Public and Indian

Housing failed to perform a front-end risk

assessment before allowing public housing

authorities to use security interests in future

Public Housing Capital Fund program

grants. A front-end risk assessment is

needed to ensure internal controls are

effective. HUD has approximately $94

million in financing proposals under

review that should not be approved until

a program risk assessment is completed and

approved and adequate internal controls

are in place.

OIG recommended that HUD (1)

complete a front-end risk assessment of the

Public Housing Mortgages and Security

Interest program, which will result in funds

to be put to better use in the amount of $4.9

million; (2) establish internal controls,

including rules and regulations, for the

Public Housing Mortgages and Security

Interest program based on results of the

front-end risk assessment; and (3) suspend

approvals of financing proposals valued at

$94 million if the front-end risk assessment

is not submitted to and approved by HUD’s

Chief Financial Officer by October 30, 2005.

(Audit Report: 2005-BO-0002)

Moving to Work Demonstration Moving to Work Demonstration

Program Program

HUD OIG reviewed HUD’s design and

implementation of the public housing/

Section 8 Moving to Work (MTW)

Demonstration program to determine

whether (1) the program tested ways to

provide and administer housing assistance

that reduced costs, promoted selfsufficiency, and increased housing choices

and (2) HUD had the authority to approve

housing authority requests to make tenants

enter new contracts with time-limited

housing assistance.

OIG determined HUD relied on an

existing system to collect tenant

information. The system could not accept

tenant information and was not adapted

in time to support an interim evaluation.

As a result, HUD was not able to measure

interim program impacts on costs, family

self-sufficiency, and housing choices as

planned. In addition, HUD relied on

existing assisted housing rules modified by

public housing/Section 8 MTW

Demonstration requirements. However,

the modified rules did not ensure HUD (1)

consistently monitored MTW

Demonstration housing authority activities

and performance and (2) obtained required

OMB approval when collecting program

information. OIG determined HUD had

the authority to make tenants enter new

time-limited contracts.

OIG recommended that HUD (1)

develop a means for evaluating public

housing/Section 8 MTW Demonstration

program performance, (2) require field

offices to monitor program activities, and

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 75
(3) obtain OMB approval for annual

plans and reports. (Audit Report: 2005-

SE-0001)

Operating Subsidy Program Operating Subsidy Program

Review Process Review Process

HUD OIG audited the HUD Office of

Public Housing, Boston Hub’s review

process for operating subsidy calculations

for Region 1 public housing agencies

administering low-income public housing

programs during fiscal years 2004-2005.

The Boston Hub incorrectly approved

more than $1.3 million in operating

subsidies for public housing agencies in FY

2004-2005. It had not implemented a

quality control process to ensure the

accuracy of the operating subsidy

determinations approved. As a result, it

provided some public housing agencies less

than their eligible subsidy, while providing

others approximately $446,000 more than

their eligible subsidy. As of April 28, 2005,

the Boston Hub had submitted more than

$932,000 in revisions, not including the

$446,000, to the REAC Financial

Management Division in response to this

review.

OIG recommended that HUD

implement a quality control process to

ensure the accuracy of the operating

subsidy determinations approved, recover

the more than $446,000 in excess subsidies

approved in FY 2004, and ensure that

REAC’s Financial Management Division

implements the more than $932,000 in

revisions the Boston Hub submitted. (Audit

Report: 2005-BO-0001)

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 76
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 77

Investigations Investigations Investigations

During this reporting period, OIG

opened 388 investigation cases and closed

392 cases in the PIH program area.

Judicial action taken on these cases during

the period included $12,675,659

in investigative recoveries, $57,654,988

in funds put to better use, 415 indictments/

informations, 327 convictions/pleas/

pretrial diversions, 1,499 administrative

actions, 9 civil actions, 19 personnel actions,

and 3,634 arrests.

Some of the investigations discussed in

this report were conducted by OIG, while

others were conducted jointly with Federal,

State, and local law enforcement agencies.

The results of OIG’s more significant

investigations are described below.

PHA Management and Program PHA Management and Program

Officials/Employees Officials/Employees

Section 8 landlord Augustus R. Bond,

Sr., of Baltimore, MD, was sentenced in

U.S. District Court, District of Maryland,

for his previously admitted role in the theft

of HUD funds from the Housing Authority

of Baltimore City (HABC). Defendant

Bond received 6 months home detention,

followed by 2 years supervised release, was

fined $2,000, and was ordered to repay

$30,500 to HABC. The investigation

disclosed that for several years, Bond

received a total of 77 HABC Section 8

housing assistance payment (HAP) checks

on behalf of two tenants who he knew

were no longer eligible for assistance. In

one case, Bond falsely reported that a

tenant who had previously vacated a unit

had returned, and he continued to file false

reports for almost 8 years to continue

receiving assistance on that unit. In the

other case, Bond knew that one of his

tenants began subleasing the assisted unit

to a friend in January 1999, but he

continued to report the original tenant as

occupying the unit for a period of 4 years

until the scheme was uncovered.

Former executive director Denise P.

Guite of Hartford, CT, was sentenced in

Connecticut Superior Court. Defendant

Guite previously pled guilty to one count

of larceny in the first degree by defrauding

a public community. Guite was sentenced

to 10 years imprisonment, suspended after

serving 15 months, and 5 years probation.

Guite was also ordered to repay $3,000 per

year to the Berlin Housing Authority

(BHA), over her 5-year probation period.

Guite has already repaid $18,800 to the

BHA, which represents the amount of

money involved in the theft that was not

repaid by insurers of the BHA.

Chart 3.4: Public and Indian Housing Funds Chart 3.4: Public and Indian Housing Funds

Put to Better Use

PHA Fraud

37%

Section 8

54%

Total: $57,654,988

Chart 3.3: Public and Indian Housing Chart 3.3: Public and Indian Housing

Investigative Recoveries Investigative Recoveries

Embezzlement

27%

Section 8

55%

False

Statements

7%

Total: $12,675,659

PHA Fraud

4%

Other

0%

Fugitive Felon

Initiative

2%

Fugitive

Felon

Initiative

7%

False

Statements

2%

Embezzlement

3%

Other

2%
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 78

Scott Banninga of Grand Rapids, MI,

former executive director of the Dowagiac

Housing Commission, was sentenced to 2

years probation and court-ordered

restitution totaling $2,298. This followed

his earlier guilty plea in the U.S. District

Court, Western District of Michigan to

embezzlement of Federal funds. Banninga,

as executive director, utilized two

Dowagiac Commission American Express

credit cards to purchase meals, computer

programs, textbooks, car repairs, and

Internet services; all of which were used

for his personal benefit. The total loss was

approximately $5,000. As a result of the

criminal investigation, Banninga’s $45,000

annual contract with the housing

commission was immediately terminated.

A criminal information was filed

against Jerome Wisniewski of Grand

Rapids, MI, the former executive director

of the Manistee Housing Commission.

Wisniewski was charged in the U.S,

District Court, Western District of

Michigan, with two counts of

embezzlement and unlawful monetary

transaction for his role in an alleged scheme

to defraud the housing commission of more

than $1.2 million in the Western District of

Michigan. Wisniewski, who had been an

employee of the housing commission for

more than 34 years, purportedly used the

authority’s funds to purchase a 1989 Rolls

Royce Silver Spur, a 1999 Porsche 911, and

two pieces of real estate. According to the

criminal information, Wisniewski was able

to further his scheme through the creation

of a fictitious company, which allowed him

to funnel housing commission funds.

Forfeiture arrangements are already

underway for Wisniewski’s vehicles and

the proceeds from the imminent sale of his

properties.

Defendant Marysol Morales of Boston,

MA, former Section 8 coordinator, Avon,

MA, Housing Authority, was charged in a

21-count superseding indictment by a

Federal grand jury in U.S. District Court,

Boston, MA. Morales was charged with a

total of six counts of corrupt receipt of

payments by an agent of a federally funded

local government entity and with 15 counts

of using false documents in a matter within

the jurisdiction of a Federal agency. In a

previous Federal indictment, which was

returned on February 16, 2005, Morales

had been charged with three counts of

corrupt receipt of payments.

These actions are the result of an

ongoing HUD OIG investigation, which

revealed that Morales had allegedly

solicited bribes from several Section 8

Copyright, 2005. The Enterprise- Brockton, MA.

Reprinted with permission.
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 79

applicants ranging from $2,600 to $6,500.

In addition, Morales issued more than 90

alleged Section 8 vouchers that should not

have been issued causing the housing

authority to terminate more than 90

families from the Section 8 program. The

90 fraudulent Section 8 vouchers were

valued at more than $1,300,000, which

caused the Avon Housing Authority to pay

in excess of $50,000 per month in HAP,

funds that it did not have.

As a result of the allegations, the Avon

Housing Authority also attached a lien

against Morales’ personal residence,

located in Brockton, MA, in the amount of

$350,000, since she had placed the property

up for sale. Morales was terminated from

her job at the Avon Housing Authority on

December 30, 2004.

Samuel Norris of Miami, FL, a housing

authority employee for more than 17 years,

pled guilty to two counts of theft

concerning programs receiving Federal

funds in the U.S. District Court, Southern

District of Florida. Norris was previously

indicted on March 1, 2005, and charged

with two counts of theft concerning

programs receiving Federal funds, nine

counts of theft of public money, and one

count of false statements to HUD. Norris,

a leasing and contracts supervisor for the

Miami Dade Housing Agency (MDHA),

was responsible for approving and

processing Section 8 applicants at the

housing authority. Norris abused his

position by certifying MDHA documents

to reflect a fictitious Section 8 landlord in

order to divert the Section 8 subsidy checks

to himself. From 2000 through 2004,

Norris ensured that he successfully

diverted the Section 8 subsidy checks to

himself in the amount of $21,706. Norris

was suspended without pay following his

indictment and has resigned from his

position as a result of his guilty plea.

Defendant Miriam Brown, former

executive director of the Maquoketa, IA,

Housing Authority, was sentenced in U.S.

District Court, Northern District of Iowa,

to serve 7 months imprisonment, 7 months

home confinement, and 2 years supervised

release. Defendant Brown previously pled

guilty to embezzling more than $64,000

from HUD. Defendant Brown embezzled

the funds from the Housing Authority

operating account by reimbursing herself

for expenses that did not exist and

overpaying herself with unapproved bonus

and salary checks during a 3-year period.

Defendant Brown repaid the $64,000 in

restitution to HUD prior to her sentencing.

This investigation was conducted by HUD

OIG.

Defendant Jane Burchett, Omaha, NE,

former executive director of the Housing

Authority of Wymore, NE, was indicted by

a Federal grand jury for the District

of Nebraska for embezzling funds.

Defendant Burchett allegedly hired a

tenant to clean restrooms and clean out

apartments. The tenant worked 7 to 12

hours per month. Defendant Burchett

allegedly issued a monthly check generally

for $498 payable to the tenant, allegedly

endorsed it by signing the tenant’s name

as well as her own, then paid the tenant

approximately $100 per month. The checks

issued and cashed in this manner totalled

more than $26,600 from 1999 through

September 2004.

Defendant Renee Gonzales, former

executive director of the Fort Lupton, CO,

Housing Authority was indicted by a

Federal grand jury for the U.S. District

Court, District of Colorado, on July 11,

2005. On July 14, 2005, Federal agents

from HUD OIG and the Federal Bureau of

Investigation (FBI) arrested defendant

Gonzales at her residence in Fort Lupton,

CO. The Federal grand jury indicted
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 80

Gonzales on 53 counts of theft of

government program funds. The

investigation found that defendant

Gonzales allegedly wrote 53 Housing

Authority checks to fraudulent payees then

deposited the checks into the bank accounts

of her husband’s trucking company. The

investigation disclosed that during the

period of May 2003 though June 2004,

defendant Gonzales allegedly embezzled

approximately $212,095 of Housing

Authority funds.

Defendant Verda Steward,

unreported Section 8 tenant, Housing

Authority of Kansas City, MO (HAKC),

was charged in the 16th Circuit Court for

the State of Missouri with one count of

theft/stealing of property or services of

$500 or more. Clellie Barker, defendant

Steward’s deceased boyfriend, had been a

Section 8 recipient but died in December

2001. Defendant Steward, who was never

on the lease, allegedly continued to receive

benefits under Barker’s identity after his

death. Defendant Steward

allegedly received $6,652 in

housing benefits from the HAKC

to which she was not entitled.

Francis X. Maroney, former

chief, Purchasing Department

Warehousing, Springfield

Housing Authority (SHA),

entered a plea of guilty to one

count of bribery and one count

of obstruction of justice.

Maroney’s plea was based on an

information filed in U.S. District

Court, Springfield, MA.

Maroney, in entering his plea,

admitted to his participation in

accepting bribes from an

SHA vendor; to misleading

investigators regarding other

SHA vendors involved in paying kickbacks;

and to wholesale theft of SHA material

from the warehouse.

A 12-count felony complaint was filed

on Johnny Walker, an employee of the

Housing Authority City of Los Angeles,

CA (HACLA), his wife, Linneth Tirhanna

Walker, and his mother-in-law, Cecilia

Singh. All three allegedly conspired to

commit grand theft and welfare fraud. On

or between January 1, 2001, and January

1, 2003, Johnny Walker and Linneth

Walker allegedly defrauded the HUD

Section 8 program by renting a subsidized

property to Cecilia Singh, a violation of

program regulations. These individuals

were charged with grand theft of personal

property, causing a loss of monies

exceeding $15,000 to the HACLA.

On August 19, 2005, Johnny Walker,

Linneth Walker, and Cecilia Singh were

arrested at their residence and taken into

custody. All three were released on their

Copyright, 2005. The Republican - Springfield, MA. Reprinted with

permission.
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 81

own recognizance and are scheduled to

appear in court.

Defendant James H. Tate of Topeka,

KS, former executive director of the

Junction City, Kansas, Housing Authority

(JCHA), pled guilty in Federal Court, U.S.

District of Kansas, to a one-count

information charging him with the theft of

JCHA funds. Defendant Tate admitted

that between December 2002 and

November 2004, he stole a total of

$102,701.23 from the JCHA. Defendant

Tate had worked for the JCHA since 1990,

and his job was to manage the daily

operations of the housing authority and to

report to the authority’s board of directors.

Defendant Tate charged personal items on

the JCHA credit card, including eye glasses,

clothes, travel expenses, food, jewelry,

phone bills, cable bills, and other items he

purchased for his friends and family. He

also used the JCHA’s gas cards to buy gas

for his personal use and drove housing

authority vehicles on trips with family and

friends or to shop or dine. Defendant Tate

paid the unauthorized credit card expenses

by obtaining the JCHA chairman of the

board’s electronic signature password,

which he used to write checks on the JCHA

computerized software accounting

program.

Defendant Cynthia Stone, employee of

the Housing Authority of Kansas City, MO

(HAKC), and HAKC Section 8 tenant, pled

guilty in the U.S. District Court for Western

Missouri to one count of embezzlement/

theft of public money. Defendant Stone

admitted she failed to report her HAKC

employment income. Defendant Stone

previously confessed that she did not report

to HAKC that for extended periods of time,

she had lived at another address with her

boyfriend and her niece lived at the Section

8 address. The loss to the HAKC is $20,067.

Defendant Barbara Gilbert of Newark,

NJ, former executive director of the Buena

Housing Authority, was indicted on one

count of official misconduct and four

counts of theft by deception in the Atlantic

County Court of New Jersey. Gilbert

allegedly utilized Housing Authority checks

to pay for more than $7,800 worth of

personal purchases and her cell phone bill.

In addition, Gilbert allegedly utilized the

Housing Authority’s Home Depot credit

account to make personal purchases.

Defendant Wayne August Nickols of

Montgomery, AL, pled guilty in U.S.

District Court for the Middle District of

Alabama to one count of mail fraud.

Nickols conspired with the former

executive director, Wiley Thomas, of the

Montgomery Housing Authority to pay

kickbacks to Thomas in exchange for

contracts. Nickols and Wiley would inflate

the price of the contracts for services, and

as a result of the scheme, Nickols received

$243,280 from the Montgomery Housing

Authority.

Defendant Benita James, a former

employee of the Housing Authority of the

City of New Haven, CT (HANH), pled

guilty in U.S. District Court, Bridgeport,

CT, to a one-count information charging

her with theft or bribery concerning

programs receiving Federal funds. While

employed as an intake specialist for the

HANH Service Center, James admitted to

receiving bribes of cash and stolen clothing

in exchange for moving people to the top

of the Section 8 waiting list. James knew

that the process for obtaining Section 8

assistance through the Housing Authority

typically took up to 2 years. James entered

the Housing Authority’s Emphasis Elite

computer system and altered electronic

records, thereby moving people to the top

of the Section 8 waiting list. As part of her
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 82

scheme, James would locate electronic

records for applicants for Section 8

vouchers who were at or near the top of

the Section 8 waiting list and change the

applicant information to that of the persons

who provided her with money and other

things of value. James is scheduled to be

sentenced on December 5, 2005.

Defendant Renay Robison-Scheer of

Norfolk, NE, executive director, Northeast

Nebraska Economic Development District

(NEDD), in the U.S. District Court for

Nebraska, agreed to a civil settlement to

pay HUD $39,236. Defendant RobisonScheer fraudulently misspent various HUD

administrative and operational grant funds

of NEDD.

Grand Theft/False Statements/ Grand Theft/False Statements/

Conspiracy Conspiracy

Michael Ciarci, owner of Ciarci

Construction, LLC, was found guilty by a

jury in U.S. District Court, Hartford, CT,

on one count of money laundering and one

count of conspiracy to commit money

laundering. Ciarci Construction, LLC, had

a contract with the Housing Authority of

the City of New Britain (HANB) to

rehabilitate units at the Pinnacle Heights

housing development. In furtherance of

this contract, Michael Ciarci certified to the

HANB that Luis Santiago worked in

December of 2001 performing services

related to this contract. Santiago had given

Ciarci $31,000 in cash that was generated

from the sale of narcotics, in return for

which Ciarci agreed to issue weekly

paychecks from Ciarci Construction, LLC,

to Santiago. In addition, Luis Santiago was

indicted, pled guilty to one count of money

laundering, and was sentenced to 33

months incarceration.

Miladys Gomez of Newark, NJ,

appeared in United States District Court,

District of New Jersey, and was sentenced

to 2 years of imprisonment and 2 years of

supervised release upon the conclusion of

her prison term. In addition, Gomez was

ordered to pay $407,603 in restitution to

HUD. Gomez had previously pled guilty

to four counts of theft of Section 8 funds

(theft from programs receiving Federal

funds). This investigation disclosed that

from approximately April 2000 to January

2004, Gomez embezzled more than

$400,000 in Section 8 funds.

Leslie Tourner of Orlando, FL, was

sentenced in U.S. District Court, Middle

District of Florida, to 24 months

incarceration, 3 years supervised release,

Copyright, 2005. The Connecticut Post - Bridgeport,

CT. Reprinted with permission.
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 83

and 150 hours of community service;

ordered to pay $204,693 in restitution; and

prohibited from incurring new credit

charges, opening additional lines of credit,

or making an obligation for any major

purchases. Tourner previously pleaded

guilty to one count of conspiracy to

embezzle and money laundering. Tourner

coconspired with Randy Donawa, the

former Section 8 director of the Orlando

Housing Authority, Shawana Glover, and

Brian Tourner. The subjects allegedly

devised a scheme in which they created

fictitious landlords, opened bank accounts

under the landlords’ false identities, and

wire transferred $425,000 in Section 8

money into the accounts. Donawa pleaded

guilty to the same charges and was

sentenced on May 23, 2005, to 21 months

incarceration and 2 years supervised

release and ordered to pay $257,265 in

restitution. Glover and Tourner were

sentenced on May 18 and 20, 2005, after

pleading guilty to the same charges. Glover

was sentenced to 15 months incarceration,

and Tourner was sentenced to 18 months

incarceration. Both Glover and Tourner

were sentenced to 3 years supervised

release and 150 hours community services

and ordered to pay $204,693 in restitution.

Defendant Pamela Rouse of Upper

Marlboro, MD, an employee of the U.S.

Department of Justice (DOJ), Civil Rights

Division, Washington, DC, pled guilty in

Maryland District Court for Prince Georges

County to making false statements

to fraudulently obtain Section 8

housing assistance. She was immediately

sentenced to 36 months probation and

ordered to make full restitution of $11,718

to the Prince Georges County Department

of Housing and Community Development.

Joint investigation by HUD and DOJ OIG

disclosed that, over a 3-year period, the

defendant failed to include the residency

and income of the father of her child,

William Dixon, who was employed with a

nationwide property management firm.

Pertinent information has been provided

to DOJ for appropriate administrative

and/or disciplinary action against the

defendant.

Reginald Vaughn Hurd, Margie

Langdon Stinson, Michelle Delores Brown,

Antwinette Anderson, Helen Syatt, and

Yvonne Taylor of Dallas, TX, were arrested

for securing and executing a document by

deception. In addition, Helen Emory Hurd

was arrested for forgery. The seven

subjects are allegedly involved in a scheme

to defraud the Dallas Housing Authority

(DHA) by falsifying deeds and other

governmental records to qualify properties

for subsidized housing assistance. The

two main subjects, Michael Booty and

Leoy Phillip Mitchell, involved the

aforementioned subjects by placing

properties in their names and obtaining

home improvement loans for the

properties. Once the loans were approved,

the subjects allegedly received a kickback

as the “owner” of the property, and

Mitchell and Booty, through their

construction companies, would make

nominal repairs to the properties and then

keep a large portion of the loans as profit.

DHA then paid all of the HAP funds to

the “listed owners” of the properties;

however, all of the funds went to Booty and

Mitchell as property managers, and they

serviced the loans. In addition, the subjects

have created at least three properties from

detached garages and forged or altered real

deeds for those properties stating they were

residences.

As part of a Joint Terrorism Task Force

(JTTF) criminal referral, three Section 8

tenants and their husbands were indicted by

a grand jury in U.S. District Court, Southern

District of Indianapolis, IN. The tenants are

Wafa Monhammad Taha (site-based),
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 84

Nazmiah M. Abed (tenant-based), and Sadi

Aduhamdeh (tenant-based). All are alleged

to have their husbands living in the assisted

unit and failing to report accurate family

composition and/or income. The men

charged, Mohammad T. Ibrahim, Ibrahim

Taha Abed, and Abdelnaser Sadi, have

commercial driver’s licenses with hazardous

materials approvals and made sizable

incomes during the periods in question. The

tenants and their husbands were all charged

with making false statements and theft of

public monies. The total loss to HUD is

$62,346.

A Federal grand jury in the Northern

District of Cleveland, OH, unsealed a 42-

count indictment charging, among other

things, defendants Frank Adams, Gordon

Nelson, Jimmie Mitchell, Aubrey Benjamin,

Andre Jenkins, Nathaniel Thompson,

Roland Smith, Julena Burns, Juan

Mendoza, and Gary Eppinger with

violation of currency reporting and

structuring laws and possession with intent

to distribute cocaine (5 kilograms or more).

It is alleged that Mitchell (Section 8

landlord), Benjamin (Section 8 landlord),

Nelson, Jenkins, Thompson, Smith, and

Eppinger received multiple kilograms of

cocaine from their suppliers in Los Angeles,

CA, Frank Adams, Juan Mendoza, and

Julena Burns.

It is alleged that Mitchell distributes

these multiple kilograms of cocaine to

Cleveland area dealers (at least four of

whom are Section 8 landlords). To conceal

the proceeds of his drug trafficking,

Mitchell opened and operated several

construction businesses. Although the

construction businesses had bank

accounts, none of the money was

purportedly used for the three houses his

construction companies built.

The Worcester, MA, Police

Department (WPD) obtained state

complaints charging Kenneth Flood and

Melissa Lenart with larceny over $250 and

uttering a false instrument. The complaints

were made after a joint HUD OIG, WPD,

and Worcester Housing Authority (WHA)

Department of Public Safety investigation

showed Flood and Lenart had allegedly

forged and cashed $6,800 in checks stolen

from a WHA tenant association.

Section 8 tenants LuAnn Fell and

Peggy Wolfe were charged separately in

State Circuit Court, Frederick County, MD,

on theft and fraud charges relating to their

receipt of rental assistance from the

Frederick, MD, Housing Authority.

Investigation by OIG was initiated as a

result of our ongoing review of zero- or lowincome tenants receiving assistance from

the Authority and disclosed that defendant

Fell allegedly failed to report income of

approximately $1,000 per week from a

cleaning business and claimed additional

family members who did not reside with

her to obtain a larger rental unit.

Defendant Wolfe failed to report the

occupancy and income of the father of her

child, who is employed as a driver for a

local dairy, earning approximately $50,000

per year. The aggregate amount of rental

assistance overpaid on the defendants’

behalf is almost $40,000.

Section 8 tenant Carol Jackson of

Scranton, PA, a resident of Village Park

Apartments, was charged in U.S. District

Court, Middle District of Pennsylvania,

with providing false information to obtain

housing assistance to which she was not

entitled. Investigation by OIG, which

included execution of a search warrant at

the subsidized unit, disclosed that since at

least 1988, the defendant has allegedly been

operating a private-duty nursing registry
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 85

from her apartment. The defendant would

allegedly refer persons to provide home

health care for the aged and infirm, for

which she received fees of up to $400. She

also allegedly maintained substantial funds

in a personal bank account that was never

disclosed. Throughout the years since

1988, she allegedly reported only welfare

and income from sporadic employment on

official recertification forms and received

the benefit of $189,000 in rental assistance.

In Will County Circuit Court, as part of

Region 5’s proactive tenant/landlord fraud

efforts through the Joliet, IL, Housing

Authority (JHA), two tenants entered guilty

pleas on criminal informations, three other

tenants were indicted, and one landlord was

indicted in what is known as “OPERATION

JOLI 8.”

Tenant Debbie Daniels was charged with

failing to report more than $50,000 from a

local casino to the JHA, thus causing an

estimated loss of $11,000. Tenant Aquenetta

Hughes, an employee of the State of Illinois,

was charged with failing to report more than

$100,000 from her employer, thus causing a

loss of $23,000. Tenant Letha Griffin was

charged with failing to report in excess of

$60,000, thus causing a loss of $20,000.

Section 8 landlord Stephanie Roberts was

charged with accepting approximately

$7,000 in “side payments” over and above

what her true tenant’s payment should have

been. Tenants Yvette Steel and Johnnie Mae

Carver pleaded guilty and were sentenced

for their failure to report accurate income to

the JHA. Steel was sentenced to 2 years

probation and ordered to pay restitution

totaling $6,500. Carver was sentenced to 2

years probation and ordered to pay

restitution totaling $15,000.

Williamsport, PA, Housing Authority

executive director Bernard Meyer was

charged in U.S. District Court, Middle

District of Pennsylvania, with concealing

his and another member of the board’s

financial interest in the HUD-funded

Section 8 program. Investigation by OIG

disclosed that Meyer has allegedly owned

property under the name Brandon

Investment Group that has received rental

assistance on behalf of a tenant since 1999.

Further, he also allegedly knew that the

board member and another employee

owned property that housed Section 8

tenants. Despite this, he allegedly certified

annually to HUD that the Section 8

program was being administered in

accordance with outstanding regulations.

The aggregate amount of housing

assistance paid improperly to all three

individuals was computed at $44,424.

Defendant William Hudgens, a former

Cave Springs, GA, police officer assigned

to the Cave Springs Housing Authority,

pleaded guilty in Floyd Superior Court,

Rome Judicial District, to 14 counts of theft

by deception violation and one count of

violation of oath of office as a police officer.

Hudgens was formerly arrested and

indicted for theft of $25,000. He admitted

to converting housing authority funds for

his personal use while being assigned to the

housing authority as a community police

officer. On this same date, Hudgens was

sentenced to 15 years incarceration,

ordered to pay $23,849 in restitution, and

fined $12,600.

Defendant Amanda Horn, a Junction

City, KS, Housing Authority (JCHA)

Section 8 tenant, was indicted in the U.S.

District Court of Kansas on a 13-count

indictment. Defendant Horn committed

fraud against HUD, the U.S. Department

of Agriculture (USDA) Food Stamp

program, U.S. Department of Health and

Human Services (HHS) Temporary

Assistance for Families program, and the

Medicaid program, when she allegedly
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 86

failed to report that her mother, Catherine

Stinnet, paid Debra Printup for daycare

services on Defendant Horn’s behalf. These

payments were as follows: $1,020 from

approximately October 7, 2002, through

December 31, 2002; $2,700 from

approximately January 1, 2003, through

March 30, 2003, and again from August

21, 2003, through December 31, 2003; and

$1,320 from approximately February 10,

2004, though April 30, 2004. As a result,

JCHA paid out $7,200 in excessive HAP

benefits, Kansas Social and Rehabilitative

Services paid out $ 2,829 in excessive USDA

food stamp benefits and $589 in general

cash assistance, and HHS paid out $3,976

in Medicaid overpayments. Defendant

Horn’s alleged failure to report changes in

her household composition and income

resulted in a total loss to the government

of $14,594.

Ronald Nagel, former Sacramento, CA,

Housing and Redevelopment Agency

(SHRA) conventional housing tenant, was

indicted by a Federal grand jury in the

Eastern District of California on one count of

theft. This investigation found that Nagel

allegedly failed to report income derived

from the sale of cigarettes to the SHRA from

2000 through 2003. This case was referred

to the Social Security Administration (SSA)

OIG by this office upon discovery that Nagel

was receiving benefits from that agency.

The loss to the government due to Nagel’s

failure to report the income is

approximately $51,000.

Windale Simpson, tenant of 40

Waterside Plaza, New York, NY, was

convicted on five counts by a Federal jury

in the Southern District of New York: two

counts of submitting false statements, two

counts of theft of government funds, and

one count of mail fraud. Simpson was

arrested pursuant to an indictment in

September 2004. Simpson and his wife

Lisa Khandker-Simpson, a codefendant,

falsely represented his total household

income to obtain Section 8 housing

assistance and welfare benefits from the

New York City – Human Resource

Administration and caused such benefits

to be mailed through the United States

Postal Services. From August 2001

through December 2003, the defendant

falsified initial applications and annual

recertifications, thereby wrongly receiving

rental assistance and welfare funds in

excess of $71,723.

In U.S. District Court for the Western

District of Washington, defendant Carol

Tharpe of Seattle, WA, was charged with

one felony count of theft of government

funds. Tharpe pled guilty and was

scheduled for sentencing. This

investigation began after HUD OIG

received allegations that Tharpe was

involved in a public housing fraud scheme

in which the defendant obtained public

housing benefits by understating her

annual income on annual Seattle Housing

Authority recertification forms. From 1998

through 2004, Tharpe understated her

income to qualify for public housing

assistance. As a result of submitting

fraudulent recertifications, Tharpe

obtained more than $37,500 in public

housing assistance she was not entitled to

receive.

Elvira Sami-Anas, tenant of New

York, NY, was sentenced in the Southern

District of New York to 3 years probation

and ordered to pay a $100 special

assessment and $12,496 in restitution. In

April 2005, Sami-Anas pled guilty to two

counts of submitting false statements and

one count of theft of government funds.

Sami-Anas was arrested pursuant to an

indictment in September 2004. Sami-Anas
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 87

falsely represented her total household

income to obtain Section 8 housing

assistance. Sami-Anas also subleased her

apartment and moved to another address

for which she also submitted an application

to HUD under an alias to receive Section 8

housing assistance. From July 1993

through July 2004, the defendant falsified

initial applications and annual

recertifications, thereby wrongly receiving

rental assistance.

Defendant Cindy Cerda pled guilty to

one count of execution of a document by

deception. Cerda was sentenced to 5 years

probation, a $500 fine, court costs of $198,

and $10,105 in restitution. Cerda is one of

82 individuals that have been indicted by

a Dallas, TX, County grand jury since

October 2004, accused of defrauding

Dallas Housing Authority (DHA) by means

of underreporting family income or assets

to illegally get more than $1.2 million in

higher rental subsidies or public housing

assistance. DHA terminated 134 tenants

from its housing assistance program for

criminal activities. These terminations

resulted in funds put to better use of $4

million with an overall funds put to better

use for the Dallas Rental Housing Integrity

Improvement Project (RHIIP) initiative of

$5,182,992.

Officers from the Austin, TX, Police

Department (APD) and special agents from

HUD OIG arrested 30 current and former

tenants of the Housing Authority of the

City of Austin (HACA). Thirteen

individuals were indicted on charges of

tampering with a government record for

failing to accurately report income and/

or household composition in relation to

their federally subsidized housing benefits.

In addition, 18 individuals living in public

and assisted housing were identified as

having outstanding warrants for violent

crime offenses.

Teresa Akridge, Erica Broughton,

Tanya Callaway, Priscilla Colbert, Sharon

Hester, Shawwee Pitts, Denise Polite, and

Betty Sorrells were indicted by a Walton

County, GA, grand jury for theft of

services. The former Section 8 tenants

received assistance through the Georgia

Department of Community Affairs;

however, the participants allegedly failed

to report their income, which resulted in

an overpayment of approximately $65,000

in Section 8 assistance. Subsequent to the

indictments, all individuals were arrested

by HUD OIG, Monroe Police Department,

Walton County Sheriff’s Office, and Walton

County Investigators on June 27, 2005.

Lawrence, KS, defendant Carla

Rayton, a Lawrence-Douglas County

Housing Authority (LDCHA) Section 8

tenant, was indicted in the U.S. District

Court of Kansas on a 15-count indictment.

Defendant Rayton allegedly committed

fraud against HUD; the USDA-Food

Stamp program; and the HHS - Temporary

Assistance for Families, Work Support

Services, and Child Care Subsidy programs

when she failed to inform the LDCHA and

the Kansas Department of Social and

Rehabilitation Services (SRS) that William

Bernard Thomas had been living with her

since May 1, 1998, and that Mr. Thomas

had been employed periodically.

Defendant Rayton also failed to inform the

LDCHA that Anthony Wayne Thomas had

also been living with her since July 1, 1999.

Both William Thomas and Anthony

Thomas would have been ineligible to

receive public housing benefits due to their

prior criminal history. Benefits which they

received and to which they were not

entitled were $49,377 in HAP payments,

$15,882 in USDA food stamp benefits,

$2,906 in general cash assistance, $6,164

in Work Program Support Services, and

$5,006 in Child Care Subsidy. Defendant
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 88

Rayton’s failure to report her total

household income resulted in a total loss

to the government of $79,335. Defendant

Rayton’s failure to accurately report her

household composition and income is

making false statements, embezzlement of

government money, food stamp fraud,

false statements relating to health care,

embezzlement in connection with health

care, and health care fraud.

Therese Jones Brown, former

accountant for the Chickasaw, AL,

Housing Authority, was indicted by a

Federal grand jury in the Southern District

of Alabama with one count of

embezzlement. The indictment stated that

Ms. Brown embezzled, stole, obtained by

fraud, and without authority knowingly

converted to her use and the use of other

persons misapplied property valued at

approximately $1.6 million owned by the

Chickasaw Housing Authority. The

investigation revealed that Ms. Brown was

allegedly using housing authority funds to

gamble in Mississippi.

Ana Hidalgo of White Plains, NY,

surrendered based upon a Federal arrest

warrant that was issued by the United

States District Court, Southern District

of New York, for one count of theft

of government funds. During this

investigation, the Yonkers Municipal

Housing Authority (YMHA) determined

that Hidalgo, who was a Section 8 recipient,

received approximately $73,496 in Federal

subsidies to which she was allegedly not

entitled. Hidalgo allegedly failed to report

to the YMHA that she has lived with her

husband, Dickson Trinidad, for the last 9

years at her Section 8 apartment. Trinidad

owns a shipping business in Yonkers, NY.

New York State tax records show that he

has reported income from this business over

the last several years.

Defendant Pamela Haughton, St.

Louis, MO, Housing Authority Section 8

tenant, was indicted by a Federal grand

jury for the Eastern District of Missouri on

one count of making false statements to

HUD and one count of making false

statements to the SSA. Defendant

Haughton allegedly reported to both HUD

and the SSA that she was unemployed,

when she was employed full time as a

corrections officer for the City of St. Louis.

Defendant Haughton caused losses of more

than $50,500 due to her alleged false

statements.

Tony Jones of Tampa, FL, was

convicted in U.S. District Court, Middle

District of Florida, of conspiracy to steal

HUD funds. Jones was indicted on January

26, 2005. Natalie Jones, his estranged wife

and coconspirator previously pleaded

guilty to conspiracy to defraud HUD and

testified against him in trial. The Joneses

conspired with each other and applied for

Section 8 benefits at the Tampa Housing

Authority using Natalie’s maiden name

and did not reveal to the Housing Authority

that she was married to the landlord. They

received $26,000 in Section 8 benefits,

which Jones testified during the trial he

used to pay the mortgage of the jointly

shared home. Jones played professional

arena football for the Tampa Bay Storm

from 1995 through 1997 and the Buffalo

Destroyers in 1998.

Defendant Carolyn Rose Foster of

Rancho Cucamonga, CA, an Upland

Housing Authority (UHA) Section 8

recipient, was charged with five felony

counts: grand theft, conspiracy to defraud

another of property, and three counts of

false/forged instrument. Foster allegedly

conspired with her brother to defraud

UHA by failing to report income received

from a rental property owned by her
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 89

brother. On February 3, 2005, the San

Bernardino County District Attorney

dismissed all charges against Foster. On

May 5, 2005, the San Bernardino County

District Attorney refiled a four-count felony

complaint against Foster. Foster has been

charged with one count of grand theft and

three counts of forgery. Foster is awaiting

trial.

Defendant John Salem of Clearwater,

FL, was arrested in Pinellas County on five

counts of possession of child pornography

violation of Florida State Statute 827.071(5).

Salem was a recipient of Section 8 subsidy

through HUD’s 811 program. HUD OIG

previously executed a Federal search warrant

at Salem’s residence where agents and

officers seized files that yielded evidence of

false statements to obtain housing, videos,

and computers. Salem allegedly possessed

hundreds of images and videos of child

pornography, some of which Salem created

himself. The investigation disclosed Salem

allegedly falsified his income to HUD and,

while residing in an apartment subsidized

by HUD, committed heinous crimes

involving child pornography. This matter

was pursued by the U.S. Attorney’s Office

but was returned to the State for prosecution

due to recent appeals in a similar matter,

wherein Federal jurisdiction was overturned.

Defendants Carl E. Remm, former

Section 8 landlord, and Cassie B. Thomas,

former Section 8 tenant, both of Lexington,

KY, pled guilty to criminal informations

charging them with making false

statements to HUD. The OIG investigation

disclosed that the subjects were living

together in a subsidized residence while

also working at a nursing home. The

Eastern District of Kentucky issued a press

release regarding this case on June 2, 2005.

Louvene Reed, Anthony Travis, Lyris

Wolfe, Sheila Whittenberg, Christine

Carpenter, and Donna James of San

Francisco, CA, were arrested in the Northern

District of California in connection with the

issuance of 10 Federal arrest warrants for a

felony charge of making false statements to

HUD. Pilar Fontenot, Rossie Hawkins, and

Ranina Jones surrendered to the United

States Marshals Service (USMS) and/or the

Federal Court, Northern District of

California. Cellestine Gallegos remains at

large and a fugitive. The 10 individuals are

unrelated but were all allegedly receiving

dual subsidies at the same time from both

the San Francisco Housing Authority

(SFHA) and the Housing Authority of the

County of San Mateo (HACSM). These

individuals had allegedly been living in

public housing and receiving housing

subsidy from SFHA when they applied for

and received Section 8 subsidy from

HACSM.

Pursuant to a joint task force, the Los

Angeles field office assisted the Drug

Enforcement Administration (DEA) and

the San Diego, CA, Police Department in

the execution of state search and arrests

warrants. The arrests were a result of

searches conducted at several units within

the Meadowbrook Multi-Family Housing

Development. As a result of this operation,

state complaints were issued on 33

individuals. The task force was established

to investigate Section 8 tenants who are

fraudulently underreporting their income,

trespassers using the units to conduct

illegal criminal activity, and tenants

housing unauthorized persons in violation

of the Section 8 program. The complaints

and arrests were based on charges ranging

from weapons violations to manufacturing

of a controlled substance. This

collaborative law enforcement effort

involves an ongoing identification of
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 90

tenants and nontenants, who are involved

in illegal and fraudulent activity

within Meadowbrook Multi-Family

Housing Developments in San Diego.

Administrative action to terminate tenants

based on these arrests has been initiated,

and injunctions on nonresidents will be

pursued.

Former Section 8 tenant Mayra

Montano of Hauppauge, NY, was arrested

on a New York State felony complaint

charging her with grand larceny.

Defendant Montano was charged in New

York State Court, Suffolk County, NY, with

fraudulently receiving $107,000 in rental

assistance over an 8-year period and for

failing to disclose her ownership of the

subsidized property. Montano allegedly

received and cashed the Section 8 checks

and used the proceeds to pay the mortgage

and taxes on the property. The checks were

made payable to Montano’s friend,

who allegedly acted as the nominee

property owner. Montano also allegedly

underreported her income and assets to

initially qualify for rental assistance and for

14 years thereafter, causing HUD to pay

$150,000 in rental assistance. A New York

State civil complaint was also filed in a

forfeiture action against the subsidized

property and Montano’s bank accounts.

Defendant Shaun Simon of New York,

NY, was indicted for in conspiracy and

substantive theft of government funds in

Manhattan Federal Court for the Southern

District of New York. Simon, who is

believed to have fled the country, is accused

of embezzling approximately $400,000

from Esplanade Gardens, a cooperative

HUD-insured building that receives public

housing Section 8 subsidies.

Kelly Jones, a Section 8 tenant, was

charged with theft in connection with a

public housing scheme by the Etowah

County District Attorney’s Office for

Attalla, AL. Jones’ alleged failure to report

income and holding residency in two public

housing units resulted in an overpayment

of Section 8 assistance of $9,455. In

addition to not reporting household

income, Jones was allegedly subleasing one

of the subsidized units.

Mark Rolfsema pleaded guilty in U.S.

District Court, Boston, MA, to one count

of possession of child pornography.

Rolfsema, a former Section 8 resident who

lived at the Andover Commons Apartment

Complex in Andover, MA, was previously

indicted after agents conducted a search

of Rolfsema’s Section 8 apartment. During

this search, agents seized child

pornography, along with evidence to

suggest that Rolfsema did not accurately

report all of his assets and income during

his annual Section 8 certifications.

Rolfsema is scheduled for sentencing.

Debra Utley, a Section 8 tenant, was

indicted by a Federal grand jury for the

Middle District of Nashville, TN, in a onecount indictment charging her with theft

and embezzlement – public money,

property, or records. Ms. Utley allegedly

failed to report to the Metropolitan

Nashville Development and Housing

Agency (MDHA) that she had returned to

work after an extended leave of absence.

Ms. Utley’s alleged failure to accurately

report her household income resulted in an

overpayment in rental assistance.

Natalie D. Jones, who previously pled

guilty to one count of conspiracy to defraud

HUD and later provided testimony against

her husband during his trial last month,

appeared before the Honorable James D.

Whittemore, Federal District Court, Middle

District of Florida, Tampa, FL. Judge

Whittemore sentenced Jones to the custody

of the Federal Bureau of Prisons for a term
Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 91

of 4 months, to be followed by 4 months of

home detention with an electronic

monitoring device. Jones was placed on 3

years supervised release and ordered to

perform 200 hours of community service

and pay restitution in the amount of

$31,606 to HUD.

Sandra Wiley of Chicago, IL, FHA

program participant and former HAP

recipient, was indicted in Cook County

Circuit Court on one count of theft by

deception, class 3 felony, under Illinois

Compiled Statutes, chapter 720, section 5/

15-4(a), and one count of forgery, class 3

felony, under Illinois Compiled Statutes.

Wiley allegedly failed to report to the

Chicago Housing Choice Voucher

program (formerly Section 8) the purchase

of the FHA-insured property located in

Belvidere, IL, in August of 2003. The total

loss to HUD is approximately $16,120.

HUD OIG special agents and other

law enforcement officers assigned to the

New York/New Jersey Regional Fugitive

Taskforce arrested registered sex offender

Eric Villafane in New York, NY, in a HUDsubsidized apartment. Villafane was

wanted for the 1997 murder and rape of

his cousin, a 15-year-old girl, in Puerto Rico.

Villafane had been the main suspect in this

heinous crime for years. A warrant from

Puerto Rico was issued for his arrest in

2004. Villafane fled Puerto Rico and went

to Massachusetts. In 2001, while living in

Massachusetts, he raped a 12-year-old girl.

Villafane was sentenced to 1 year in jail

for this crime. He was released on parole

in 2002 and by law became a registered sex

offender in the State of Massachusetts.

Villafane violated his parole in

Massachusetts and came to live in New

York. He was located living with a friend

in a HUD-subsidized apartment.

Villafane’s friend has two young children

(3-year-old girl and 6-year-old boy). The

friend and his family were not aware of

his crimes. At the time of Villafane’s arrest,

he was sleeping with the two young

children.

Former Baltimore, MD, city police

officer Carl Clayton pled guilty in Federal

Court, District of Maryland, to making false

statements in connection with his purchase

of a Real Estate Owned (REO) property

under the Officer Next Door (OND)

program. Investigation by OIG disclosed

that the defendant purchased the REO

property at a 50 percent discount by

certifying that he would live in it for at least

3 years, pursuant to OND rules. Instead,

he began renting the unit almost

immediately while he lived in a public

housing unit. Sentencing is set for

December 19, 2005, and the U.S. Attorney

has initiated civil proceedings in an attempt

to recover the discount benefit that the

defendant received under OND.

Defendants Ross Polete and Christine

Mook of Olathe, KS, Section 8 landlord

and tenant, pled no contest and guilty,

respectively, in the Tenth Judicial District

of Kansas to amended complaints charging

them with misdemeanor charges of theft.

Defendants Polete and Mook failed to

report to the Johnson County Human

Services and Aging (JCHA) and the Kansas

Social and Rehabilitative Services (SRS)

that they lived together while participating

in the Section 8 voucher, food stamps, cash

assistance to families, and medical payment

programs. Defendant Polete certified to

the JCHA that he understood that he was

not permitted to live in Mook’s unit while

she received housing assistance payments.

Defendant Mook certified to the JCHA and

the SRS that the only occupants of her

residence were her and her son. Defendant

Polete was sentenced to imprisonment of
10 months and granted 1 year probation.

Defendant Mook was sentenced to 1 year

imprisonment on each of two counts, to

run concurrently, and was granted

probation of 1 year. The defendants are to

jointly pay restitution of $21,000.

Six present and former Section 8

tenants from the Norfolk, VA,

Redevelopment and Housing Authority

(NRHA) were charged in state court with

obtaining rental assistance under false

pretenses. Investigation by OIG, in

cooperation with NRHA staff, disclosed

that the defendants allegedly received in

aggregate more than $60,000 in rental

assistance to which they were not entitled

by failing to properly report income from

employment or other material information

relating to family composition as required

by the NRHA. At least one of the

defendants allegedly failed to notify NRHA

that he was a convicted sex offender, as

required. Further, as a result of the

investigation, NRHA has instituted

changes designed to detect and prevent

fraud, such as requiring zero-income

tenants to recertify monthly, more

expeditious criminal history checks of new

applicants, and timelier handling of

evictions for failing to properly report

income. To date, 36 Section 8 tenants have

been evicted, resulting from the

investigation, and the number of zeroincome units has been reduced from 110

to 35.

Gladys Beck of Denton County, TX,

was indicted for securing execution of a

document by deception. As a result of her

alleged failure to accurately report her

household income to the Denton Housing

Authority, she stole $4,428.

Seven defendants, one Section 8

landlord, and six Section 8 subsidized

tenants were sentenced in Miami, FL, for

multiple counts of theft of Federal funds

and filing false statements to HUD. The

defendants were arrested on January 25,

2005, as part of the national Section 8 fraud

initiative, with a press conference held by

the United States Attorney Marcos Jimenez

and Inspector Geneal Kenneth Donohue.

Tenants Amy Willis, Missia Lee, Rhonda

Simms, Sandra Love, Kandis Roberts,

Lakeisha Veargis, and landlord Ronald

Amira were sentenced from 2 years

supervised release to 78 days incarceration

and required to pay a total restitution to

HUD of $91,933. The false statements

provided by the six Section 8 subsidized

tenants consisted of concealing

employment income, concealing ownership

of property, concealing ownership of

businesses, and undisclosed tenants. The

seventh defendant, Ronald Amira, a

Section 8 landlord, sold the property he

rented under the program and continued

to receive and negotiate subsidy checks for

an 11-month period. Collectively, the

defendants defrauded HUD through three

separate housing authorities: the MiamiDade Housing Agency, the Broward

County Housing Authority, and the

Hialeah Housing Authority.

Identity Theft Identity Theft Identity Theft

Khalilah Crumpler of Cleveland, OH,

a former Cuyahoga Metropolitan Housing

Authority (CMHA) Section 8 landlord,

pled guilty in Cuyahoga County Court of

Common Pleas to one count of tampering

with records and one count of identity

fraud. As part of the plea agreement,

Crumpler must sell the residence (Section

8 property) purchased with the false

identification and forfeit the equity to the

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 92
State of Ohio. Sentencing has been

scheduled.

Crumpler, using the name and SSN of

Marcia James, purchased a two-family

residence in April 2001. Beginning in

January 2002, Crumpler, became a Section

8 landlord through the CMHA, using the

name James. From January 2002 until the

HAP was terminated due to fraud-related

activities in February 2004, Crumpler had

received $20,985 in HAP using the name

Marcia James.

Yanelly Lorenzi of Worcester, MA, a

Section 8 tenant, was arrested in her HUDassisted apartment by the Webster and

Worcester Police Departments. Lorenzi

was arrested on a State warrant for eight

felony charges that include public

assistance fraud, identity fraud, and

forgery. The arrest was made after an

investigation showed Lorenzi allegedly

obtained and used a false identification

card to obtain public assistance and

property and to cash forged checks.

Lorenzi was arraigned at the Dudley, MA,

District Court.

A Federal criminal complaint was filed

against Ms. Billy Nsubuga of Boston, MA,

in the United States District Court for the

District of Massachusetts. Defendant

Nsubuga was charged with one count of

bank fraud, one count of mail fraud, one

count of false use of a passport, and one

count of fraud in connection with an

identification document. Nsubuga, a

resident of a federally subsidized apartment

located in Malden, MA, allegedly opened

various bank accounts and corresponding

mail drops in Massachusetts and New

York. Nsubuga allegedly utilized various

false identities when she opened these

accounts, including a California

identification card, a Uganda passport, a

passport from the Republic of Congo, and

a passport from South Africa. Nsubuga

deposited bogus checks into the various

bank accounts and then withdrew the

funds. This scheme resulted in a loss to

the various financial institutions that

exceeded $100,000. On August 1, 2005,

Nsubuga was arrested without incident at

her federally subsidized apartment located

in Malden.

The Office of Inspector

The Office of Inspector The Office of Inspector

General 

ral ’

s Enforcement Actions Enforcement Actions

in Support of the Rental in Support of the Rental in Support of the Rental

Housing Integrity Improvement

Housing Integrity Improvement Housing Integrity Improvement

Program Program

As a result of a computer match done

using the HUD RHIIP Upfront Income

Verification (UIV), now known as EIV,

Enterprise Income Verification, HUD OIG

conducted a joint investigation with the

McKeesport, PA, Police Department and

the FBI which resulted in the charging and

arrest of 21 individuals by the Allegheny

County District Attorney for Theft by

Deception against the McKeesport

Housing Authority (MHA). HUD OIG

pulled a discrepancy report from the EIV

system and confirmed that 21 individuals

on the list had failed to report all or part of

their income. The defendants, including a

former Miss Pittsburgh and an MHA

maintenance employee, allegedly failed to

report income either attributable to them

or another household resident over a

period of several years. The aggregate

amount of overpaid rental assistance is

approximately $260,000.

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 93
Defendant Cindy Cerda pled guilty to

one count of execution of a document by

deception. Cerda was sentenced to 5 years

probation, $500 fine, court cost of $198, and

$10,105 in restitution. Cerda is one of 93

individuals that have been indicted by a

Dallas, TX, County grand jury since October

2004, accused of defrauding Dallas Housing

Authority (DHA) by means of

underreporting family income or assets to

illegally get more than $1.2 million in higher

rental subsidies or public housing assistance.

DHA terminated 134 tenants from their

housing assistance program for criminal

activities. These terminations resulted in

funds put to better use of $4 million with an

overall funds put to better use for the Dallas

RHIIP initiative of $4,182,992. The Dallas

Housing Authority has 18,000 clients and a

waiting list of more than 20,000 individuals.

Officers from the Austin, TX, Police

Department (APD) and special agents from

HUD OIG arrested 30 current and former

tenants of the Housing Authority of the City

of Austin (HACA). Thirteen individuals

were indicted on charges of tampering with

a government record for failing to accurately

report income and/or household

composition in relation to their federally

subsidized housing benefits. In addition, 18

individuals living in public and assisted

housing were identified as having

outstanding warrants for violent crime

offenses.

As a followup to Region 5’s 14-subject

mass indictment in December 2004, in what

was termed “Operation Eight” (Eliminating

Ineligible Grantees Housing Task Force),

several Chicago, IL, subjects pled guilty, were

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 94

Copyright, 2005. The Tribune-Review - Pittsburgh, PA. Reprinted with permission.
sentenced, and reached civil settlements in

the Northern District of Illinois in connection

with their role in defrauding HUD’s rental

assistance programs. A summary of the

individuals’ plea agreements, sentencing,

and civil judgments follows:

Defendant Urena Woods pled guilty to

one count of making false statements for her

role in a scheme, wherein she fraudulently

obtained an FHA-insured loan using fictitious

employment documents. Subsequent to that,

Woods used her boyfriend as a Section 8

landlord in spite of the fact that she owned

the property. She then became a Section 8

tenant for this same property and allowed

$19,000 in subsidy to be fraudulently paid

on her behalf.

Defendant Johnnie Mae Willis,

employee of Cook County Circuit Court,

was sentenced to 5 years probation, 6

months home confinement with electronic

monitoring, and restitution to HUD in the

amount of $43,987. Simultaneous with the

sentencing, Willis reached a civil

agreement, wherein she was ordered to

pay $37,000 to DOJ. Willis’ judicial actions

follow her earlier guilty plea for her role in

a scheme to collect Section 8 benefits while

not occupying the subsidized unit. Willis,

instead, allowed a relative to reside in the

unit while she obtained an FHA-insured

203K loan.

Antoine Reed, reached a civil

agreement with the U.S. Attorney’s Office,

wherein he agreed to pay $36,000 to the

DOJ for his role in a scheme to collect

Section 8 benefits while not reporting

substantial income from full-time

employment. Further, Reed owned an

FHA-insured single-family property in the

southern suburbs of Chicago that he

resided in while collecting Section 8

benefits.

Bader Hafeez was sentenced to 3 years

probation and 500 hours of community

service for his role in a scheme to collect

Section 8 benefits while not reporting fulltime employment from the State of Illinois

and a private engineering firm. In addition,

in the same month, Hafeez agreed to a civil

settlement with the U.S. Attorney’s Office

to pay $50,880 for his role in the scheme

mentioned above. These were HUD OIG

investigations.

Defendant Howard L. Wilson, Jr., was

sentenced in the Northern District Court of

Illinois to 5 years probation, 6 months home

detention, and restitution to HUD in the

amount of $52,887 for his role in a scheme to

collect Section 8 benefits while not reporting

his $50,000 per year income from a private

security company. Defendant Angela Gibbs

was sentenced to 5 years probation, 6 months

home detention, participation in a drug and

alcohol abuse program, and restitution to

HUD in the amount of $36,956 for her role

in a scheme to collect Section 8 benefits while

not reporting her sizable income from a

nurse’s salary. Defendant Savaya Chalmers

pled guilty for her role in a scheme to collect

Section 8 benefits to which she was not

entitled by being a comortgagor on a property

and not disclosing it to Section 8 officials.

Further, Chalmers orchestrated a scheme in

which she collected HAP checks on behalf

of her dead landlord while she was a tenant.

The total loss in this case exceeded $20,000.

During the week of July 18 in

Richmond, VA, HUD OIG at the request

of USMS and in cooperation with various

other Federal, State, county, and local law

enforcement agencies, conducted a

citywide fugitive apprehension operation.

This initiative was undertaken in response

to the recent wave of murders in and

around Richmond’s public housing. The

initiative targeted wanted persons who live,

committed crimes, or were associated with

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 95
public housing or in neighborhoods in the

city that have a high incidence of violent

crime. Operation FATE (Fugitive

Apprehension and Threat Elimination)

resulted in 56 arrests on 89 charges.

Included in the arrests were two murder

suspects. Law enforcement served five

armed robbery warrants, two rape

warrants, four burglary warrants, 18

firearms warrants, and 15 drug violation

warrants. At least seven of the drug

violation warrants were for dealing drugs

within 1,000 feet of a school that is located

adjacent to public housing.

HUD OIG is pursuing the eviction of

three Richmond Redevelopment and

Housing Authority (RRHA) tenants as a

result of Operation FATE. The first RRHA

tenant was the head of household and was

arrested on charges relating to a violation

of the Drug Control Act. The second

tenant was the head of household and was

arrested on charges related to his

unlawfully possessing a firearm while

being a convicted felon. Another

individual, having been arrested on charges

of rape and theft, was found living in a

HUD-subsidized unit. HUD OIG is

pursuing the eviction of the head of

household of the unit for having the

unauthorized person residing in the

apartment. HUD OIG hopes to positively

impact the RRHA community by removing

the three previously listed tenants and

replacing them with tenants who will obey

the rules and regulations of the housing

authority.

In Chicago, IL, Tenille Davis, a former

Section 8 tenant of the Chicago Housing

Authority, agreed to a civil amount of

$46,426, following an earlier civil

complaint, which charged false claims,

payment by mistake, and unjust

enrichment for her role in a scheme to

defraud Section 8 officials. From 2001 until

2003, Davis falsely certified on Chicago

Housing Authority Section 8

recertifications that her Section 8 unit in

Chicago was to be her principal residence

when Davis resided in a public housing

unit, also funded by HUD, in Mazomanie,

WI. Davis also received public aid

assistance in the forms of food stamps and

cash in Illinois and Wisconsin. U.S.

Bankruptcy Court records, utility records,

and employment records revealed that

Davis’ mother, Karol Davis, was residing

in Davis’ Section 8 unit in Chicago. Davis

received $23,213 in Section 8 assistance and

$6,000 in Illinois public aid that she was

not entitled to since she was residing in

Wisconsin. The $46,426 figure reflects

double damages.

In Marion County, IN, the Marion

County State’s Attorneys Office, along with

HUD OIG and the Indianapolis, IN,

Housing Agency (IHA) Police Department,

announced the filing of criminal charges

against 15 individuals accused of

defrauding federally assisted housing

programs administered by IHA.

In an operation dubbed “Operation

Clean Sweep,” the following individuals

were charged with a multitude of different

State of Indiana crimes associated with

fraud against the IHA: Christopher

McCarty, Sr., Christopher McCarty, Jr.,

Richard Hornsby, Jasmine Patterson,

Mamadou Badiane, Kimberly Love, Naomi

Weaver, Tina Hutchinson, Alicia Gildon,

Terra Kirdendall, Lonnie Johnson, Bertha

Woodard, Shantonna Finch, Kimberly

Williamson, and Eldrie Turner. The

specific schemes and charges for these

individuals are as follows:

Christopher Quinn McCarty, Sr.,

Christopher Q. McCarty Jr., and Richard

Hornsby were charged with multiple

counts of forgery and theft in connection

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 96
with allegations that the three individuals

conspired to distribute and cash several

counterfeit checks at various liquor stores

in Marion County. The fraudulent checks

passed did not contain the name of the IHA

but were manufactured with the checking

account number of the Section 8 program

affixed to each document.

Jasmine Patterson was charged with

attempted theft in connection with

allegations that she paid her utility bills over

the Internet and used a checking account

number of the IHA to do so.

Mamadou Badiane and his former

wife, Kimberly Love, were charged with

welfare fraud and theft in connection with

allegations that Badiane and Love

concealed from the IHA that they were

married and that Badiane allegedly lived

in Love’s public housing apartment.

Investigators alleged that Badiane, who

married Love on September 26, 2002, and

divorced her in July 2004, had earned

income in a 2-year period of approximately

$194,286 primarily from his employment

as a coach operator for the Indianapolis

Public Transportation Corporation,

“IndyGo.”

Naomi Weaver was charged with

welfare fraud and theft felony in

connection with allegations that Weaver

and another individual had purchased a

home at 3546 West 12th Street on or about

October 18, 2004, and moved into that

home shortly thereafter. On the same day

that Weaver purchased the home, she

submitted additional documents to the IHA

as to her indigence. She continued to

receive Section 8 assistance and never

notified the IHA that she had purchased a

home and had moved out of the home at

3103 West Michigan Street. Investigators

alleged that a family member remained in

the Section 8 unit after Weaver moved out.

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 97

Copyright, 2005. Indy-star.com -

Indianapolis, IN. Reprinted with permission.
Tiana Hutchinson was charged with

welfare fraud and theft in connection with

allegations that she failed to report the

ownership of two separate homes on the

east side of Indianapolis, both valued at

$100,000, while a tenant for the agency.

Further, investigators alleged that

Hutchinson concealed her employment

and income as a coach operator for the

Indianapolis Public Transportation

Corporation, “IndyGo.”

Alicia Gildon, Terra Kirkendall, and

Lonnie L. Johnson were charged with

welfare fraud and theft in connection with

allegations that Gildon, who transferred

her Section 8 voucher from Gary, IN, to

Indianapolis in May 2002, conspired with

former Gary residents Kirkendall (her

sister) and Johnson (sister’s boyfriend) to

conceal occupancy of the Section 8 home

Gildon was supposed to be living in.

Investigators executed a court-ordered

search warrant at the Commons Drive

apartment where they discovered that

Gildon had never lived in the apartment,

which was being subleased to Kirkendall

and Johnson. The pair was found to be

paying Gildon $300 per month in rent.

Further, Gildon was found to be living in

an upscale home in Indianapolis where she

was paying $850 per month in rent.

Investigators also discovered that while

Gildon claimed she was indigent and

receiving additional utility payment

assistance from the IHA, she was employed

earning a minimum of $24,000 in wages

in addition to other outside source income

assistance that was unreported and

concealed from the IHA.

Bertha Woodard and Shantonna Finch

were charged with identity deception,

welfare fraud, and theft in connection with

allegations that that Woodard ordered

numerous cellular telephones from AT&T

Wireless that were delivered and billed to

the IHA public housing office at 2210 East

36th Street. The packages were addressed

to a Fortville, IN, woman, whose identity

had been stolen by Woodard, in care of

the Indianapolis Housing Agency.

Immediately thereafter, several bills from

AT&T Wireless started arriving via the U.S.

Mail addressed to the IHA, requesting

payment of these cellular telephones and

service. Woodard sold several cell phones

on the street as so-called “burnout phones.”

Some of those phones were found to have

been in the possession of individuals

arrested for narcotics offenses.

Kimberly Williamson and Eldrie

Turner were charged with welfare fraud

theft in connection with allegations that

between March 1, 2001, and March 13,

2004, Williamson and Turner concealed

from the IHA that Turner resided in

Williamson’s public housing apartment.

Turner, who was never reported as part of

the household composition in the charging

period, had employment income from

defense contractor Rolls Royce and as a

part-time coach for the Indianapolis Public

Schools of $184,042.

OIG, working with approximately 100

agents/officers from several other Federal

and local/state law enforcement agencies,

executed 16 Federal arrest warrants and

five Federal search warrants in the 517-unit

public housing development known as Hall

Manor in Harrisburg, PA. Five tenants

were arrested and charged with

encouraging or allowing their assisted unit

to be used in furtherance of illegal narcotics

distribution. In addition, 16 individuals in

and around the development were charged

with possession of illegal narcotics and/or

failing to appear (fugitive warrant

outstanding). This initiative was the result

of a joint HUD OIG investigation with

DEA and state and county police that had

begun at the request of the USAO as a

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 98
result of concern over the rising incidence

of drug-related homicides, fatal drug

overdoses, and police service calls. In one

particular drive-by shooting a school bus

transporting children had been struck by

stray gunfire. The OIG involvement

focused on tenants who were using or

allowing their units to be used for illegal

drug activity or had in some way falsified

their admission application or annual

recertification.

Fugitive Felon Initiative: OIG Fugitive Felon Initiative: OIG

Enforcement Action in Support

Enforcement Action in Support Enforcement Action in Support

of Rental Assistance Voucher

of Rental Assistance Voucher of Rental Assistance Voucher

Fraud

Thirty-two individuals residing in

public housing in San Juan, PR, under the

Puerto Rico Public Housing Authority were

arrested. Several bank accounts and

personal property with an approximate

value of $3 million were seized as part

of the Puerto Rico Local Fugitive

Felon initiative. Participating were

representatives from several Federal and

local agencies such as HUD OIG, USMS,

the Bureau of Alcohol, Tobacco, and

Firearms (ATF), Puerto Rico Police

Department (PRPD), Immigration and

Customs Enforcement (ICE), IRS-CID,

DEA, Puerto Rico Department of

Correction, Puerto Rico Bureau of Special

Investigations (NIE), and Puerto Rico

Family Department.

HUD OIG, Vermont Department of

Corrections-Probation and Parole,

Burlington, VT, Police Department, and

SSA OIG executed three state felony arrest

warrants. Nelson Young, a Section 8

tenant, was arrested for violation of parole

with an underlying charge of felony theft.

Justin Matis was arrested in a Section 8 unit

for probation violations with underlying

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 99

charges of aggravated assault and domestic

assault. Jonathan Strippe was arrested in

a Section 8 unit for violation of probation

with underlying charges of grand larceny.

This operation is part of an ongoing

Fugitive Felon initiative.

The Massachusetts State Police (MSP)

Violent Fugitive Apprehension Section

(VFAS), Worcester, MA, Police

Department (WPD), arrested two fugitives

residing in HUD-assisted housing. Public

housing tenant Ovila Ballargion was

arrested on a State warrant for assault and

battery with a dangerous weapon. Projectbased Section 8 tenant Manuel Santiago

was arrested on a State warrant for failing

to register as a sex offender. In addition,

the operation identified a second sex

offender illegally residing in a project-based

Section 8 apartment. Lease action is

anticipated against the tenants involved.

Sixteen individuals residing at the

Guaynabo, PR, Alejandrino Public

Housing project under the Puerto Rico

Housing Authority (PRPHA) were arrested

as part of the Local Fugitive Felon

initiative. Present were representatives

from HUD OIG, USMS, Puerto Rico

Police Department, DEA, Puerto Rico

Department of Correction, and NIE.

In connection with an ongoing

criminal investigation to locate and

apprehend wanted fugitive felon Alex

Capo-Carrillo of Trujillo Alto, PR, three

out of four fugitive felons, members of the

Capo-Carrillo drug and firearms sales

organization, were arrested at the Villa

Andalucia public housing project. Fugitive

felons Carlos A. Rivera, Jeffrey Figueroa,

and Josue Vazquez were also located and

apprehended at the above mentioned

public housing project. These defendants

currently receive HUD public housing

assistance. Fugitive felon Niel Torres
was not present or not on the premises

at the time of the execution of his

arrest warrant.

The Massachusetts State Police (MSP)

Violent Fugitive Apprehension Section

(VFAS), Worcester, MA, Police

Department (WPD) and USMS arrested

fugitive felon Santos Guzman. Guzman

was wanted on state drug distribution

charges including drug distribution within

a school zone. At the time of his arrest,

Guzman was illegally residing in a Section

8-assisted apartment. Administrative

action has been initiated against the Section

8 tenant head of household involved.

Fugitive Felon Niel Torres of Hato Rey,

PR, voluntarily surrendered to the USMS

and the HUD OIG at the USMS Fugitive

Felon Task Force office. Fugitive Felon Niel

Torres had absconded from the authorities

at the time of the execution of his arrest

warrant at the Villa Andalucia public

housing project when three other fugitive

felons were successfully arrested on

September 7, 2005. Torres was a member

of the Capo-Carrillo drug and firearms

sales organization at the mentioned public

housing project and currently receives

HUD public housing assistance. Eviction

process will be initiated.

The Massachusetts State Police (MSP)

Violent Fugitive Apprehension Section

(VFAS), Worcester, MA, Police

Department (WPD), and USMS arrested

fugitive felons Jesus Melendez and Edwin

Melendez. The Melendez brothers were

wanted on state charges of armed robbery,

assault and battery with a dangerous

weapon, assault and battery, and firearms

charges. The Melendez brothers were each

residing illegally in separate public housing

units at Great Brook Valley Gardens

Apartments. The Worcester Housing

Authority (WHA) has initiated eviction

proceedings against the tenant heads of

household involved.

In connection with an ongoing

criminal investigation to locate and

apprehend wanted fugitive felons related

to the illegal sale and distribution of

firearms and drugs at the Vista Hermosa

public housing project in San Juan, PR, four

fugitive felons were successfully arrested

at the mentioned project. The fugitive

felons arrested, Aqua Morales, Saul

Andrades, Antonio Morales, and Jaimee

Vega, are currently receiving HUD public

housing assistance. Eviction process will be

initiated against all subjects.

HUD OIG and the Lakeland, FL,

Police Department executed two State

arrest warrants. Oveta Hicks, a Section 8

tenant, was arrested on an underlying

charge of failure to appear on charges for

obtaining property with insufficient funds.

Sharian Hicks, a public housing resident,

was arrested in a public housing unit on

an underlying charge of battery array. This

operation is part of an ongoing Fugitive

Felon initiative with the Lakeland Police

Department and the Lakeland Housing

Authority.

In Miami, FL, 15 fugitives that received

Section 8 subsidies were arrested in an

innovative “sting” operation coordinated

by HUD OIG and the Miami Dade Housing

Agency. The tenants were notified by the

MDHA to report to the MDHA Section 8

Office on July 30, 2005, for their routine

annual certification of household

composition. Once positively identified by

HUD OIG agencies working in an

undercover capacity as MDHA employees,

the fugitives were detained and arrested

by Miami-Dade Police Officers.

Additionally, the fugitives were notified by

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 100
MDHA personnel of the intent to terminate

their Section 8 subsidy based on the clear

violation of HUD’s One Strike regulation.

The 15 subjects, with outstanding State

warrants ranging from violation of

probation to armed robbery, collectively

defrauded HUD and the taxpayers of more

than $244,000 in Section 8 subsidies to

which they were not entitled.

Public & Indian Housing Programs

HUD’s Public and Indian Housing Programs 101

  

The initiative named “Operation

Fugitive Tenant” was one of several

cooperative efforts between HUD OIG and

the Miami Dade Housing Agency in

response to Inspector General Kenneth M.

Donohue’s commitment to reduce

erroneous payments in HUD’s rental

assistance programs.

Chapter 4

HUD’s Multifamily Housing

Programs
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 104

The chart cost figures in this chapter represent the actual monetary benefits for all reports issued during

this semiannual period. The monetary benefits shown in the Profile of Performance represent only those

reports with management decisions reached during this semiannual period. Because there is a time lag

between report issuance and management decisions, the two totals will not agree.

I n addition to multifamily

 housing developments with

U.S. Department of Housing and Urban

Development (HUD)-held or HUD-insured

mortgages, the Department owns

multifamily projects acquired through

defaulted mortgages, subsidizes rents for

low-income households, finances the

construction or rehabilitation of rental

housing, and provides support services for

the elderly and handicapped.

Audits

During this period, the Office of

Inspector General (OIG) issued 1 internal

and 7 external reports in the multifamily

housing program area. These reports

disclosed more than $16 million in

questioned costs and more than $7 million

in recommendations that funds be put to

better use.

Over the past 6 months, OIG audited

owner and management agent operations

with an emphasis on combating equity

skimming. The results of its more

significant audits are described below.

Suburban Mortgage Associates Suburban Mortgage Associates

HUD OIG audited specific HUDinsured mortgages originated and serviced

by Suburban Mortgage Associates,

Incorporated, of Bethesda, MD. The audit

objective was to assess the performance of

Suburban Mortgage in carrying out its

origination and servicing functions through

a review of its HUD-insured loans.

Of six HUD-insured loans reviewed,

four were originated to identity-of-interest

entities. Suburban Mortgage also

originated a HUD-insured loan to a

property that its executive vice president

formerly owned. It originated another

HUD-insured loan to a property of which

the owners had other business ventures

with its executive vice president. As of

January 24, 2005, three affiliated entities

had defaulted on their loans. Suburban

Mortgage requested assignment of the three

defaulted loans to HUD. HUD paid

Suburban Mortgage’s claim for two of the

defaults, causing HUD a combined net loss

of $14 million. The third defaulted loan has

an unpaid principal balance of $12.6

million. The claim for insurance was denied

for this loan. The risk of loss on this

Chart 4.1: Multifamily Housing Program

Reports Issued

1 Internal Report

7 External Reports

Chart 4.2: Multifamily Housing Dollars Chart 4.2: Multifamily Housing Dollars

 Internal Reports External Reports 0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

Questioned Costs Funds Put to Better use
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 105

defaulted loan and two other identity-ofinterest loans could cause HUD to lose an

additional $26.2 million. Suburban

Mortgage’s servicing failures contributed to

unnecessary interest and penalties of more

than $229,000 connected with late payment

of real estate taxes.

OIG recommended that HUD (1)

require reimbursement of more than

$229,000 for the unnecessary charges

allowed by Suburban Mortgage and (2)

terminate the $26.2 million in HUDinsured loans to the remaining three

identity-of-interest properties. In addition,

OIG recommended that HUD take

appropriate administrative sanctions

against Suburban Mortgage and its

principals for its failure to perform its

mortgage-related fiduciary duties. (Audit

Report: 2005 BO 1008)

Idaho Housing and Finance Idaho Housing and Finance

Association Association

HUD OIG audited Idaho Housing and

Finance Association, in Boise, ID. The

audit objectives were to determine whether

Idaho Housing followed Federal

regulations and HUD guidelines when it

(1) allowed project owners to prepay

project mortgages and (2) refunded bonds

in 1994.

Idaho Housing did not properly follow

Federal regulations and HUD guidelines

when it allowed 10 project owners to

prepay project mortgages. As a result, HUD

paid more than $8.5 million in subsidies in

excess of fair market rents for these

projects. Further, Idaho Housing did not

properly follow Federal regulations and

HUD guidelines when it did not return

HUD’s 50 percent share of the savings of

more than $6 million generated from the

1994 bond refunding for 30 McKinney Act

projects and did not use more than

$997,000 of its 50 percent of the McKinney

Act savings appropriately. As a result, the

McKinney Act savings were not available

for HUD programs including those

administered by Idaho Housing.

OIG recommended that HUD require

Idaho Housing to (1) reimburse HUD, its

Federal programs, and the affected

project’s residual receipts account from Copyright, 2005. The Providence Journal - Providence,

RI. Reprinted with permission.
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 106

nonfederal funds for excessive subsidy

payments on the terminated contracts and

for inappropriately distributed bond

proceeds; (2) keep HUD apprised

whenever a project owner prepays the

mortgage on a project subject to the old

regulations and renegotiate the housing

assistance payment contract with HUD;

and (3) implement procedures to ensure the

proper identification of old regulation

projects with respect to the applicable

regulations and guidance. (Audit Report:

2005-SE-1008)

HUD-Insured Mortgages-Owner and HUD-Insured Mortgages-Owner and

Management Agent Operations Management Agent Operations

HUD OIG audited America House,

Inc., in Marshall, VA, at the request of the

director of HUD’s Richmond Multifamily

Program Center. The objective of the audit

was to determine whether America House

and its subsidiaries complied with HUD

requirements covering their HUD-insured

mortgages.

America House and its subsidiaries did

not comply with HUD requirements

covering their HUD-insured mortgages.

Contrary to their regulatory agreements

with HUD, America House and its

subsidiaries failed to make the mortgage

payments for their three HUD-insured

properties even when the mortgaged

properties produced sufficient income to

cover the payments. In addition, America

House improperly commingled funds in

violation of its regulatory agreements and

did not properly maintain project records.

These later actions prevented us from

performing a thorough audit of the three

HUD-insured properties. America House

defaulted on the notes, and HUD was

compelled to sell the properties at a loss of

$4.1 million in September 2004.

OIG recommended that HUD pursue

appropriate administrative sanctions

against the owner and president of

America House and its three wholly

owned subsidiaries. (Audit Report: 2005-

PH-1011)

HUD OIG reviewed the books and

records of Savannah Trace Apartments, an

80-unit multifamily housing project in

Kalamazoo, MI. OIG initiated the review

based on a request from HUD’s Detroit

Multifamily Hub. The review was also part

of OIG’s efforts to combat multifamily

equity skimming on HUD’s Federal

Housing Administration (FHA) insurance

fund. The objective was to determine

whether the owner/management agents

used project funds in compliance with the

regulatory agreement and HUD’s

requirements.

Maplegrove Property Management,

LLC, the project’s former identity-ofinterest management agent; Keystone

Property Management, Inc., the project’s

current management agent; and/or

Richland Housing Partners, LLC, the

project’s owner, inappropriately used

more than $5,500 in project funds from

January 2002 through April 2005 when the

project was in a non-surplus-cash position

and/or had defaulted on its HUD-insured

mortgage. The inappropriate disbursement

included excessive management fees, late

fees/finance charges, lawn service, and

office supplies/equipment. Further,

Maplegrove charged the project more than

$2,000 in excessive management fees that

were not paid as of April 30, 2005.

Maplegrove and/or Richland also lacked

documentation to support that more than

$1,000 in project funds was properly used.

OIG recommended that HUD ensure

Richland, Keystone, and/or Maplegrove

(1) reimburse the project’s reserve for
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 107

replacement account and/or HUD’s FHA

insurance fund for the inappropriate

expenses, (2) provide documentation to

support the unsupported payments or

reimburse the appropriate amount to the

project’s reserve account and/or HUD’s

FHA insurance fund, and (3) implement

procedures and controls regarding the use

of project funds. OIG also recommended

that HUD, in conjunction with HUD OIG,

pursue double damages remedies if

Richland, Maplegrove, and/or Keystone

do not make the reimbursement. Further,

OIG recommended that HUD impose civil

money penalties against Richland,

Maplegrove, Keystone, and/or their

principals/officers for the inappropriate

use of project funds. (Audit Report: 2005-

CH-1012)

HUD OIG reviewed the books and

records of Ivan Woods Senior Apartments,

a 90-unit multifamily housing project in

Lansing, MI. OIG initiated the review

based on a request from HUD’s Detroit

Multifamily Hub. The review was also part

of OIG’s efforts to combat multifamily

equity skimming on HUD’s FHA insurance

fund. The objective was to determine

whether the owner/management agents

used project funds in compliance with the

regulatory agreement and HUD’s

requirements.

Maplegrove Property Management,

LLC, the project’s former identity-ofinterest management agent; Keystone

Property Management, Inc., the project’s

current management agent; and/or Ivan

Woods Limited Dividend Housing

Association Limited Partnership, the

project’s owner, inappropriately used

almost $10,000 in project funds from June

2002 through April 2005 when the project

was in a non-surplus-cash position.

Further, Maplegrove charged the project

more than $260 in excessive management

fees that were not paid as of April 30, 2005.

Maplegrove and/or the Partnership also

lacked documentation to support that more

than $3,000 in project funds was properly

used.

OIG recommended that HUD ensure

the Partnership, Keystone, and/or

Maplegrove (1) reimburse the project’s

reserve for replacement account and/or

HUD’s FHA insurance fund for the

inappropriate expenses, (2) provide

documentation to support the unsupported

payments or reimburse the appropriate

amount to the project’s reserve account

and/or the FHA insurance fund, and (3)

implement procedures and controls

regarding the use of project funds. OIG also

recommended that HUD, in conjunction

with HUD OIG, pursue double damages

remedies if the Partnership, Maplegrove,

and/or Keystone do not make the

reimbursement. Further, OIG

recommended that HUD impose civil

money penalties against the Partnership,

Maplegrove, Keystone, and/or their

principals/officers for the inappropriate

use of project funds. (Audit Report: 2005-

CH-1013)

HUD OIG reviewed the books and

records of Petersen Health Center. The

project consists of three skilled nursing

home facilities—Friendly Village, Horizons

Unlimited, and Taylor Park—totaling 327

beds in Rhinelander, WI. The review was

part of OIG’s efforts to combat multifamily

equity skimming on HUD’s FHA insurance

fund. OIG chose the project based upon its

negative surplus-cash position since 1999,

its default status, and indicators of diverted

project funds/assets. The objective was to

determine whether the owner/operator

used project funds in compliance with the

regulatory agreement and HUD’s

requirements.
Petersen Health Care of Wisconsin,

Inc., the project’s identity-of-interest

operator, improperly used more than

$728,000 in project funds when the project

was in a non-surplus-cash position and/

or in default of its HUD-insured loan. The

inappropriate disbursement included

approximately $600,000 to P.P.F.

Enterprises II, another identity-of-interest

company, to pay estimated taxes of the

partners of P.P.F. Enterprises, the owner

of the project; more than $80,000 in

prepaid legal services; $47,000 for legal

services not related to the project’s

operations; $3,000 for scholarships;

approximately $2,000 for Christmas

presents; and $600 related to charitable

activities.

OIG recommended that HUD ensure

that the owner and/or operator reimburse

HUD’s FHA insurance fund more than

$728,000 for the inappropriate

disbursements and implement procedures

and controls to ensure funds required to

be used for project expenses are used

according to the regulatory agreement.

OIG also recommended that HUD, in

conjunction with HUD OIG, pursue double

damages remedies if the owner and/or

operator do not reimburse the insurance

fund for the inappropriate disbursements.

OIG further recommended that HUD

impose civil money penalties and pursue

administrative sanctions against the

owner, operator, and/or their principals/

owners for the payment of inappropriate

disbursements that violated the project’s

regulatory agreement. (Audit Report:

2005-CH-1016)

In response to a citizen’s complaint,

HUD OIG audited the Rudolphy/MercyDouglass Home for the Blind, Philadelphia,

PA, an independent living facility for lowincome persons with blindness and other

disabilities. The complainant alleged project

development funds and project facilities were

improperly used, two payments were

improper, and project management

deficiencies existed. The objectives were to

determine whether the owner used project

development funds and project facilities

properly and whether the payments

questioned were proper.

OIG found the owner properly used

project development funds to pay for

expenditures and payments related to the

project. However, contrary to HUD

regulations, one cosponsor of the project,

Mercy-Douglass Human Services Affiliate,

the management agent, used project facilities

to perform work not exclusively related to

the administration of the project. As a result,

the project lost commercial rent of more than

$19,000. Correcting this situation will result

in future rental income of approximately

$18,000 per year.

OIG recommended that HUD require

the owner to ensure the cosponsor, MercyDouglass Human Services Affiliate, pays past

rent of more than $19,000 and future rent of

approximately $18,000 per year for the extra

space it occupies in the project. (Audit Report:

2005-PH-1010)

Active Partners Performance System Active Partners Performance System

HUD OIG audited the Active Partners

Performance System to determine whether

it has been fully implemented and is being

used as intended. The audit was initiated

because OIG was unable to obtain needed

information on multifamily program

participants from the system.

Although the Active Partners

Performance System has been operational

since 1999, its use by principal participants

has not been required. Consequently, the

Multifamily Housing Programs

HUD’s Multifamily Housing Programs 108
previous participation certification (Form

HUD-2530, Previous Participation

Certification) process has not been fully

automated, and HUD does not have a

complete computer database of required

participant information. In April 2004,

HUD published in the Federal Register a

proposed change to 24 CFR [Code of

Federal Regulations] Part 200 that would

make use of the Active Partners

Performance System mandatory for all

multifamily participants. After undergoing

required legal evaluation of the requested

changes and public comments, the revised

rules received final approval in March 2005

and were published on April 13, 2005.

OIG recommended that HUD fully

implement the Active Partners

Performance System and ensure its use by

all HUD multifamily housing program

participants, thus putting more than $5.7

million in funds to better use. (Audit

Report: 2005-DP-0006)

Multifamily Housing Programs

HUD’s Multifamily Housing Programs 109
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 110

Investigations Investigations Investigations

During this reporting period, OIG

opened 66 investigation cases and closed

103 cases in the multifamily housing

program area. Judicial action taken on

these cases during the period included

$3,648,858 in investigative recoveries,

$19,377,603 in funds put to better

use, 70 indictments/informations, 51

convictions/pleas/pretrial diversions, 149

administrative actions, 4 civil actions,

2 personnel actions, and 189 arrests.

Some of the investigations discussed in

this report were conducted by OIG, while

others were conducted jointly with Federal,

State, and local law enforcement agencies.

The results of OIG’s more significant

investigations are described below.

Equity Skimming Equity Skimming

Donald Baldyga was sentenced in U.S.

District Court, Portland, ME, to 1 year and

1 day in prison, which commenced on

September 16, 2005. Upon his release,

Baldyga will be placed on supervised

release for 3 years. Baldyga was also

ordered to pay $340,392 in restitution and

a $100 fine. Baldyga was indicted by a

grand jury in Portland, ME, in December

2004 for criminal equity skimming. The

one-count indictment was based on the

period from June 2000 through February

of 2002, during which Baldyga skimmed

Copyright, 2005. Portland Press Herald - Portland, ME.

Reprinted with permission.

Chart 4.4: Multifamily Funds Put to Better Use

False Statements

6% Skimming

66%

Total: $19,377,603

Chart 4.3: Multifamily Investigative Recoveries Chart 4.3: Multifamily Investigative Recoveries

Davis Bacon

2%

Others

15%

Total: $6,648,858

Skimming

10%

False Statements

12%

Embezzlement

53%

Section 8

9%

Others

1% Davis Bacon

18%

Section 8

8%
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 111

approximately $300,000 from the Family

Living Adult Care Center operating

account. The two buildings, which make

up the Family Living Adult Care Center,

are located in Biddeford and Sacco, ME.

The elderly housing site was purchased

using a HUD-insured loan; Baldyga only

made one mortgage payment during the

course of the loan.

False Statements False Statements

Section 8 tenant defendant Carol Jackson of Scranton, PA, pled guilty in Federal

Court, Middle District of Pennsylvania, to

making false statements to obtain the

benefit of housing assistance to which she

was not entitled. The OIG investigation,

which included the execution of a search

warrant at the subsidized unit in Village

Park Apartments, Scranton, disclosed that

for at least 16 years, Jackson ran a private

duty-nursing registry, for which she received fees of up to $400 per referral. She

never reported this source of income, only

income from welfare and/or sporadic

employment at odd jobs. Jackson has

agreed to repay approximately $197,000 in

rental assistance benefits that were

improperly paid on her behalf.

Conspiracy Conspiracy

Defendant Janet Gaibl, former

property manager, was sentenced in U.S.

District Court, Boston, MA, to one charge

of conspiracy. Gaibl was sentenced to 4

months home confinement with an

electronic bracelet, 3 years probation, and

a $100 special assessment fee and ordered

to make restitution of $125,000 to HUD.

Joseph O’Connor was also sentenced in

U.S. District Court, Boston, MA, to charges

of conspiracy. O’Connor was sentenced

to 1 year and 1 day incarceration, 2 years

probation, and a $100 special assessment

fee and ordered to make restitution of

$125,000 to HUD. The sentence was a

result of O’Connor’s guilty plea to one

count of conspiracy. This sentence is the

result of a HUD OIG investigation in which

Janet Gaibl and Joseph Cassidy were

indicted by a Federal grand jury in the

District of Massachusetts on November 19,

2003, charging both with one count of

conspiracy. The indictment alleged that

between 1988 and continuing to mid-2000,

Gaibl and Cassidy, former employees of

First Realty Management (FRM), combined

to cause false statements to be submitted

to HUD relating to a rent subsidy program

at Cummins Towers, a HUD-insured

multifamily complex managed by FRM.

Gaibl and Cassidy identified certain

federally subsidized units at the

development for their own use and

provided a unit to O’Connor who then ran

a maintenance company out of a federally

subsidized unit, which caused false

statements to be made on related HUD

forms and caused supporting documents

to be fabricated for the purpose of

obtaining subsidized units for individuals

who would not otherwise qualify. By their

actions, Gaibl, Cassidy, and O’Connor

caused a loss to HUD in excess of $140,000

and deprived qualified families of use of

the units.

Defendant Vern Strauch of Lincoln,

NE, owner/manager of Blanket

Corporation, doing business as Serenity

Place Apartments, was sentenced in the

U.S. District Court of Nebraska on one

count of conspiracy. Defendant Strauch

and others conspired to defraud various

United States Government agencies

through an assisted living scheme. Serenity

Place receives money from HUD, the U.S.

Department of Health and Human Services

(HHS), the Social Security Administration

(SSA), and various State agencies for

subsistence, transportation, lodging, and
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 112

medication. Defendant Strauch deprived

the occupants of amounts they are entitled

to as well as providing false statements to

HUD, HHS, and SSA to receive funds to

which he was not entitled. Defendant

Strauch was sentenced to 12 months and

1 day confinement and 3 years supervised

release. Blanket Corp et al were fined $800,

and both Strauch and the corporations

were ordered to pay restitution of

$250,000. Four other persons and three

corporations were indicted in June 2003.

Theft and Embezzlement

Theft and Embezzlement Theft and Embezzlement

Defendant Everett Eighmy of

Pittsburgh, PA, co-owner of the HUDassisted and Section 8-subsidized Butler

Family Housing Apartments, was charged

in Federal Court, Western District of

Pennsylvania, with embezzlement. The

investigation was initiated after HUD

advised that Eighmy had stopped making

mortgage payments even though the

development was at or close to full

occupancy. It is alleged that Eighmy had

improperly written at least 80 project

checks totaling in excess of $80,000 to

himself, to accomplices, or to cash, and the

funds were used in major part to purchase

crack cocaine. Further, his failure to make

timely mortgage payments allegedly

resulted in foreclosure of the HUD-insured

mortgage and a claim to the insurance

fund of $1.5 million

Defendant Mark Southard of

Stockton, CA, former employee of The

Garibaldi Company and the management

agent for the Sea Breeze Apartments, was

sentenced to 4 years incarceration. Southard

was ordered to make restitution to Tomas

Tomanek, owner of Sea Breeze Apartments,

and Mark Garibaldi of the Garibaldi

Company in the amount of $1.5 million. This

investigation found that Southard

embezzled more than $1 million from a

HUD mortgage-insured multifamily

project through fraudulent contractor’s

invoices and the manipulation of rent rolls

and rental income. It is believed that a

majority of the money involved was cash.

Wire Fraud Wire Fraud

In the U.S. District Court, Northern

District of Illinois, Chicago, IL, a Federal

grand jury returned a two-count

indictment against William Moorehead,

Patricia Taylor, and Brian Townsend for

wire fraud. Moorehead and his company,

William Moorehead and Associates

(WMA), acted as the managing agent for

numerous properties in and around the

Chicago metropolitan area. These

multifamily properties were owned by

either the Chicago Housing Authority or

independently owned, and mortgage

insurance was provided by HUD.

Moorehead was also the chairman of the

board of the Marion Stamps Memorial

Charity Fund, which was established to

benefit low-income children by providing

life skills programs and a day care center.

Taylor and Townsend were both employed

in the capacity of controller for

Moorehead’s company.

The indictment alleges that

Moorehead illegally transferred funds from

one property to another and stole property

funds for personal use. To cover these

transfers and thefts, Moorehead,

Townsend, and Taylor purportedly

maintained two sets of records, altered

invoices, created false bank statements and

bank confirmations, wrote nonsufficient

funds checks on various bank accounts,

and submitted false financial statements.

According to the allegations, Moorehead

also stole funds from the charity for his

personal use. The indictment alleges that

the total thefts amounted to $995,000. To

carry out his scheme, the indictment alleged
Multifamily Housing Programs

HUD’s Multifamily Housing Programs 113

that Moorehead transferred or ordered his

controllers to transfer funds from one

property to another to cover shortages in

various property accounts. Moorehead

then used a nonexistent credit union to

make it appear funds were held and

available in bank accounts when they had

been stolen or misappropriated.

Moorehead also wrote checks to WMA and

to himself by forging the name of the other

signatory on the Marion Stamps Memorial

Charity Fund bank account. Moorehead

was alleged to have stolen approximately

$400,000 from this charity.

On June 15, 2005, a civil complaint

was filed in the Northern District of Illinois

against Moorehead and WMA for the same

fraudulent activities mentioned above. The

complaint alleges Moorehead and WMA

used project assets or income from the

projects he managed for personal use and

that they were liable for $3,128,550.

Multifamily Task Force Operations Multifamily Task Force Operations

A multiagency task force conducted a

warrant/fraud sweep at North Oak

Crossing Apartments of Kansas City, MO,

a multifamily property. This effort resulted

in the arrest of 21 individuals on charges

ranging from drug violations to felony

assaults. The sweep was conducted based

on complaints from residents and

management alleging that illegal activity

was occurring on the property.

Administrative action to terminate tenants

based on these arrests will be initiated.

Information received during the sweep will

be used to investigate fraudulent activity.

The Kansas City, MO, joint task force

conducted a warrant sweep at Englewood

Apartments. This multiagency task force

arrested 22 individuals, based on charges

ranging from welfare fraud to drug

violations, and attempted to locate four sex

offenders who were believed to be living

on the premises. The sweep was

conducted based on complaints from

residents and management alleging that

illegal activity was occurring on the

property. Administrative actions to

terminate tenants based on these arrests

will be initiated.

Grand Larceny Grand Larceny

Michael Caridi, Joseph Rotonde, and

Orry Osinga of New York, NY, were

arrested on 59 counts of falsifying business

records to HUD and one count of second

degree grand larceny. All three defendants

were indicted in August but the Rockland

County District Attorney’s Office requested

that the indictments remain sealed until

they were arrested. All three defendants

have been arraigned on the previous

charges. Caridi and Rotonde are both

officers in a construction company called

SRC Industries Incorporated. Osinga is a

subcontractor who did some work on the

job site. SRC obtained a contract from HUD

to build a residential property for disabled

adults for a nonprofit agency called

Jawanio. The contract between SRC and

HUD stated that SRC would pay Davis

Bacon wages to all the workers on the job

site. It came to the attention of HUD OIG

that SRC was allegedly paying the workers

on the job site $10-$18 per hour and then

sending false payrolls to HUD stating that

the workers were earning Davis Bacon

wages, which were approximately $36 per

hour. These alleged false payrolls

submitted to HUD resulted in the workers

on the job site being underpaid by

approximately $800,000. The money for

the workers was paid to SRC by HUD and

subsequently is the loss amount in this case.

  

Chapter 5

HUD’s Community Planning

and Development Programs
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 116

The chart cost figures in this chapter represent the actual monetary benefits for all reports issued during

this semiannual period. The monetary benefits shown in the Profile of Performance represent only those

reports with management decisions reached during this semiannual period. Because there is a time lag

between report issuance and management decisions, the two totals will not agree.

T he Office of Community

 Planning and Development

(CPD) seeks to develop viable communities

by promoting integrated approaches that

provide decent housing, suitable living

environments, and expanded economic

opportunities for low- and moderateincome 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 Office

of Inspector General (OIG) issued eight

external audit reports in the CPD program

area. These reports disclosed nearly $8

million in questioned costs and more than

$21 million in recommendations that funds

be put to better use.

OIG audited Community Development

Block Grant (CDBG) programs, Home

Investment Partnership (HOME)

programs, and Special Purpose Grant

programs.

Community Development Block Community Development Block

Grant Program Grant Program

In New York, NY, HUD OIG

performed its fifth audit of the Lower

Manhattan Development Corporation’s

(LMDC) administration of the CDBG

Disaster Recovery Assistance funds, which

were provided to the State of New York as

a result of the September 11, 2001, terrorist

attacks on the World Trade Center in New

York City. The objectives of the current

review were to determine whether LMDC

(1) disbursed Disaster Recovery Assistance

funds in accordance with HUD-approved

action plans, (2) expended Disaster

Recovery Assistance funds for eligible

planning and administrative expenses in

accordance with applicable laws and

regulations, (3) maintained a financial

management system that adequately

safeguarded the funds, and (4) developed

and implemented procedures to recover

funds owed to the Residential Grant

Program.

LMDC generally disbursed Disaster

Recovery Assistance funds in accordance

with the HUD-approved action plans.

Chart 5.2: Community Planning and Development Chart 5.2: Community Planning and Development

Housing Dollars Housing Dollars

Questioned Costs Funds Put to Better Use

0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

Chart 5.1: Community Planning and Development Chart 5.1: Community Planning and Development

Housing Program Reports Issued

7 External Reports
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 117

LMDC also expended Disaster Recovery

Assistance funds for eligible planning and

administrative expenses in accordance

with applicable laws and regulations and

maintained a financial management

system that adequately safeguarded the

funds. However, LMDC disbursed more

than $2 million for items either not

included in the budget of the subrecipient

agreement for the Hudson River Park

Improvements Program or for costs

incurred before the time of performance

specified in the agreement. Additionally,

LMDC developed and implemented

collection procedures to recover funds

owed to the Residential Grant Program.

However, its collection efforts were not

always fully documented, and there is a

need to consider additional actions to

recover amounts owed.

OIG recommended that HUD require

LMDC to reimburse the more than $2

million inappropriately disbursed and to

maintain complete documentation of its

efforts to collect amounts owed to the

Residential Grant Program. OIG also

recommended that additional actions to

collect amounts owed to the Residential

Grant Program be considered. (Audit

Report: 2005 NY 1008)

HUD OIG audited the Corporación

para el Fomento Económico de la Ciudad

Capital, a nonprofit subgrantee for the

Municipality of San Juan, PR. The review

was initiated in response to a request from

HUD’s San Juan Office of Community

Planning and Development, which was

not satisfied with the Corporation’s overall

performance in administering its

independent capital fund.

Contrary to HUD requirements, the

Corporation retained more than $1.48

million in interest earned from its CDBG

revolving fund account. The Corporation’s

financial management system did not

properly identify the application of more

than $1 million in administrative fees

charged, allowed the use of more than

$463,000 for ineligible expenditures, did not

account for all program income, and

maintained a high balance in its CDBG

fund account. In addition, the Corporation

did not maintain adequate records to

demonstrate that activities met at least one

of the three CDBG national objectives.

Therefore, the related expenditures of four

loans totaling more than $631,000 are

considered unsupported pending an

eligibility determination by HUD.

OIG recommended that HUD require

the Municipality of San Juan to repay $1.48

million in interest earned from the CDBG

revolving fund and repay more than

$463,000 in ineligible expenditures. HUD

should also require the Municipality to

provide all supporting documentation and

determine the appropriateness and

eligibility of $1.64 million in CDBG

disbursements. OIG also recommended that

HUD require the Municipality to develop

and implement an internal control plan to

ensure the independent capital fund has a

financial management system that

complies with HUD requirements and that

funds are used in a timely manner. (Audit

Report: 2005-AT-1013)

Home Investment Partnership Home Investment Partnership

Grant Fund Program Grant Fund Program

HUD OIG conducted a limited review

of the Maricopa HOME Consortium, City

of Mesa, AZ’s use of $570,000 in Home

Ownership Made Easy (HOME) grant

funds to assist in the rehabilitation of 35

single-family scattered site public housing

units, located within the jurisdiction of the

City and County of Maricopa. The objective

was to determine whether the use of HOME
funds to rehabilitate these public housing

units was an eligible HOME activity.

This Consortium/City grant activity

was not an eligible use of HOME funds as

the units were, and remain, under an

annual contributions contract between

HUD and the Housing Authority of

Maricopa County and are receiving

operating subsidy (including capital grant

funding). This is an ineligible activity,

according to the HOME regulations set out

in 24 CFR [Code of Federal Regulations]

92.214, which prohibits the use of HOME

funds to assist housing units receiving

assistance under Section 9 of the 1937

Housing Act (public housing capital and

operating funds).

OIG recommended that the

Consortium be required to reimburse the

$570,000 in HOME funds to its local HOME

investment trust fund. (Audit Report:

2005-LA-1006).

In response to a request from the

former Assistant United States Attorney of

the Commonwealth of Pennsylvania, in

Harrisburg, PA, HUD OIG audited

the Pennsylvania Department of

Community and Economic Development’s

(Commonwealth) administration of the

HOME Investment Partnerships Program.

The audit objectives were to determine

whether the Commonwealth was 1)

adequately monitoring localities to ensure

HOME funds are expended on allowable

activities and 2) properly allocating its

staff’s time for the administration of the

HOME program in accordance with

applicable HUD and other Federal

regulations.

The Commonwealth was not

adequately monitoring its localities to

ensure HOME funds were expended on

eligible activities. Three of the four localities

that were reviewed spent approximately

$79,000 of their HOME funds on ineligible

expenses/activities. In addition, the

Commonwealth had accumulated more

than $6.9 million in administrative fees

from the program by obligating more funds

than it spent to administer its HOME

program. These excess funds should

have been used to strengthen the

Commonwealth’s monitoring program

and to fund additional eligible HOME

projects. Doing so would have enabled the

Commonwealth’s HOME program to

better meet its main goal of providing

affordable housing for low-income

households.

In addition, the Commonwealth

improperly allocated its staff’s time for the

administration of the HOME program.

Instead of maintaining accurate

timesheets, the Commonwealth followed

an unwritten policy that required staff time

to be split equally between the HOME and

CDBG programs. As a result, the

Commonwealth was unable to ensure

HOME funds are only being used to pay

for the administration of the HOME

program.

OIG recommended that HUD require

the Commonwealth to recover more than

$79,000 in ineligible fees from the localities

we reviewed. In addition, the

Commonwealth should use the more than

$6.9 million in accumulated administrative

fees to improve its monitoring program and

recommit the funds to eligible HOME

projects. OIG also recommended that HUD

require the Commonwealth to establish

proper time allocations that meet the

requirements of Office of Management and

Budget (OMB) Circular A-87. (Audit

Report: 2005-PH-1013)

HUD OIG reviewed the City of New

Orleans, New Orleans, LA’s matching

Community Planning & Development Programs

HUD’s Community Planning and Development Programs 118
contribution to its HOME funds to

determine whether the City documented

and matched its disbursed HOME funds

in accordance with HUD regulations.

Between fiscal years (FY) 2000 and

2003, the City did not provide $3.6 million

in matching HOME funds as required by

HUD. In addition, the City failed to

maintain a system that identified the type

and amount of each matching contribution.

OIG recommended that HUD require

the City to (1) submit matching

contributions in the amount of $3.6 million,

(2) update its policies to comply with HUD

and other Federal rules and regulations,

and (3) provide documentation of its

matching contributions as it draws funds

until it has a plan that ensures compliance

with HUD requirements. Further, OIG

recommended that HUD review and

monitor the City’s plan to ensure the

matching deficiency is corrected. (Audit

Report: 2005-FW-1008)

Special Purpose Grant Program Special Purpose Grant Program

Continued concerns over the capacity

of nonprofit entities receiving funding from

HUD programs require that audits of such

activities be given priority. Of particular

concern are Special Purpose Grants.

During this period, OIG reviewed three

Special Purpose Grant activities and found

instances in which HUD’s interest on the

property was not properly recorded.

HUD OIG audited Mount Union

College’s Economic Development Initiative

– Special Purpose Grant in Alliance, OH.

OIG initiated the audit in conjunction with

its internal review of HUD’s oversight of

these Grants. OIG chose the College’s

Grant based upon a statistical sample of

Grants for FY 2002 and 2003, in which 90

percent or more in funds were disbursed.

The objectives were to determine whether

the College used its Grant funds in

accordance with HUD’s requirements and

recorded HUD’s interest on the assisted

property.

The College used the Grant funds in

accordance with HUD’s requirements. It

used $1 million in Grant funds to pay for

architectural fees for the construction of

Bracy Hall, a science facility. However, the

College did not place a covenant on the

property title for Bracy Hall, assuring

nondiscrimination based on race, color,

national origin, or handicap. Further, HUD

did not request the College to record HUD’s

interest on the property title for Bracy Hall.

OIG recommended that HUD require

the College to record a covenant on the title,

assuring nondiscrimination based on race,

color, national origin, or handicap, and

record a lien on the property title for Bracy

Hall, showing HUD’s interest in the assisted

property. If the covenant and lien are not

recorded, the College should reimburse

HUD $1 million in nonfederal funds for the

Grant funds used to pay for Bracy Hall’s

architectural fees. (Audit Report: 2005-CH1018)

HUD OIG audited the City of Carmel,

IN’s Economic Development Initiative –

Special Purpose Grant. OIG initiated the

audit in conjunction with its internal review

of HUD’s oversight of these Grants. The

review is part of OIG’s FY 2005 annual

audit plan. OIG chose the City’s Grant

based upon a statistical sample of Grants

for FY 2002 and 2003, in which 90 percent

or more in funds were disbursed. The

objectives were to determine whether the

City used its Grant funds in accordance

with HUD’s requirements and recorded

HUD’s interest on the assisted property.

Community Planning & Development Programs

HUD’s Community Planning and Development Programs 119
The City used the Grant funds in

accordance with HUD’s requirements. It

used $1 million in Grant funds to pay for

the areawide subterranean detention

system and reflecting pool design of

Veterans Plaza and the Reflecting Pond.

However, it did not place a covenant on

the property title for Veterans Plaza and

the Reflecting Pond, assuring

nondiscrimination based on race, color,

national origin, or handicap. Further, HUD

did not request the City to record HUD’s

interest on the property title for Veterans

Plaza and the Reflecting Pond.

OIG recommended that HUD require

the City to record a covenant on the title,

assuring nondiscrimination based on race,

national origin, or handicap, and record a

lien on the property title for Veterans Plaza

and the Reflecting Pond, showing HUD’s

interest in the assisted property. If the

covenant and lien are not recorded, the

City should reimburse HUD $1 million from

nonfederal funds for the Grant funds used

to pay for the areawide subterranean

detention system and reflecting pool design

of Veterans Plaza and the Reflecting Pond.

(Audit Report: 2005-CH-1019)

HUD OIG audited the City of

Indianapolis, IN’s Economic Development

Initiative – Special Purpose Grant. OIG

initiated the audit in conjunction with its

internal review of HUD’s oversight of these

Grants. The review is part of OIG’s FY 2005

annual audit plan. OIG chose the City’s

Grant based upon a statistical sample of

Grants for FY 2002 and 2003, in which 90

percent or more in funds were disbursed.

The objectives were to determine whether

the City used its Grant funds in accordance

with HUD’s requirements and recorded

HUD’s interest on the assisted property.

The City used the Grant funds in

accordance with HUD’s requirements. It

disbursed more than $134,000 in Grant

funds to the Indiana University Research

and Technology Corporation to pay for the

construction of the Indiana University

Emerging Technologies Center’s wet

laboratory space. However, it did not place

a covenant on the property title for the

Center, assuring nondiscrimination based

on race, color, national origin, or handicap.

OIG recommended that HUD require

the City to ensure the Corporation records

a covenant on the property title for the

Center, assuring nondiscrimination based

on race, color, national origin, or handicap.

If the covenant is not recorded, the City

should reimburse HUD $134,000 from

nonfederal funds for the Grant funds used

to pay for the Center’s wet laboratory

space. (Audit Report: 2005-CH-1021)

Community Planning & Development Programs

HUD’s Community Planning and Development Programs 120
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 121

Investigations Investigations Investigations

During this reporting period, OIG

opened 20 investigative cases and closed

34 cases in the CPD program area. Judicial

action taken on these cases during the

period included $42,179,216 in

investigative recoveries, $42,775,121 in

funds put to better use, 47 indictments/

informations, 20 convictions, pleas, and

pretrial diversions, 28 administrative

actions, 1 civil action, 17 personnel actions,

and 47 arrests.

Some of the investigations discussed in

this report were conducted by OIG, while

others were conducted jointly with Federal,

State, and local law enforcement agencies.

The results of OIG’s more significant

investigations are described below.

Investigations Involving Public Investigations Involving Public

Officials Officials

Defendants Lola Thrower, Malik

Blackmon, Lee Langston, and Reverend

Lamar Wright of Little Rock, AR, were

each indicted by a Federal grand jury in

the Eastern District of Arkansas relating

to five counts of theft of Federal

property and four counts of aiding and

abetting. Lola Thrower was the Human

Immunodeficiency Virus (HIV) Services

Program Administrator for the Arkansas

Department of Health (ADH), a grantee of

HUD-funded Housing Opportunities for

Persons with AIDS (HOPWA) funds and

HHS-funded Ryan White Title II Consortia

funds. Thrower administered HOPWA

and Title II grant monies, which were to

be used for HIV/Acquired Immune

Deficiency Syndrome (AIDS) services

within the State of Arkansas. Lee Langston

was the executive director of Positive

Voices, a nonprofit corporation and

subgrantee of Federal funds administered

by Thrower. Malik Blackmon was the

minority AIDS initiative coordinator for

Positive Voices and Thrower’s boyfriend

and later spouse. Reverend Lamar Wright

is a church pastor and the president and

chief executive officer of the nonprofit

corporation Save Our Children

Community Project and its subsidiary

nonprofit corporation called People United

for Change. Save Our Children and People

United for Change were subgrantees of

Federal funds administered by Thrower.

Lola Thrower allegedly used her

position with the State of Arkansas to direct

Lee Langston and Reverend Lamar Wright

to steal Federal grant money from their

nonprofit corporations and give it to her.

Thrower, Langston, and Wright also

allegedly fabricated invoices to conceal the

Chart 5.4: Community Planning and Development Chart 5.4: Community Planning and Development

Funds Put to Better Use

Conflict

of Interest

0%

Public Corruption

92% Total: $42,775,121

Chart 5.3: Community Planning and Development Chart 5.3: Community Planning and Development

Investigative Recoveries Investigative Recoveries

Conflict of Interest

87% Total: $42,179,216

Public

Corruption

12%

Contract Fraud

0%

Theft of

Government

Property

0%

Embezzlement

3%

HUD

Employee

0%

Non-HUD

Employee

3%

False Statements

1%

HUD

Employee

0%

False

Statements

1% Contract Fraud

1%
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 122

grant money stolen. Langston allegedly

stole Federal grant money from his

nonprofit corporation by writing checks to

himself for work he did not perform. In

addition, Thrower and Blackmon

established a nonprofit corporation called

B’MON, Inc. They allegedly directed

Langston and Future Builders, another

nonprofit corporation and subgrantee of

Federal funds administered by Lola

Thrower, to write checks payable to

B’MON from Federal grant money to pay

for supposed legitimate grant-related

expenses. However, Thrower and

Blackmon allegedly used the majority of the

Federal grant money received to pay for

personal expenses from the B’MON bank

account, including a $5,000 diamond

engagement ring for Thrower. Thrower

and Blackmon allegedly created phony

invoices and receipts to conceal the

amounts stolen.

Erma Kendrick of Fresno, CA, former

executive director of Kern County Mental

Health Association (KCMHA), and Edwina

Jackson, former assistant executive director

of KCMHA, pled guilty in Federal District

Court, the Eastern District of California, to

felony charges that they conspired to defraud

HUD in connection with the Supportive

Housing Program. KCMHA received

$70,230 as part of the grant for the

purchase of a handicap-accessible van and

to hire supporting staff. Erma Kendrick

and Edwina Jackson diverted the $70,230

in grant funds for a purpose other than the

intended use. The $70,230 was used to pay

for checks that were written by KCMHA

as part of its participation as a payee in

the Social Security Administration (SSA)

Payee Program. More than $36,000 of the

grant funds was paid to a storeowner who

had entered into an agreement with

KCMHA to cash checks of KCMHA payee

clients. Many of the checks cashed by the

storeowner came back to him as

nonsufficient funds, and the $36,000 was

paid to him to cover those checks.

Gerald Phillips, former director of the

Massachusetts Career Development

Institute (MCDI), a CDBG-funded State

organization was sentenced in U.S. District

Court, Springfield, MA. Phillips was

sentenced to serve 21 months incarceration

and 3 years supervised release, to be served

concurrently. Phillips was also fined

$30,000, ordered to pay a $200 special

assessment fee, and ordered to make

restitution of $2,526 to HUD. The

restitution represents the housing

assistance payments (HAP) paid on behalf

of an MCDI student by the Springfield

Housing Authority for a Section 8 voucher

that Phillips was instrumental in having

issued to the student.

Copyright, 2005. The Republican - Springfield, MA. Reprinted with permission.
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 123

Defendant Giuseppe Polimeni, former

administrator of the MCDI, a CDBGfunded State organization, was sentenced

in U.S. District Court, Springfield, MA.

Polimeni was sentenced to serve 1 year and

1 day incarceration and 3 years supervised

release, to be served concurrently.

Poliminei was also fined $50,000 and

ordered to pay a special assessment fee of

$800.

Defendant Jamie Dwyer, former

secretary for the MCDI, a CDBG-funded

State organization, was sentenced in U.S.

District Court, Springfield, MA. Dwyer

was sentenced to serve 6 months in a

community corrections facility and 6

months home confinement under electronic

monitoring, to be served concurrently.

Dwyer was also sentenced to 3 years

probation.

Luisa Cardaropoli, a former no-show

employee of the MCDI, was sentenced on

June 30 in U.S. District Court, Springfield,

MA. Cardaropoli was sentenced to serve

15 months incarceration and 2 years

supervised release, to be served

concurrently and to commence within 4

weeks. Cardaropoli was also fined $4,000

and ordered to make restitution of $51,293

to the City of Springfield, MA.

A Federal jury in U.S. District Court in

Springfield, MA, had previously convicted

Phillips, Dwyer, Cardaropoli, and Polimeni

on 11 counts, including one count of

conspiracy to commit program fraud and one

count of program fraud. Phillips was

convicted along with three former officials

of the MCDI. All four defendants in this case

were charged in a 19-count superseding

Federal indictment in Springfield, MA. This

indictment was previously handed down by

a Federal grand jury. The indictment

included violations of conspiracy, program

fraud, wire fraud, obstruction of justice,

making false statements, threatening a

witness, and aiding and abetting. The four,

who were charged and convicted, had been

employed by MCDI, which provided

educational and job-training programs for

income-eligible individuals in the Springfield,

MA, area. The investigation concerned noshow employees, including Polimeni’s sonin-law. During the course of the

investigation, Gerald Phillips threatened,

intimidated, and corruptly persuaded a

witness to prevent the testimony of this

witness to a Federal grand jury.

In Flint, MI, Joseph Giacalone, president

of OK Industries and recipient of a HUD 108

Economic Development loan, was charged

and subsequently arrested by the Genesee

County Prosecutors Office for larceny by

conversion of more than $20,000. Dana

Robin, the chief financial officer for OK

Copyright, 2005. The Republican - Springfield, MA.

Reprinted with permission.
Copyright, 2005. The Republican - Springfield, MA.

Reprinted with permission.

Community Planning & Development Programs

HUD’s Community Planning and Development Programs 124

Industries, was also charged and arrested for

larceny by conversion of more than $20,000

for his role in using the 108 loan proceeds for

his personal benefit.

Giacalone applied for and received

approximately $220,000 from the Flint Area

Investment Fund (FAIF) and $870,000 from

the City of Flint through the 108 loan

program. According to the FAIF contract,

Giacalone was to pay off the FAIF bridge loan

when the 108 loan was funded, which he

failed to do.

Giaclone’s 108 loan application

purported the following three uses for the

loan funds: 1) renovate and relocate to a

factory he owned in downtown Flint, MI, 2)

hire 100 additional employees that were

classified as low-income, and 3) purchase

equipment to accommodate the additional

employees.

According to the charges, Giacalone did

not complete, nor did he start, any of the

conditions specified and certified to in his

application. In addition, Giacalone failed to

make payments on the 108 loan. Giacalone

and Robin purportedly diverted much of the

funds to pay delinquent taxes on personal

property, pay outstanding personal loans,

and make cash transfers to nonbusiness

accounts. Alexander Thomas, Flint’s

community planning director at the time

Giaclone applied for the 108 loan, was also

arrested and charged with embezzlement by

a public official for his role in the scheme.

Thomas was alleged to have failed to monitor

the disbursements and draws on the loan

proceeds and failed to accurately verify that

OK was in compliance.

In Orange County, NY, the Mayor of

Middletown, defendant Joseph DeStefano,

was sentenced to a year of conditional

discharge and imposed a court surcharge,

a fine in the amount of $100. DeStefano

resigned from his position as Mayor for the

City of Middletown. Defendant DeStefano

was found guilty of two counts of second

degree offering a false instrument for filing

in violation of New York State Penal Code

§ 175.30, a class A misdemeanor. Judge

Stewart Rosenwasser found DeStefano

guilty for his answer to the same question,

2 years in a row, on city ethics forms that

all public officials must fill out. DeStefano

answered “no” about whether he had done

more than $1,000 worth of business with

anyone doing business with the City.

Francis G. Keough, former director of

the Friends of the Homeless, was arrested

and brought before the Magistrate in the

District of Springfield, MA, had his

pretrial release revoked, and was ordered

incarcerated in the Franklin County House

of Correction, Greenfield, MA, pending an

additional motion hearing. This was as the

result of a motion filed by the U.S.

Attorney’s Office, District of Springfield,
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 125

MA, requesting revocation of Keough’s

pretrial release based upon additional

contacts by Keough with two additional

witnesses. After a superseding indictment,

the Magistrate held a revocation hearing,

at which time Keough’s unsecured bond

was raised from $50,000 to $100,000 and

the court ordered that Keough’s wife also

post a $100,000 bond binding real estate

holdings. Keough was admonished by the

Magistrate for contacting witnesses and

warned that further tampering with the

ongoing investigation would not be

tolerated.

Keough was later arrested again and

brought before the Magistrate in the

District of Springfield, MA. The Magistrate

revoked his pretrial release and ordered

Keough incarcerated in the Franklin

County House of Correction, Greenfield,

MA, until his trial. This was the result of

contacts by Keough of two additional

witnesses after he had been warned by the

Magistrate to stay away from witnesses.

False Statements False Statements

Defendant Joyce Ashcraft of Cedar

Rapids, IA, grant recipient, was sentenced

in Federal Court in the Northern District

of Iowa to 9 years imprisonment and was

ordered to pay $134,311 in restitution.

Defendant Ashcraft previously pled guilty

to making false statements to HUD,

identity theft, bank fraud, and Social

Security fraud. Defendant Ashcraft

stipulated that she submitted false

documents to Cedar Rapids Housing

Services to obtain a $24,660 housing

rehabilitation grant. She also admitted to

using credit cards she obtained in other

individuals’ names, making and

transacting counterfeit checks, embezzling

$10,000 from her husband’s individual

retirement account (IRA), and falsely

obtaining State medical assistance. This

case was initiated based on a congressional

complaint to OIG.

Boris Yakowyna, a Rochester, NY,

rehabilitation specialist, pled guilty to one

count of making false statements to HUD.

Yakowyna admitted that he accepted

kickbacks from contractors involved in

rehabilitation projects with the City of

Rochester Rehabilitation Program. The City

of Rochester Rehabilitation Program

receives $2 million per year in HUD CDBG

and HOME grant funds. In addition to

HUD funding, the City of Rochester has

received $12 million in funding from

numerous other sources to rehabilitate

housing, which will be sold to low-income

families.

Jose Cipolla pleaded guilty to one

count of perjury. Cipolla admitted he lied

to a Federal grand jury in connection with

his involvement in giving kickbacks to City

of Rochester, NY, rehabilitation specialists

for home rehabilitation contracts he was

awarded. Cipolla lied to the grand jury by

denying he paid rehabilitation specialist

David Lippa. The City of Rochester

Rehabilitation Program receives $2 million

per year in HUD CDBG and HOME grant

funds. In addition to HUD funding, the

City of Rochester has received $12 million

in funding from numerous other sources

to rehabilitate housing in the City of

Rochester, which will be sold to lowincome families. Lippa was scheduled for

sentencing.

Conspiracy/Program Fraud/ Conspiracy/Program Fraud/

Extortion Extortion

A Federal jury in U.S. District Court,

Springfield, MA, convicted Jamie Dwyer

of conspiracy to commit program fraud,

two counts of Federal program fraud,

conspiracy to obstruct justice by making a
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 126

false statement, and making a false

statement to a Federal agent. The same

jury convicted Luisa Cardaropoli on three

counts of fraud and one count of giving a

false statement to a Federal agent. The four

defendants, to include Dwyer and

Cardarolpoli, in this case were charged in

a 19-count superseding Federal indictment

in Springfield, MA. This indictment had

previously been handed down by a Federal

grand jury. The indictment included

violations of conspiracy, program fraud,

wire fraud, obstruction of justice, making

false statements, threatening a witness, and

aiding and abetting. The four charged and

convicted had been employed by MCDI,

which provided educational and jobtraining programs for income-eligible

individuals in the Springfield, MA, area.

The investigation concerned no-show

employees. During the course of the

investigation, one defendant, Gerald

Phillips, threatened, intimidated, and

corruptly persuaded a witness to prevent

the testimony of this witness to a Federal

grand jury. This superseding indictment

included additional information required

under the Blakely decision.

Defendant Warren Godbolt of

Bridgeport, CT, executive director of

Progressive Training Associates (PTA), pled

guilty to an information charging two

counts of theft of Federal funds and one

count of conspiracy. These charges stem

from Warren Goldbolt’s admission to

paying approximately $5,000 in cash to a

public official in exchange for the awarding

of a $100,000 State of Connecticut bond to

PTA. Further, Warren Godbolt admitted

to embezzling between $70,000 and

$120,000 from PTA bank accounts and

utilizing this money for personal use,

including the purchase of an automobile

and motorboat, vacations, and home

renovations. PTA is a nonprofit

organization assisting lower income people

in the City of Bridgeport, which has

received approximately $488,000 through

HUD’s Supportive Housing Program.

Goldbolt and PTA have been suspended

from doing business with HUD.

A jury in the U.S. District Court for

the Eastern District of Wisconsin found

Mhammad Aziz Abu Shawish guilty of

Federal program fraud, relative to

defrauding the City of Milwaukee’s CDBG

program. Abu Shawish, the founder and

then executive director of Arabian Fest

Arab American Festival, Inc., a nonprofit

organization receiving HUD CDBG funds

through the City of Milwaukee and the

County of Milwaukee, WI, was originally

charged in October 2003.

Abu Shawish was found guilty of

submitting a study to block grant

administrators, stating that it was prepared

by Arabian Fest and funded by the City’s

Community Block Grant Administration,

when the plan was not formulated by

Arabian Fest but was an identical copy of

another plan with minor cosmetic

changes, which had been completed by an

individual unrelated to Arabian Fest and

funded by another unrelated organization

at a cost of $25,000. Abu Shawish also

fraudulently submitted documentation to

the City to support $30,000 in expenses

associated with the study. The County

awarded Arabian Fest $15,000 in CDBG

funds to pay a portion of salary and fringe

benefits of an executive director to operate

a business development program to

provide technical assistance to a minimum

of three small business owners,

“microenterprise owners,” in a specific

low- and moderate-income service area.

However, in support of the costs claimed,

he submitted a false document identifying
Community Planning & Development Programs

HUD’s Community Planning and Development Programs 127

three storeowners to whom he claimed to

have provided assistance and with two of

whom he claimed to have scheduled

followup meetings. Finally, he submitted

multiple fraudulent claims for

reimbursement to the County until January

2003, although his contact with all three

businesses ended in the summer of 2002

and consisted of less than 50 minutes of

time with all three businesses and no

additional work or technical assistance was

done after the summer 2002, causing the

County to spend $15,000 of CDBG funds

for less than 50 minutes of work.

In San Juan, PR, in the U.S. District

Court for Puerto Rico, defendant Jose A.

Acevedo-Martinez was sentenced to a term

of 2 years of imprisonment, 3 years under

supervised release, and a $600 special

assessment fee. On May 10, 2005,

Acevedo-Martinez pleaded guilty to six

counts of a 10-count indictment before U.S.

District Court Judge Perez-Gimenez.

Acevedo-Martinez had been previously

charged with knowingly and corruptly

soliciting, demanding, accepting, and

agreeing to accept something of value of

$5,000 or more for monies and services

intended to be influenced or rewarded in

connection with a business transaction or

series of transactions of the Health and

Medical Services Administration for Drug

Addicts (ASSMCA), an organization that

received in a 1-year period benefits of more

than $10,000 under a Federal program.

Acevedo-Martinez unlawfully requested

payments (kickbacks) in exchange for

granting the contractors contracts to

provide services for ASSMCA.

Mail/Wire Fraud Mail/Wire Fraud

The Eastern District of Tennessee

unsealed a 14-count indictment charging

defendant Anthony C. Auyer of

Chattanooga, TN, with wire fraud. Auyer

is president of Anthony Construction

Company, Inc. (ACCI). Auyer allegedly

submitted fraudulent invoices pertaining to

a $485,000 CBDG loan, administered by the

Tennessee Department of Economic and

Community Development. These invoices

were purported for the purchase of sawmill

equipment and caused the Tennessee

Department of Economic and Community

Development to electronically transfer

$408,920 to ACCI’s bank account. Auyer

did not repay any of these funds when the

note came due. Teresa Rikard Auyer, along

with McMinnville, TN, appraiser James

Passons, was also charged in the indictment.

Teresa Auyer and her husband Anthony

Auyer were both charged in two counts of

wire fraud for the submission of fraudulent

invoices for the CDBG loan. Both Auyerses

and Passons were charged in multiple counts

of mail fraud, bank fraud, conspiracy, and

money laundering, stemming from fraud

involved in the purchase of the lumber mill,

which was secured by a U.S. Department of

Agriculture (USDA) rural development loan.

Defendant Auyer obtained a loan in the

amount of $1.77 million from the Bank of

Tennessee to purchase the lumber mill based

on false and inflated appraisals. Auyer failed

to repay this loan.

Defendant Steven Young was

sentenced in Federal Court to 3 years

probation and 6 months home

confinement, assessed a $100 fee, and

ordered to pay restitution in the amount

of $5,000 to HUD. Steven Young pled

guilty to one count of mail fraud.

Defendant Young was charged in the

Western District of New York by criminal

complaint with mail fraud and making a

false statement to HUD. Young, a

rehabilitation specialist for the City of

Rochester, NY, was responsible for writing

specifications for the rehabilitation of

privately owned housing within the City
  

Community Planning & Development Programs

HUD’s Community Planning and Development Programs 128

of Rochester. The homeowners must first

qualify for CPD HOME funds. These

grants range between $10,000 and $30,000

per project, and the homeowner may

qualify for more than one type of grant.

Young was charged with receiving bribes

from various contractors during the years

2002 through 2004. Young steered the

contracts to the contractors by telling the

contractors the amount of the lowest bid.

The contractor would then bid a lower

amount than the lowest bid to win the bid.

The contractor would pay Young between

$300 and $500 in cash, depending on the

size of the contract. Young was also

charged with submitting two final

inspections that verified that all

rehabilitation work had been completed on

two HUD-subsidized grants totaling

$25,000. Young made false statements in

these final inspections when he signed them

and certified that the rehabilitation had

been completed when it had not been

completed.

Embezzlement/Theft of Government

Embezzlement/Theft of Government Embezzlement/Theft of Government

Funds

Defendant Frank Zdankowski of

Mifflin County, PA, was sentenced in

Federal Court, Middle District of

Pennsylvania, for receiving business loans

from USDA and the HUD CDBG program

to which he was not entitled. He received

2 years probation and was ordered to

repay the Federal Government $97,861,

which included the improperly received

$35,000 CDBG loan. The investigation

disclosed that the defendant applied

concurrently for loans from both agencies

for stated purpose of starting an animal

breeding business, failed to start the

business, and defaulted on both loans

almost immediately.

Jarmena To of New York, NY, who

was indicted on charges of theft of

government funds in connection with a

scheme to defraud HUD and the Lower

Manhattan Development Corp (LMDC) of

Federal grant money, was arrested on July

12, 2005. Jarmena To allegedly devised a

scheme to fraudulently obtain money from

a grant program established by the LMDC

to retain and attract residents to Lower

Manhattan. 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 is funded by

HUD and has received $2.7 billion from

HUD.
Chapter 6

Other Significant HUD Audits and

Investigations/OIG Hotline
Other Audits & Investigations/OIG Hotline

Other Significant HUD Audits and Investigations/OIG Hotline 130

The chart cost figures in this chapter represent the actual monetary benefits for all reports issued during

this semiannual period. The monetary benefits shown in the Profile of Performance represent only those

reports with management decisions reached during this semiannual period. Because there is a time lag

between report issuance and management decisions, the two totals will not agree.

Audits

During this reporting period, the

Office of Inspector General (OIG) issued

four reports: three internal audits and one

external audit, involving areas of U.S.

Department of Housing and Urban

Development (HUD) operations that do not

fall under major HUD programs reported

in previous chapters. OIG’s more

significant audits are discussed below.

Office of Healthy Homes and Office of Healthy Homes and

Lead Hazard Controls Lead Hazard Controls

HUD OIG is auditing the Office of

Healthy Homes and Lead Hazard

Control’s (Office of Healthy Homes)

process for awarding fiscal year 2004

grants in response to congressional

inquiries and complaints alleging the Office

of Healthy Homes inappropriately

awarded its fiscal year 2004 grants. The

objective was to determine whether the

allegation had merit.

The audit was still in progress at the

end of this reporting period. However, OIG

issued an interim report that disclosed

errors in the award process for all seven

grant applications reviewed, causing

applicants to either receive an award they

were not entitled to or to lose an award

(totaling more than $6.3 million) they

should have received. In large part, these

problems occurred because the

Department established a deadline of

September 30, 2004, to process and award

the grants without having an effective

process in place. To meet this deadline, the

Office of Healthy Homes and its contractor

did not always follow established

procedures in evaluating and scoring the

grant applications. Additionally, the Office

of Healthy Homes’ decision to restrict its

search for a contractor under HUD’s

accelerated contracting process to small

business and 8(a) firms severely limited the

pool of qualified contractors. The

contractor selected to evaluate and rate the

grant applications made a number of

significant errors in processing the

applications that compromised the

integrity of the award process.

Chart 6.1: Other Significant Audit Reports Issued

3 Internal Reports

1 External Report

Chart 6.2: Other Significant Audit Dollars Chart 6.2: Other Significant Audit Dollars

Questioned Costs Funds Put to Better Use

0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000
Other Audits & Investigations/OIG Hotliine

Other Significant HUD Audits and Investigations/OIG Hotline 131

OIG questioned whether the

remaining fiscal year 2004 grants were

properly awarded and recommended that

the Department take immediate action to

ensure the 2005 grant award process was

completed according to notice of funding

availability requirements and HUD’s

established grant processing procedures.

(Audit Report: 2005-PH-0002)

Security of Windows 2000 Server

Security of Windows 2000 Server Security of Windows 2000 Server

HUD OIG completed a security

assessment of HUD’s implementation of

“Security of Windows 2000 Server.” The

objective of the audit was to assess HUD’s

configuration of the Windows 2000

operating system for security and its

backup and recovery practices.

OIG concluded that HUD generally

implemented the Microsoft Windows 2000

operating system configuration settings

properly. However, deficiencies in

configuration security and backup and

recovery practices were identified. The

report presents detailed results of

our assessment and appropriate

recommendations for corrective action that

will improve HUD’s overall security

posture through recommended

configurations. OIG has determined that

the contents of this report would not be

appropriate for public disclosure; therefore,

OIG limited its distribution to selected HUD

officials. (Audit Report: 2005-DP-0005)

Quality of the Process for Quality of the Process for Quality of the Process for

Certifications and Accreditations Certifications and Accreditations

of HUD Information Systems of HUD Information Systems

HUD OIG audited the quality of the

process for certifications and accreditations

of the HUD information systems that were

completed through the end of calendar

year 2004. The objective of the audit was

to assess the quality of the HUD process

for certification and accreditation of its

information systems. For criteria, OIG used

recommendations from special publications

issued by the National Institute of

Standards and Technology (NIST) and

requirements from Office of Management

and Budget and Federal Information

Processing Standards.

The quality of the process for

certification and accreditation of HUD’s

information systems in calendar year 2004

was poor and resulted in presentation of

inadequate certification and accreditation

packages to the authorizing official.

Because the packages were incomplete and

did not contain the information necessary

for the authorizing official to accredit

HUD’s systems, no accreditations were

made in calendar year 2004.

OIG recommended that HUD appoint

senior officials within the program and

administrative offices as authorizing

officials and direct them to complete

certifications and accreditations for their

systems in accordance with OMB

requirements and guidance for Federal

agencies published by NIST. OIG also

recommended that HUD ensure that

policies and procedures for the certification

and accreditation process are developed,

approved, and implemented and that they

address roles and responsibilities assigned

during the process. (Audit Report: 2005-

DP-0007)
Investigations Investigations Investigations

During this reporting period, OIG

opened seven investigation cases and

closed three cases involving areas of HUD

operations that do not fall under specific

program categories. Judicial action taken

on these cases during the period included

$118,347 in funds put to better use and four

arrests.

Some of the investigations discussed

in this report were conducted by OIG,

while others were conducted jointly with

Federal, State, and local law enforcement

agencies. The results of OIG’s more

significant investigations are described

below.

During the week of April 4, 2005,

HUD OIG, in cooperation with the United

States Marshals Service (USMS) and

various other Federal, state, county, and

local law enforcement agencies, conducted

a nationwide fugitive apprehension

operation. This apprehension operation

coincided with National Crime Victims

Rights Week. Within the 93 U.S. Attorney

districts, the USMS has 83 district fugitive

task forces and five regional fugitive task

forces. HUD OIG participated on 37 of

these task forces. Nationwide, Operation

Falcon resulted in 10,343 arrests, of which

HUD OIG directly participated in the

arrest of 359 subjects who resided in public

or subsidized housing.

Fraudulent Use of GovernmentFraudulent Use of Government- Fraudulent Use of GovernmentIssued Impact Credit Cards Issued Impact Credit Cards

In Baltimore, MD, Walter McKeithan,

Jr., was arrested pursuant to a warrant

issued by a U.S. District Judge, District of

Maryland, based on an investigation by

HUD OIG and six other agency OIGs. for

the fraudulent use of government-issued

IMPACT credit cards involving all seven

agencies. Investigation in this matter

began after a creditor contacted the HUD

Hotline alleging misuse of a credit card

belonging to a former HUD OIG employee

to purchase sizable amounts of copier

toner. The investigation disclosed that

McKeithan allegedly fraudulently obtained

and used credit card numbers from the

various agencies and allegedly purchased

or attempted to purchase at least $163,500

in goods and services with an actual loss

to date of $54,000.

Accessory After the Fact

Accessory After the Fact Accessory After the Fact

In Tampa, FL, Defendant Richard

Doty appeared before the Honorable

Steven D. Merryday for the United States

District Court for the Middle District of

Florida, Tampa Division. Doty was

subsequently sentenced on count one of the

information charging him with accessory

after the fact and ordered to be committed

to the custody of the Bureau of Prisons for

15 months, sentenced to supervised release

for a term of 3 years, and ordered to pay

restitution in the amount of $69,834 to

HUD, $91,876 to Sterling Bank and Trust,

and $44,290 to Republic Bank for a total

of $206,000.

Systemic Implications Reports Systemic Implications Reports

In the New York/New Jersey region,

a deficiency was discovered when the

Mortgage Review Board (MRB) notified

OIG of a pending withdrawal of First

Alternative Mortgage Corporation’s

(FAMC) HUD Federal Housing

Administration (FHA) approval for 3 years.

In its letter to the MRB on June 25, 2004,

with respect to 10 loans in which “FAMC

Other Audits & Investigations/OIG Hotline

Other Significant HUD Audits and Investigations/OIG Hotline 132
Other Audits & Investigations/OIG Hotliine

Other Significant HUD Audits and Investigations/OIG Hotline 133

signed false Lender Certifications,

indicating that the loans were originated

by full time employees,” the Associate

General Counsel for Program Enforcement

stated “Board staff recommends civil

penalties in the amount of $10,000 ($1,000

x 10 loans) because the alleged violation,

while important, is not sufficiently serious

to warrant the maximum penalty per

loan.” The Assistant United States

Attorney assigned to the criminal

prosecution of the FAMC took exception

to the Department’s characterization of the

offense as not being “sufficiently serious.”

In response to the concerns set forth in the

Systemic Implications Reports (SIR), HUD

agreed to refrain from using any language

that depicts the criminal activity of

mortgage fraud as not being serious.

A deficiency was discovered when a

single-family criminal investigation

determined that the subject, John Null,

gained unlawful access to HUD Real Estate

Owned (REO) property in Baltimore, MD,

by using a REO property master key. Null

entered the subject REO property with the

intent to remove a government-owned

furnace from the basement. REO property

master keys were produced, issued, and

maintained by the original HUD

management and marketing (M&M)

contractor, Michaelson, Connor, and Boul

(MCB). According to MCB officials, copies

of such master keys were commonly given

to any licensed realtor or subcontractor

hired to perform work or services at the

given REO property. Consequently, the

holder of the master key was constructively

given access to all REO properties in the

multistate region. MCB does not maintain

a record of who issued a master key.

Additionally, there was no contractual

requirement for MCB property inspectors

to record the serial numbers on major

kitchen and other household appliances

including furnaces. In response to concerns

set forth in the SIR, the Department

believed that it was prudent to notify all

M&M contractors of the findings reported

in the SIR. HUD will also review the

business practices followed by HUD’s

M&M contractors, related to access of

properties, in order to determine whether

there are additional steps available that

would result in a reduction of such

reported incidents.

Child Exploitation Child Exploitation

HUD OIG Special Investigations

Division (SID), Washington, DC,

conducted a joint investigation with the

Commonwealth of Pennsylvania, Office of

Attorney General, Bureau of Criminal

Investigation (BCI), Child Sexual

Exploitation Unit, to identify and expose a

HUD employee using his HUD computer

to send sexually explicit and pedophilic

e-mails to an individual whom the HUD

employee believed was the father of three

minor children, who would permit the

employee to have sexual relations with the

children. In fact, the HUD employee was

communicating with a BCI undercover

agent.

In an arrangement devised by SID and BCI,

HUD OIG and SID special agents caught

the HUD employee at his desk at the HUD

Philadelphia Home Ownership Center

while in the act of attempting to download

a file the employee believed contained a

photograph of the children. SID obtained

an admission from the HUD employee as

to his involvement in the sending of sexually

explicit and pedophilic e-mails from

his HUD computer and recovered

corroborating forensic evidence.
Other Audits & Investigations/OIG Hotline

Other Significant HUD Audits and Investigations/OIG Hotline 134

The HUD employee subsequently

resigned, after pleading guilty to violation

of Title 18, Pennsylvania Consolidated

Statutes, section 901/6318, criminal

attempt/unlawful contact with minor, a

felony. In February 2003, the defendant

was sentenced to a term of imprisonment

in the custody of the Pennsylvania

Department of Corrections for a period of

not less than 1 year and not to exceed 10

years, to be followed by a term of probation

of 10 years. The defendant was also

required to register as a sex offender. Prior

to imposition of sentence, the presiding

judge described the e-mails sent by the

defendant from his HUD computer as “the

most disgusting thing I’ve heard a human

being say they would do to children” and

noting the e-mails “went from bad to worse

to disgusting to monstrous.” The judge

described the defendant as a “clear and

present danger to the children of the

Commonwealth of Pennsylvania.”

Assault

Assault Assault

Antonio Loura, a former Section 8

landlord, was indicted by a grand jury in

the District of Massachusetts, Boston, MA.

Loura was indicted on one count of assault

on a Federal officer. Loura was indicted

after he allegedly threatened two HUD OIG

special agents with a knife while the agents

were interviewing Loura, who was

suspected of living with his Section 8

tenant.
Other Audits & Investigations/OIG Hotliine

Other Significant HUD Audits and Investigations/OIG Hotline 135

OIG Hotline OIG Hotline

The HUD OIG Hotline is operational

5 days a week, Monday through Friday,

from 10:00 a.m. to 4:30 p.m. The Hotline

is staffed by six full-time OIG employees,

who take allegations of waste, fraud, abuse,

or mismanagement in HUD or HUDfunded programs from HUD employees,

contractors, and the public and coordinate

reviews with internal audit and

investigative units or with HUD program

offices.

During this reporting period, the

Hotline received and processed 10,229

complaints—76 percent received by

telephone, 19 percent by mail, and 5

percent by e-mail. Every allegation

received by the Hotline is logged into a

database and tracked.

Of the complaints received, 1,385 were

related to the mission of the OIG and were

addressed as Hotline cases. Hotline cases

are referred to OIG’s Offices of Audit and

Investigation or to HUD program offices

for action and response. The following

illustration shows the distribution of

Hotline case referrals by percentage.

Hotline closed 820 cases during this

reporting period. The closed Hotline cases

included 96 substantiated allegations. The

substantiated allegations resulted in 18

administrative sanctions against HUD

employees for personnel violations or

investors for improprieties involved in the

purchase of a home. The Department also

took 97 corrective actions that resulted in

$196,726 in recoveries of losses and

$2,012,404 in HUD funding that could be

put to better use. The recoveries included

Section 8 tenants who must reimburse

housing authorities for assistance to which

they were not entitled based on improper

reporting of income or household

composition. Some of the funds that could

be put to better use were the result of cases

in which homebuyers made false claims

when purchasing homes insured by

Federal Housing Administration (FHA)

loans.

Chart 6.3: Hotline Cases Opened by Program

Public and Indian

Housing

63%

Multifamily

Housing

12%

Single-Family

Housing

9%

Other HUD

Offices

OIG Audit & 7%

Investigation

9%
Chart 6.4: Substantiated Cases by Type of Complaint Received by Hotline

Owner/Occupant

Violation

5%

Rental Fraud

& Improprieties

88%

Other

3%

Loan Irregularities

4%

  

Other Audits & Investigations/OIG Hotline

Other Significant HUD Audits and Investigations/OIG Hotline 136

Chart 6.3: Hotline Dollar Impact from HUD Program Offices Chart 6.3: Hotline Dollar Impact from HUD Program Offices

1,600,000

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0

$159,168

$131,222

$12,054

$383,790

$25,503

$1,497,392

Recoveries $196,726 Funds Put to Better Use $2,012,404

 Single-Family Multifamily Public Housing
Chapter 7

Outreach Efforts
Outreach Efforts

Outreach Efforts 138

T o foster cooperative,

 informative, and mutually

beneficial relationships with agencies and

organizations whose intent is to assist the

accomplishment of the U.S. Department of

Housing and Urban Development’s (HUD)

mission, the Office of Inspector General

(OIG) participates in a number of special

outreach efforts. These efforts, as described

below, are in addition to OIG’s regular

coordination with Federal, State, and

local law enforcement agencies; other

OIGs; and various congressional

committees and subcommittees. During

these outreach efforts, OIG not only

presents the results of its audit and

investigative work and discusses its goals

and objectives; it also provides information

about OIG’s role and function.

Inspector General (IG) Kenneth M.

Donohue welcomed the attendees of the

“Mid America Crime Free Multifamily

Housing” Conference. Mid America

Crime Free, Inc., is an organization

developed to educate police officers and

apartment managers about each other’s

responsibilities within assisted housing. IG

Donohue expressed his gratitude for the

efforts and sacrifices of the participating

managers and law enforcement officers.

During his address, IG Donohue also

recognized the contributions of the Kansas

City, MO, Police Department in supporting

nine Section 8 sweep operations in the

Kansas City area. At the same conference,

Assistant Inspector General in Charge

(ASAC) Michael Powell and Special Agent

(SA) Karen Gleich provided training on

fraud in assisted housing.

Special Agent in Charge (SAC) John

McCarty, Criminal Investigative Division

(CID); SAC James Beaudette, Region 9/10;

and ASACs Lori Chan and Tony Meeks,

Region 9/10, provided a presentation to

approximately 200 members of the

National Association of Housing and

Redevelopment Officials (NAHRO) in San

Francisco, CA. NAHRO members were

provided an introductory presentation

regarding the history, responsibilities, and

basic mission of HUD OIG. The

presentation then focused on HUD OIG’s

Fugitive Felon and Rental Assistance

initiatives, with emphasis on how the goal

of each initiative is to assist housing

authorities in providing safe and affordable

housing for deserving members of our

society. ASACs Chan and Meeks provided

presentations focusing on measures for

detecting and preventing fraud within

rental assistance programs. The entire

presentation became an open forum–

question and answer session, which

resulted in constructive round-table

discussions for accomplishing positive

results with regard to HUD’s Housing

Integrity Improvement Project (RHIIP) and

HUD OIG’s Fugitive Felon and Rental

Assistance initiatives.

SAC Peter Emerzian, ASAC Diane

DeChellis, and Assistant Regional Inspector

General for Audit (ARIGA) Mike Motulski

gave a presentation to approximately 70

participants at the HUD Federal Housing

Administration (FHA) Update Seminar,

which took place at the HUD regional

office in Boston, MA. The participants

included real estate agents, mortgage

brokers, and closing agents from

companies throughout New England. SAC

Emerzian discussed OIG’s mission as well

as the OIG priorities for 2005/2006, which

include the reduction of single-family

fraud. ASAC DeChellis identified various

types of mortgage fraud that OIG has

encountered, to include the characteristics

of such fraud and the impact that the fraud

has on HUD and the community. ARIGA

Motulski explained the role of the Office of

Audit (OA) in the detection and prevention

of single-family mortgage fraud.
Outreach Efforts

Outreach Efforts 139

 Regional Inspector General for

Audit (RIGA) Joan Hobbs and ARIGA

Clyde Granderson, attended the Regional

NAHRO Conference in San Francisco, CA,

and spoke about public housing-related

audit results. There were about 200 people

in attendance.

ARIGA Mike Motulski and SAs

Edward Redmond and Stephen Tufts

addressed the annual conference of the

Massachusetts NAHRO in Falmouth, MA.

The presentation, “Protecting Your Agency

from Fraud,” outlined HUD OIG’s role in

auditing and investigating the operations

of federally aided local housing authorities.

The presentation began with an overview

of HUD OIG operations and later focused

on preventing and detecting fraud in the

Section 8 program. Recent investigations

that representatives from the HUD OIG

New England Region have successfully

completed and HUD OIG findings on

fraud, waste, and mismanagement were

discussed as well as how to contact the

HUD OIG Hotline.

ARIGA Ron Farrell, assisted by

Technical Oversight and Planning Division

(TOP) Management Analyst Jennifer

Houghton, gave a presentation on HUD’s

Audit Resolution and Corrective Action

Tracking System (ARCATS) to Ohio HUD

managers in Perrysburg, OH, on August

24, 2005. Ms. Houghton and Mr. Farrell

provided information on conducting a

paperless audit resolution process in

ARCATS to the 30 HUD staff in

attendance. Ms. Houghton discussed

upcoming proposed revisions to ARCATS.

ARIGA Rose Capalungan and Senior

Auditor Kelly Anderson made a

presentation regarding HUD OIG (who we

are and what we do) at the 2005

Supportive Housing Program Start-Up

Conference, held in HUD’s office in

Chicago, IL, on August 31, 2005. HUD’s

Chicago Regional Office of Community

Planning and Development hosted the

conference. More than 90 conference

attendees who have involvement in HUD’s

supportive housing program were present.

ASAC Tony Meeks and SA Leonard

de Vera attended a Garden Grove, CA,

Responsible Effective Apartment Team

meeting aimed at improving the quality of

life and providing a sense of security to

community members in the city of Garden

Grove, CA. In attendance were

representatives from the Garden Grove

Housing Authority, Garden Grove Police

Department, Garden Grove Community

SAC Peter Emerzian presenting at the HUD Federal

Housing Administration Update Seminar.

ASAC Diane DeChellis identifying the various types of

fraud to 70 participants.
Services, and local apartment owners and

managers. ASAC Meeks and SA de Vera

offered resources and assistance to city

representatives and conveyed the mission

of HUD OIG, especially with regard to the

Rental Assistance initiative. After the

meeting, officers and housing authority

officials provided information to assist this

office in pursuing investigations with

regard to forms of rental assistance fraud,

to include various cases of unreported

income and falsifications of total family

composition.

ARIGA Clyde Granderson and Senior

Auditor Helen Sparks spoke before the San

Joaquin Valley Escrow Association on the

topic “Single Family Fraud.” There were

approximately 100 people in attendance.

HUD OIG Region 6 ASAC Michael

Wilson and Forensic Auditor Katherine

Howell gave a presentation on mortgage

fraud to the Dallas, TX, Chapter of the

International Association of Financial

Crimes Investigators (IAFCI). IAFCI

sponsored the training given by HUD OIG

and the Department of Veterans Affairs

(VA) OIG. In addition to investigators from

the banking community, personnel from

various Federal, State, and local law

enforcement agencies were in attendance.

Mortgage fraud is a growing concern in the

Dallas-Fort Worth banking community.

Region 6 ARIGA Theresa Carroll,

assisted by Senior Auditors Lynelle Kunst

and Danita Wade, spoke at the Finance

Focus Group for Housing Authorities

Roundtable Discussion on June 9, 2005.

The Finance Focus Group, which is

comprised of finance officers of housing

authorities, requested that OIG staff speak

at their meeting in Ft. Worth, TX. Ms.

Carroll’s presentation provided a brief

background on HUD OIG, a brief history

of the Section 8 program, a description of

why auditing Section 8 is a HUD OIG

priority, and a synopsis of the last 12

months of Public and Indian Housing

program audits issued by the OA.

ARIGAs Tanya Voigt and Vince

Mussetter attended the California State

University, Northridge, job fair. Ms. Voigt

and Mr. Mussetter spoke with many

students about possible career opportunities

in both auditing and investigations fields.

They gave out recruiting brochures and

collected resumes from more than 50

interested students.

ASAC Lori J. Chan gave a

presentation to the Hawaii Chapter of the

Institute of Appraisers in Honolulu, HI.

ASAC Chan provided an overview of HUD

OIG and mortgage fraud along with a case

study. After the presentation, there was a

question and answer session. There

were approximately 50 individuals in

attendance.

HUD OIG ASAC Brad Geary and a

representative from the State of Illinois,

Department of Banks and Real Estate,

provided a presentation to approximately

50 representatives from the Illinois

Association of Mortgage Brokers in

Chicago, IL. The presenters provided

updates on multiple real estate schemes

and their agencies’ most recent

enforcement efforts.

As part of Region 5’s proactive efforts

to reduce fraud in HUD’s assisted housing,

ASAC Ray Espinosa and ASAC Brad

Geary provided a training session to 18

different housing authorities as well as

employees from HUD’s Multifamily and

Public Housing divisions in Chicago, IL.

More than 100 individuals attended the

session, entitled “Fraud in Assisted

Housing,” which covered the Rental

Housing Integrity Improvement Project

Outreach Efforts

Outreach Efforts 140
(RHIIP) initiative, the latest tenant and

landlord schemes, OIG’s Felony Fugitive

mission, OIG partners, “Red Flags,” and

some of the most current prosecutorial

initiatives within the Region.

ASAC Michael Powell addressed the

“Fair Housing/Predatory Lending

Partnership” Consortium sponsored by the

HUD Office of Fair Housing and Equal

Opportunity in Kansas City, MO. ASAC

Powell discussed the roles of the OIG

divisions, the types of cases the Office of

Investigations (OI) handles, and ways to

provide information regarding criminal

activity to the OI.

As part of Region 5’s proactive efforts

to reduce fraud in HUD’s assisted housing,

ASAC Ray Espinosa and ASAC Brad

Geary provided a training session to 50

different housing authorities as well as

representatives from the local police

department and the resident Federal

Bureau of Investigation (FBI) office

in Springfield, IL. More than 150

individuals attended the session, entitled

“Combating Fraud in Assisted Housing,”

which covered the RHIIP initiative, the

latest tenant and landlord schemes, OIG’s

Felony Fugitive mission, OIG partners, “Red

Flags,” and some of the most current

prosecutorial initiatives within the Region.

ASAC Brad Geary and ASAC Ray

Espinosa provided a fraud presentation to

Chapter 7 Trustees, Chapter 13 Trustees,

and representatives from the United States

Trustees Office in Lake Delavan, WI. These

individuals represented Region 11 for the

United States Trustee, which is comprised

of the entire state of Wisconsin and the

Northern District of Illinois. The session

focused on HUD FHA loan fraud and how

it interacts/crosses over with bankruptcy

fraud. More than 200 people were in

attendance at this session, which is part of

Region 5’s bankruptcy initiative to not only

address current frauds, but to educate and

train those individuals in the bankruptcy

process as to how real estate fraud is

integral to their work.

During the week of July 29, 2005, in

Los Angeles, CA, ASAC Tony Meeks met

with housing authority officials from the

cities of Anaheim, Garden Grove,

Inglewood, Newbury Park, Oxnard, and

Santa Ana, CA, and discussed HUD OIG’s

Fugitive Felon and Rental Assistance

initiatives and how these initiatives

coincide with HUD’s RHIIP. ASAC Meeks

stressed the importance of a collaborative

effort between housing authorities and

HUD OIG to achieve the common goal of

identifying and removing violators of rental

assistance programs. ASAC Meeks further

emphasized that OIG is in full support of

the contributions, mission, and role housing

authorities in administering HUD funds.

The housing authority officials agreed to

promptly provide information of indicators

of fraud within their respective tenant

and/or landlord rolls.

Senior Forensic Auditor Loretta Burns

and ASAC Phyllis Grissom made a

presentation to the Greater Ft. Worth

Association of Realtors, Ft. Worth, TX, on

July 18, 2005. The presentation was made

to approximately 50 realtors from the Ft.

Worth area regarding current mortgage

fraud issues.

 ASAC Lori J. Chan and SA James

Carrieres gave a presentation for the

Mortgage Bankers Association in San

Francisco, CA, training entitled “Detecting

and Preventing Mortgage Fraud.” The

presentation provided an overview of HUD

OIG and reviewed case studies of

successful single-family fraud cases that

Outreach Efforts

Outreach Efforts 141
were prosecuted in Arizona. There were

approximately 65 individuals from across

the Nation in attendance.

Region 6 ARIGA Theresa Carroll was

the speaker at the Ft. Worth, TX, Chapter

of the Association of Government

Accountants on September 27, 2005. The

event was attended by accountants and

auditors in the Fort Worth, TX, area. Ms.

Carroll spoke about how HUD OIG has

revised its audit process to comply with the

Government Performance Results Act in

the area of public housing.

ARIGAs Tanya Voigt and Vince

Mussetter, along with ASAC Tony Meeks

and ARIGA Tony Putzulu, gave a

presentation to HUD Los Angeles, CA,

field office staff about OIG in conjunction

with a HUD cross-training effort. Ms. Voigt

and Mr. Mussetter provided extensive

information on OIG’s mission,

organization, and responsibilities. They

also talked about the audit planning,

reporting, and resolution processes. ASAC

Meeks and ARIGA Putzulu discussed the

various types of cases pursued by their

office and the importance of reporting

fraud, waste, and abuse to OIG.

Region 7/8 RIGA Ron Hosking and

SAC Rebecca Kiser met with the HUD

Region 7 field office directors during their

annual meeting in Kansas City, MO.

RIGA Hosking and SAC Kiser gave the

directors an overview of OIG operations,

explaining how OIG identifies subjects to

audit and investigate, how OIG conducts

reviews, what OIG does with the results,

and how OIG measures its work. They also

explained how HUD staff can help OIG do

its work and reviewed the most recent

semiannual report.

ARIGA Ronald Farrell, assisted by

Senior Auditor Paul Adler, spoke at the

Ohio Housing Authorities Conference

(OHAC) on September 22, 2005. OHAC

and the Columbus, OH, Office of Public

Housing requested that OIG staff speak at

the Conference in Dublin, OH. The OA’s

presentation provided a brief background

on HUD OIG, a description of why

auditing public housing authority nonprofit

development activities is a HUD OIG

priority, and a synopsis of the nonprofit

development activities audits issued by the

OA.

Senior Auditor Kelly Anderson and

Auditor Anthony Smith, Region 5,

participated in Bradley University’s Fall Job

Fair in Peoria, IL, on September 22, 2005.

Ms. Anderson and Mr. Smith spoke with

students about OIG’s mission and the

benefits of pursuing a career in auditing

and investigations. They accepted 10

resumes from students interested in

full-time employment with HUD OIG.

ASAC Ruth Valdes and ARIGA Barry

Shulman presented a fraud awareness

seminar to participants in the State of

Florida Small Cities Community

Development Block Grant (CDBG)

Disaster Assistance Funds Program located

in Northern Florida. These participants are

tasked with rebuilding communities

affected by the four major hurricanes that

hit Florida in the 2004 season. As a result

of the destruction caused by Hurricanes

Charley, Frances, Ivan, and Jeanne, the

Florida Department of Community Affairs,

which administers the Small Cities CDBG

program, has received more than $100

million from HUD earmarked for disaster

recovery assistance. ASAC Valdes

discussed HUD OIG OI and OA and their

roles in preventing fraud, waste, and abuse

of HUD programs. ARIGA Shulman

addressed the importance of maintaining

adequate documentation for cost items for

possible future audits. The 2005 CDBG

Outreach Efforts

Outreach Efforts 142
Implementation Workshops, held in

Quincy, FL, and Lakeland, FL, were the

first to involve HUD OIG participation for

the purpose of increasing awareness and

preventing possible misappropriating of

CDBG Disaster Recovery Assistance

funds. Approximately 100 CDBG

contractor participants and city, State, and

county administrators representing

Northern and Central Florida attended

the workshops on September 7-8 and

September 14-15.

ASAC Diane H. DeChellis and SA

Jessica Piecuch of HUD OIG’s New

England Region met with staff from the

Boston, MA, Police Department (BPD),

Youth Violence Strike Force, to include

Outreach Efforts

Outreach Efforts 143

Lieutenant Kelley J. McCormick and

Sergeant Gary Eblan. The Youth Violence

Strike Force is responsible for addressing

the gang activity within the City of Boston.

This meeting was held to discuss gang

activity within HUD’s housing sites in the

City of Boston, MA. The meeting with

BPD detailed several local and national

gangs that are operating out of both public

and assisted housing in Boston, MA. It was

agreed that intelligence reports prepared

by BPD would be supplied to HUD OIG,

outlining the gang activity within HUD’s

Boston housing sites for the last 6 months.

In Tyler, TX, HUD OIG Region 6

ASAC Michael Wilson and SA Stan Mercer

gave a presentation on mortgage fraud to

the East Texas Bankers Association.

Attendees were provided an overview of

OIG and were presented with case studies

on single-family investigations. ASAC

Wilson and SA Mercer detailed the

investigative methods and criminal

schemes common in single-family

investigations. Approximately 80

mortgage bankers and law enforcement

professionals were in attendance. Mortgage

fraud is a growing concern in East Texas.

As part of Region 5’s proactive efforts

to reduce fraud in HUD’s public and

assisted housing, ASAC Ray Espinosa and

ASAC Brad Geary provided a training

session to 10 different housing authorities

in Mt. Vernon, IL. More than 50

individuals attended the session, entitled

“Combating Fraud in Assisted Housing,”

which covered the RHIIP initiative, the

latest tenant and landlord schemes, OIG’s

Felony Fugitive mission, OIG partners, “Red

Flags,” and some of the most current

prosecutorial initiatives within the Region.

This was the third training session in a

three-part public and assisted housing

initiative to reach out to more than 90

different housing authorities in the State

ASAC Ruth Valdes presenting at a fraud awareness

seminar.

ARIGA Shulman addressing participants in the

seminar.
of Illinois. During the last 6 months, more

than 300 individuals have been trained in

these sessions. Those in attendance

included housing authority executive

directors and employees, HUD public

housing authority (PHA) staff, HUD

multifamily staff, local police officers, and

FBI agents.

ARIGAs Charlie Johnson and Tanya

Voigt gave a presentation at the Pacific

Southwest Regional Council of NAHRO’s

Annual Spring Conference in Sacramento,

CA. Mr. Johnson and Ms. Voigt presented

an overview of how OIG is structured and

its audit and investigative responsibilities

and spoke on the topic, “Problems

Frequently Encountered at Public Housing

Authorities.”

SA Scott Savedow conducted a singlefamily fraud presentation to the South

Florida Appraisal Institute in Boca Raton,

FL. SA Savedow discussed the impact and

consequences of loan origination fraud

on HUD FHA to increase awareness

of common fraudulent schemes.

Approximately 100 appraisers representing

all areas of Florida attended the

presentation.

SA Daniel Harding of the Baltimore

field office spoke to the Eastern Shore (MD)

Investigator’s Conference in Suddlersville,

MD, which included attendees from

almost 20 police departments/agencies.

SA Harding discussed the OIG mission and

priorities, with particular emphasis on

mortgage, bankruptcy, and rental

assistance fraud. He highlighted pertinent

rules and criminal statutes pertaining to

rental assistance fraud and OIG’s emphasis

on removing HUD-assisted tenants who

engage in criminal activity or otherwise

violate pertinent leasehold requirements.

He encouraged joint enforcement efforts to

address HUD-related criminal issues that

impact on the local agencies. His

presentation resulted in followup for

possible joint efforts by three different

police agencies.

SA Jennifer Howell presented a

workshop on “Mortgage Fraud” at the

annual Emerging Trends in Fraud

Investigation and Prevention Conference

in Columbus, OH. Approximately 65

police officers, investigators, auditors, and

accountants from the public and private

sectors were in attendance. SA Howell

identified red flags common in mortgage

fraud schemes while discussing the various

types of schemes that occur in HUD

mortgage fraud investigations. The

conference was presented by the

Association of Certified Fraud Examiners

in conjunction with the Ohio State Auditor,

Ohio State Attorney General, National

White Collar Crime Center, Ohio Society

of Certified Public Accountants, Ohio

Investigators Association, and the Ohio

Office of Criminal Justice.

SA Eric Huhtala made a presentation

to 60 attendees at the HUD Sacramento,

CA, Multifamily Housing Industry Meeting

in Sacramento, CA. The presentation

consisted of a general overview of OIG’s

mission and role in investigating and

prosecuting fraud. Information was also

provided on detecting, preventing, and

reporting fraud. Also present during the

presentation were ASAC Lori Chan and

SA Keith Fong.

On August 23, 2005, in Los Angeles,

CA, SA Neil McMullen and ASAC Tony

Meeks met with the SAC and Supervisory

SA of the California Department of Justice

(DOJ), Bureau of Investigations, Sex

Offender Task Force (“Los Angeles County

290 Task Force”). This meeting focused on

Outreach Efforts

Outreach Efforts 144
the importance of a collaborative effort

between the task force and HUD OIG to

achieve the common goal of identifying,

tracking, and monitoring sex offenders in

Southern California. ASAC Meeks

described HUD OIG’s Sex Offender

Registry Matching initiative and how this

initiative strives to prevent such offenders

from illegally receiving and/or residing in

government-subsidized housing. ASAC

Meeks further explained how OIG agents

are aggressively working with various local

housing authorities to develop a more

efficient process and to identify those

already receiving HUD subsidies. The task

force supervisors agreed to allow a HUD

OIG agent to be assigned as an “affiliated

agency” ad hoc provisional member,

which will allow the sharing of

investigative intelligence information.

Acting ASAC Daniel Ellis and SA

Louis Mancini met with employees of the

Chester, PA, Housing Authority, including

the executive director, counsel, and rental

assistance supervisors, to acquaint them

with OIG’s role regarding tenant fraud and

discuss a potential initiative with the

Authority. ASAC Ellis and SA Mancini

provided an overview of OIG

responsibilities, mission, and goals with

regard to tenant fraud, which included a

summary of OIG successes in obtaining

both Federal and local prosecution of

egregious tenant fraud cases or in

“packaging” groups of cases for impact

and deterrent purposes. They also

discussed procedures and protocols for

identifying potential fraud cases and

referring them to OIG for investigation.

SA James Carrieres gave a presentation

to the Phoenix, AZ, HUD staff during an

all employees meeting. SA Carrieres

provided an overview of HUD OIG

investigations and provided examples of

successful fraud cases that were

prosecuted in Arizona. There were

approximately 40 individuals from the local

HUD office in attendance.

SA Nancy Valencic presented a

training session on “Section 8 Fraud

Schemes and Remedies” to approximately

80 attendees at the Kentucky Housing

Association annual conference and training

seminar held in Belterra, IN. The training

session included case examples of tenant

and landlord fraud schemes, multifamily

equity skimming, theft, and cases involving

housing authority employees. Topics of

discussion also included Federal and State

statues currently being used by prosecutors,

thresholds for criminal prosecution, and

what is required to present a case for

prosecution. Attendees were provided

contact information for the Nashville HUD

OIG office for future referrals.

SA Don Varner attended the 2nd

Annual Georgia Real Estate Fraud

Prevention and Awareness Conference in

College Park, GA. The conference focused

on the recently signed Georgia Residential

Mortgage Loan Fraud Act and industry

best practices. The title of this year’s

conference was “Honesty, Integrity &

Ethics, a Future without Fraud.” Keynote

speakers included U.S. Attorney for the

Northern District of Georgia David

Nahmias and David McLaughlin, State of

Georgia Assistant Attorney General.

Topics included loan officer and appraisal

practices, fraud schemes, prevention

awareness for industry professionals,

prosecution, and statutes. The Mortgage

Asset Research Institute presented

statistical data to include the current most

challenged states for loan origination fraud,

which placed Georgia first on the scale,

South Carolina second, Florida third, and

North Carolina fifth. SA Varner provided

contact information for the Atlanta

Regional Office.

Outreach Efforts

Outreach Efforts 145
SA Keith Williams and ASAC Timothy

A. Mowery presented a seminar on fraud

awareness and the various responsibilities

of HUD OIG to the Florida Association of

Housing and Redevelopment Officials

(FAHRO) during FAHRO’s 2005 annual

convention in Daytona, FL. FAHRO is

comprised of public housing officials,

employees, and other individuals

representing public housing entities and

interests throughout the State of Florida.

Their respective funding is primarily HUD

subsidies administered through HUD’s

Offices of Public Housing in Jacksonville

and/or Miami. The seminar addressed the

various initiatives in which HUD OIG is

involved, including the Sexual Offender,

Fugitive Felon, Section 8 Tenant, and

Landlord Fraud initiatives. Attendees were

provided a PowerPoint presentation

illustrating common fraud schemes, fraud

indicators, measures to help prevent fraud,

and an overview of HUD OIG’s

responsibilities to the OIG mission and were

provided contact information for reporting

fraudulent activity to HUD OIG, both

locally and nationally. The seminar

concluded with a question and answer

session, which revealed that a number of

attendees were interested in referring

fraudulent activity to HUD OIG.

SA Jim Siwek and SA Bob Wenzel

gave a presentation at the Mortgage

Bankers Association Quality Assurance

Conference in Chicago, IL. The

presentation was part of a forum

discussing quality assurance requirements,

recent developments, quality hot button

issues, and trends in mortgage fraud. The

forum outlined issues and trends occurring

in the mortgage industry and the methods

being used to help detect and deter

mortgage fraud. The panel members

included individuals from Fannie May,

Freddie Mac, HUD, and Standard and

Poor’s Corporation. Approximately 150-

200 attended the session, which was

followed by a question and answer session.

SA Teresa Carson gave a presentation

to members of NAHRO at their annual

Spring Conference in Sacramento, CA, on

the topic, “Preventing, Detecting, and

Combating Fraud Through Education and

Partnership.” PHA and industry officials

located in Washington, Oregon, California,

Arizona, and Nevada attended the

conference.

Region 4 SAs Angela Stewart and

Malinda Antonik provided training to

approximately 40 executive directors at the

Alabama Public Housing Authority

Directors Association Training Conference

in Opelika, AL. Topics included housing

authority crimes such as embezzlement,

contractor fraud, and tenant and landlord

fraud. Detailed training was provided on

identifying tenant fraud, referring matters

to HUD OIG, and the types of information

and documentation needed by HUD OIG

in support of an investigation. Training

was also conducted on enforcement of

HUD’s One Strike Policy and Public Law

104-193 regarding probation and parole

violators. Examples of successful

prosecutions, sample documents, and

valuable case law were provided to those

in attendance.

From April 4 through April 7, 2005,

the HUD OIG Newark, NJ, office along

with Newark HUD officials participated in

TopOff 3, an international antiterrorism

exercise designed to strengthen the

Nation’s capacity to prevent, prepare for,

respond to, and recover from large-scale

attacks involving weapons of mass

destruction. This exercise simulated the

release of pneumonic plague in New

Outreach Efforts

Outreach Efforts 146
Jersey, the explosion of a chemical bomb

in New London, CT, and the explosion of

a chemical bomb in the United Kingdom

by a foreign terrorist network.

Participation in this exercise included 275

Federal, State, and local government

Outreach Efforts

Outreach Efforts 147

  

authorities, first responders, the private

sector, and medical communities. This fullscale exercise involved more than 12,000

participants in New Jersey alone.

Authorities in Washington, DC, and

Canada also participated in this exercise.

Chapter 8

Review of Policy Directives
Reviewing and making

 recommendations on

legislation, regulations, and policy issues is

a critical part of the Office of Inspector

General’s (OIG) responsibilities under the

Inspector General Act. During this

6-month reporting period, the OIG

reviewed 117 policy notices. This

chapter highlights some of the OIG

recommendations on these notices as well

as other policy directives.

Proposed Rules Proposed Rules Proposed Rules

FR-4712-01 Disposition of

FR-4712-01 Disposition of FR-4712-01 Disposition of

HUD-Acquired Single-Family HUD-Acquired Single-Family

Property-Good Neighbor Next Door Property-Good Neighbor Next Door Property-Good Neighbor Next Door

The U.S. Department of Housing and

Urban Development (HUD) issued a

proposed rule to expand the eligibility of

the Officer Next Door (OND) and Teacher

Next Door (TND) programs to full time

law enforcement officers including tribal

officers, firefighters, and emergency rescue

workers under a “Good Neighbor Next

Door” title. The program typically gives a

50 percent price reduction as an incentive

to these potential buyers of HUD singlefamily properties located in urban

revitalization areas.

OIG commented that the proposed

changes to the OND/TND program

appear to remain vulnerable to abuse and

may not achieve the stated purpose of

reducing neighborhood crime rates and

urban blight. A sufficient inventory of

properties in the targeted areas nationwide

is not available to effect timely and

measurable neighborhood change, and,

consequently, expanding eligibility to other

special occupations does not appear

warranted or workable.

The Department issued the rule as

originally written.

Housing Opportunities for Persons Housing Opportunities for Persons

with AIDS with AIDS

This rule is proposed for the Housing

Opportunities for Persons with AIDS

(HOPWA) program to improve the

partnership with the recipient states, local

governments, and nonprofit organizations

that plan, develop, operate, and evaluate

the housing assistance and related

supportive services programs in their areas.

These changes are intended to ensure that

recipients undertake activities that meet the

current requirement for an ongoing

assessment of the housing assistance and

supportive services required by program

participants. The rule should clarify how

an individual housing service plan would

be developed to guide the assistance

provided to beneficiaries in relation to the

program’s performance goals.

OIG commented because the proposed

rule change does not address the following

requirements that the Inspector General

believes are important areas: 1) capacity

of the grantee and 2) audits of the grantee’s

financial management systems. The Code

of Federal Regulations requires that the

grantee ensure any project sponsor selected

to carry out an activity shall have the

capacity and capability to effectively

administer the activity. The Code further

requires that the financial management

system used by State or local governments

that are grantees provide for audits.

The proposed rule has not been

published as of the end of this semiannual

reporting period.

Review of Policy Directives

Review of Policy Directives 150
Use of Capital and Operating Funds Use of Capital and Operating Funds

for Financing Activities for Financing Activities

Conversion of Developments from Conversion of Developments from

Public Stock: Methodology for Public Stock: Methodology for Public Stock: Methodology for

Comparing Costs of Public Housing Comparing Costs of Public Housing

and Tenant-Based Assistance and Tenant-Based Assistance

Public Housing Capital Fund Public Housing Capital Fund

The following information about the

above three subject draft rules was

included in the March 31, 2005,

Semiannual Report to Congress, and HUD

has not reached a final decision. Therefore,

OIG is repeating the issues in this report.

For the three subject draft rules, the

Office of Public and Indian Housing (PIH)

has not conducted a risk assessment. The

Appropriations Act mandates that a risk

assessment be conducted on each program.

The Department policy and handbooks

provide the method for meeting the

statutory requirement relating to a risk

assessment and provide that a risk

assessment must be completed before

issuing a rule. Until the risk assessment is

completed or the PIH office obtains a

waiver of the policy from the Chief

Financial Officer, OIG cannot concur with

the proposed rules.

The Housing Act of 1937 as amended

allows housing agencies to develop units

using capital funds but limits the

development of new units to the number

of units in the housing agency inventory

at October 1, 1999. OIG did not concur

with the proposed rules because HUD has

not established a control method to ensure

the housing agencies do not build more

units than entitled under the statute.

Further, regarding the conversion rule, the

Department did not establish control

measures to preclude housing agencies

from constructing new units to replace

units converted from the low-income

program to the Section 8 voucher program

and building units that cost more to operate

under the low-income program. OIG did

not concur with the draft rule because

HUD did not establish the necessary

preventive control measures.

For the Use of Capital and Operating

Funds for Financing Activities rule, the

Office of Management and Budget (OMB)

determined this rule as a “significant

regulatory action” and required an

economic analysis. The proposed bond rule

contained the OMB-required analysis of

proposed need; however, it did not contain

the examination of alternative approaches

and an evaluation of the benefits, costs,

quantitative factors, and qualitative

measures of the proposed action and the

main alternative approaches. In addition

to the previously mentioned factors, OIG

cannot concur with this proposed rule

because it cannot conduct an appropriate

analysis of the proposed rule without the

required economic information.

HUD is considering OIG’s noncurring

comments and is completing risk

assessments for the Capital Fund and

Operating Funds draft rules. HUD has

completed a risk assessment for the draft

rule on conversion of developments.

Revision to the Public Housing Revision to the Public Housing

Operating Fund Program (Final Operating Fund Program (Final Operating Fund Program (Final

Rule)

The proposed final rule amends the

regulations of the Public Housing Operating

Fund program to provide a new formula

for distributing operating subsidies to

public housing agencies and to establish

requirements for housing agencies to

Review of Policy Directives

Review of Policy Directives 151
Review of Policy Directives

Review of Policy Directives 152

convert to asset management. Annually,

about $3 billion in operating subsidies is

disbursed through the formula. OMB

identified the draft rule as being

economically significant.

OIG provided the following comments

to the PIH office concerning the proposed

rule.

Executive Order 12898 requires HUD

to identify and address human health and

environmental effects of its policies,

programs, and activities on minority

populations and low-income populations.

Additionally, it requires HUD to collect,

maintain, and analyze information

assessing environmental and human health

risks borne by populations identified by

race, national origin, or income. This is

important to ensure that nonassisted lowincome families are not adversely affected

by the placement of assisted families.

The Department issued the

“Regulatory Impact Analysis of Revisions

to the Operating Fund Program,” subject

to OMB Circular A-4. It specified the

proposed need for the formula as required

by the circular. However, its discussion on

the different alternative approaches to the

proposed rule did not comply with the

circular regarding the enforcement

methods, different degrees of stringency,

different requirements for different

geographic regions, performance

standards, market versus direct controls,

and informational measures rather than

regulations. Also, its cost-benefit analysis

did not comply with the circular regarding

baseline comparisons, cost savings, final

outcomes, and quality of life issues.

The United States Housing Act of 1937

as amended states that to ensure the

accuracy of any housing agency

certification, HUD is authorized to require

an independent auditor to substantiate

each certification submitted by the agency

and withhold assistance to pay for the

review. The statutory requirement extends

beyond the single audit compliance

supplement scope and will generate a

separate procurement for an attestation

engagement. The draft rule does not

provide the organizational element

accountable for procuring this attestation

engagement, the indicators identifying the

need for the attestation engagement, and

the requirement for withholding funds.

Further, the United States Housing Act

of 1937 as amended states that the formula

should provide an incentive to encourage

housing authorities to facilitate increases

in earned income by families in occupancy

and the incentive may be used only to

benefit low-income housing or residents of

the agency. The draft rule does not provide

for control measures to ensure the benefits

accruing to the agency are used for lowincome housing or for residents of the

agency.

The PIH office is currently revising the

draft final rule.

Proposed Notices Proposed Notices Proposed Notices

Using HOME Tenant-Based Assistance Using HOME Tenant-Based Assistance

to Mitigate Displacement to Mitigate Displacement to Mitigate Displacement

The HUD draft notice describes how

participating jurisdictions can use Home

Ownership Made Easy (HOME) funds to

mitigate the displacement of low-income

tenants who are losing their monthly

Housing Choice Voucher rental subsidy

because the local housing authority must

terminate housing assistance payments

contracts with the tenants’ landlords due

to insufficient subsidy funds.
Review of Policy Directives

Review of Policy Directives 153

OIG did not concur with the proposed

notice for the following reasons:

The HOME Investment Partnership

Act states funds may not be used to provide

tenant-based rental assistance or extend or

renew tenant-based assistance under

Section 8 of the United States Housing Act

of 1937. In OIG’s opinion, the draft notice

is effectively extending the vouchers and

is contrary to the provision on prohibiting

funding for the Section 8 program in the

statute.

The Appropriation Acts for both fiscal

years 2004 and 2005 state that no part of

the appropriation shall be available for any

program, project, or activity in excess of

amounts set forth in the budget estimates

submitted to Congress. HUD estimated in

the budget to Congress that HOME tenantbased assistance funds would assist 13,335

families. The notice does not provide a

control measure for limiting tenant-based

assistance to 13,335 families and obtaining

compliance with the Appropriation Acts.

Executive Order 12898 requires HUD

to identify and address human health and

environmental effects of its policies,

programs, and activities on minority

populations and low-income populations

and to collect, maintain, and analyze

information assessing environmental and

human health risks borne by populations

identified by race, national origin, or

income. The draft notice does not specify

the reporting methodology to obtain

compliance with this executive order.

HUD regulations state that it is the

policy of the Department to provide for

public participation in rule making with

respect to all HUD programs and

functions, including matters that relate to

grants, even though such matters would

not otherwise be subject to rule making by

law or executive policy. Therefore, HUD

publishes notices of proposed rule making

in the Federal Register and gives interested

persons an opportunity to participate in

the rule making through submission of

written data and arguments. Rules are

defined as all or part of any HUD

statement of general or particular

applicability and future effect designed to

(1) implement, interpret, or prescribe law

or policy or (2) describe HUD’s

organization or its procedure or practice

requirements. Rule making is defined as

the process for considering and formulating

the issuance, modification, or repeal of a

rule.

The Department is considering our

comments. The proposed notice has not

been published.

Establishment of Amnesty Program at

Establishment of Amnesty Program at Establishment of Amnesty Program at

Public Housing Agencies Resulting Public Housing Agencies Resulting

from Inspections of Family Income from Inspections of Family Income

The following information was

included in the March 31, 2005,

Semiannual Report to Congress, and HUD

had not reached a final decision. Therefore,

OIG is repeating the issue in this report.

The draft Notice PIH 2004 provides

requirements to housing agencies that plan

to offer tenants amnesty as a result of the

Upfront Income Verification System

detecting a difference between the tenants’

claim of income and the income reported

by their employers or agencies providing

income assistance. The Department

initiated the Upfront Income Verification

System to reduce subsidy errors resulting

from tenants underreporting or not

reporting their income.

OIG did not concur with this draft

notice because it inappropriately
Review of Policy Directives

Review of Policy Directives 154

empowers housing agencies to decide who

will be prosecuted. The U.S. Code states

that the Attorney General of the United

States is responsible for deciding who will

be prosecuted for a Federal offense. In the

Tenth Amendment to the United States

Constitution, the determination on who

will be prosecuted under state law is

reserved to state authorities.

OIG has investigated numerous cases

involving tenants who falsely reported their

incomes. These investigations resulted in

successful prosecutions or other remedial

actions. OIG has pending investigations

involving tenants who have defrauded PIH

housing assistance programs. The draft

notice threatens to jeopardize current

investigations and to undermine the

fairness of past convictions.

The PIH office has not issued the draft

notice and is reconsidering its provisions.

Mortgagee Letters Mortgagee Letters Mortgagee Letters

Late Request for Endorsement

Late Request for Endorsement Late Request for Endorsement

Procedures/Certification Eliminated, Procedures/Certification Eliminated, Procedures/Certification Eliminated,

Proposed Mortgagee Letter Proposed Mortgagee Letter Proposed Mortgagee Letter

HUD drafted a mortgagee letter to

remove the certification requirement from

the Federal Housing Administration’s

(FHA) late endorsement procedures. HUD

believes the certification requirement does

not materially contribute to reducing

insurance risk.

OIG nonconcurred because the

certification is a critical document in

supporting and enforcing departmental

remedies for noncompliance, and,

therefore, OIG disagrees with its proposed

elimination. HUD OIG has done

significant testing of “late endorsement”

compliance by major direct endorsement

lenders as part of its audit focus on FHA

single-family lending practices beginning

in 2004. OIG found that lenders certified

full compliance and eligibility for FHA

insurance when some loans were not

eligible because the borrowers were in

arrears on their mortgage payments. OIG

recommended that HUD take appropriate

remedies to reduce noncompliance,

including loan indemnifications

and Program Fraud Civil Remedies

Act recoveries. Noncompliance was

particularly problematic during the high

refinance loan volumes of 2003-2004. It

remains a control concern because most

ineligible late-endorsed loans are early

defaults and represent higher risks of

foreclosure and claims against the

insurance fund.

The Department is evaluating our

nonconcurrence.

Streamline (K) Limited Repair

Streamline (K) Limited Repair Streamline (K) Limited Repair

Program Program

HUD issued a mortgagee letter to

reduce documentation and control

requirements over 203(k) Rehabilitation

Mortgage loans, an acknowledged high risk

to the FHA insurance program. The

Streamline (K) allows special treatment of

purchased properties that qualify for

eligible repairs between $5,000 and

$15,000. Under the standard 203(k)

mortgage, lenders and borrowers rely

primarily on consultants to ensure

contractor work quality and timely

completion. However, the Streamline (K)

requires that borrowers develop a work

plan, estimate costs, identify the vendor or

contractor, and inspect the work.

OIG commented that relaxing controls

could expose first-time purchasers with no
  

Review of Policy Directives

Review of Policy Directives 155

or limited experience in home

improvement projects to unreliable

contractors and unsatisfactory

workmanship. OIG also questioned as

excessive a proposed $500 supplemental

loan origination fee to be paid by the

borrower.

The Department issued the letter as

originally drafted, except it reduced the

amount of the supplemental loan

origination fee.

Premium Pricing on FHA-Insured Premium Pricing on FHA-Insured

Mortgages Mortgages

The following information was

included in the March 31, 2005,

Semiannual Report to Congress, and HUD

had not reached a final decision. Therefore,

OIG is repeating the issue in this report.

At the end of the March 2005

semiannual reporting period, HUD was

reviewing OIG’s nonconcurring comments

on a mortgagee letter to allow premium

pricing of FHA-insured mortgages to fund

the homebuyer’s required 3 percent cash

investment or downpayment. OIG

commented that the proposed mortgagee

letter placed no obligation on the lender to

use the funds from premium pricing for the

borrower’s benefit. OIG’s mortgagee audits

disclosed that instead of helping FHA

homebuyers pay closing costs, lenders used

the monies from premium priced mortgages

to compensate loan officers and generate

higher profits.

The Department obtained additional

data on premium priced mortgages and is

reviewing the data to evaluate the risk of a

policy change.

Chapter 9

Audit Resolution
Audit Resolution

Audit Resolution 158

I n the audit resolution process,

Office of Inspector General

(OIG) and U.S. Department of Housing and

Urban Development (HUD) management

agree upon the needed actions and

timeframes for resolving audit

recommendations. Through this process,

OIG hopes 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 significant pending

issues on which resolution action has been

delayed. It also contains a status report on

HUD’s implementation of the Federal

Financial Management Improvement Act

of 1996 (FFMIA). In addition to this chapter

on audit resolution, see appendix 2, table

A, “Audit Reports Issued before Start of

Period with No Management Decision as

of September 30, 2005,” and table B,

“Significant Audit Reports Described in

Previous Semiannual Reports in Which

Final Action Had Not Been Completed as

of September 30, 2005.”

Delayed Actions Delayed Actions Delayed Actions

Audits of HUD’s FY 1991 through s FY 1991 through

2004 Financial Statements 2004 Financial Statements

First issued June 30 1992. HUD has

been preparing consolidated financial

statements under the requirements of the

Chief Financial Officers Act for 14 years

beginning with fiscal year (FY) 1991.

Various internal control weaknesses have

been reported in these audits. As a result

of the FY 2004 financial audit process, OIG

reported HUD’s need to comply with

Federal Financial Management System

requirements, including the need to

enhance the Federal Housing

Administration’s (FHA) information

technology systems to more effectively

support FHA’s business and budget

processes and improve FHA’s management

review of the credit reform estimation

process. While there has been progress,

material weaknesses continue with respect

to the need to (1) complete improvements

to financial systems and (2) improve

oversight and monitoring of subsidy

calculations and intermediaries’ program

performance. Corrective action plans to

resolve these issues have continued to

change, with final action targeted by the

end of calendar year 2006.

Audits of FHA Audits of FHA’s FY 1991 through s FY 1991 through

2004 Financial Statements 2004 Financial Statements

First issued March 27, 1992. FHA has

prepared financial statements for 14 years

under the Chief Financial Officers Act,

beginning with FY 1991. The audit of

FHA’s FY 2004 financial statements

discussed FHA’s need to improve its review

of the credit reform estimation process as

a material weakness. The finding revealed

that FHA management did not adequately

review the underlying data supporting the

assumptions in the estimation cash flow or

functionality models. This resulted in

material errors in the FHA mark-to-market

loan loss reserve and the liability for loan

guarantee subsidy re-estimates. 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 and budget

processes and (2) continue to improve early

warning and loss prevention for singlefamily insured mortgages through more

emphasis on monitoring lender

underwriting and more effective use of loan

portfolio risk assessment tools. A weakness

reported since the FY 1992 financial

statement audit relates to the need for FHA
Audit Resolution

Audit Resolution 159

to more effectively manage controls over

its information systems’ general and

application level security controls. FHA’s

latest action plan continues to report

progress toward resolving these remaining

long-standing issues, with final actions

targeted over the next 3 years.

The Family Living Adult Care Center,

The Family Living Adult Care Center, The Family Living Adult Care Center,

Biddeford and Saco, ME Biddeford and Saco, ME

Issued November 4, 2003. OIG’s review

disclosed that the Family Living project had

suffered serious financial problems,

including a default on the HUD-insured

mortgage, and had ceased being a

profitable entity. These problems were

caused by questionable cash distributions

(withdrawals) from the project’s bank

accounts by the owner. OIG considers these

distributions, totaling more than $455,000,

to be “equity skimming” and to be in

violation of applicable Federal statutes and

HUD regulations. From June 2000 to

February 2002, the owner diverted project

funds to other businesses he owned and

for personal expenses.

In February 2002, the State of Maine

took control of Family Living due to the

project’s poor financial condition and to

ensure the safety and continued care of the

project’s residents. In November 2002,

pursuant to a decision by HUD to foreclose

on the property, the tenants were moved

from the facility, and the project

discontinued operations. As of April 2003,

the owner owed HUD $3,663,000 in

mortgage principal, interest, and

miscellaneous charges.

Due to pending court action, HUD had

not completed actions to ensure that it

addressed the audit report’s

recommendations. The court action was

settled August 19, 2005. As of September

30, 2005, HUD had not initiated actions to

(1) pursue recovery of $2,688,000 from the

owner, representing the difference between

the $3,663,000 the owner owed to HUD

and the $975,000 in proceeds from the

foreclosure sale; (2) pursue all applicable

administrative sanctions against the

owner, including consideration of

debarment, limited denial of participation,

or suspension; (3) pursue recovery of

$786,000 from the owner, representing

double the $393,000 in questionable cash

distributions, as stipulated in 12 U.S.C. Sec.

1715z-4a; and (4) obtain from the owner

justification supporting the more than

$62,000 in cash distributions (unsupported

costs) to unidentified recipients or pursue

recovery of more than $124,000,

representing double this amount as

stipulated in 12 U.S.C. Sec. 1715z-4a.

(Report No. 2004-BO-1002)

Federal Financial Management Federal Financial Management Federal Financial Management

Improvement Act of 1996 Improvement Act of 1996

FFMIA requires that HUD

implement a remediation plan that will

bring financial systems into compliance

with Federal Financial Management

System requirements within 3 years or

obtain Office of Management and Budget

(OMB) concurrence if more time is needed.

FFMIA requires OIG to report in its

semiannual reports to the Congress

instances and reasons when an agency has

not met the intermediate target dates

established in its 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 2005, the Department

continued to report that 3 of its 44

financial management systems were not in

substantial compliance with FFMIA. These
three systems are Facilities Integrated

Resources Management System (FIRMS),

Loan Accounting System (LAS), and

Housing Multifamily Insurance System

(MFIS). HUD reported FIRMS as

noncompliant in its 2005 self-assessment.

HUD is in the process of replacing LAS with

a commercial off-the-shelf software

package in the first quarter of 2006. MFIS

was determined to be noncompliant in

Audit Resolution

Audit Resolution 160

  

2003. This fiscal year, the Office of

Housing’s management reported that

improvements have been made and the

system is now substantially compliant with

FFMIA, pending a limited review by the

Office of the Assistant Chief Financial

Officer for Financial Management. This

limited review will be completed in

October 2005.
Appendix 1

Audit Reports Issued
Internal Reports Internal Reports Internal Reports

9 Audit Reports 9 Audit Reports

Chief Financial Officer (2 Reports)

2005-DP-0005 Security of Windows 2000 Server, 04/21/2005.

2005-DP-0006 Review of HUD’s Information Systems Certification and

Accreditation Process, 08/22/2005.

Housing (4 Reports)

2005-DE-0001 HUD’s Controls over Federal Housing Administration Claims

Payments, 05/12/2005. Better Use: $30,521,629.

2005-DP-0006 Active Partners Performance System, 07/12/2005. Better Use:

$5,780,720.

2005-LA-0001 Single Family Preforeclosure Sale Program, 09/13/2005. Questioned:

$744,468; Unsupported: $588,428; Better Use: $6,808,606.

2005-NY-0001 Title 1 Loan Debt Collection, Asset Recovery Division, Financial

Operations Center, 05/18/2005.

Public and Indian Housing (3 Reports)

2005-BO-0001 Office of Public and Indian Housing, Region 1, Boston, MA, 05/12/

2005. Better Use: $408,508.

2005-BO-0002 Public Housing Mortgages and Security Interest Program, 09/30/

2005. Better Use: $4,912,932.

2005-SE-0001 Design and Implementation of the Public Housing/Section 8 Moving

to Work Demonstration Program, 04/12/2005.

Audit-Related Memorandums* Audit-Related Memorandums*

Lead Hazard Controls (1 Report)

2005-PH-0002 Interim Memorandum Report on the Office of Healthy Homes and

Lead Hazard Control’s Issuance of Its Fiscal Year 2004 Grants,

Washington, DC, 05/16/2005.

* The memorandum format is used to communicate the results of reviews not performed in accordance

with generally accepted government auditing standards, to close out assignments with no findings and

recommendations, to respond to requests for information, to report on the results of a survey, to report

results, or to report the results of civil actions or settlements.

Audit Reports Issued

Audit Reports Issued 162
External Reports External Reports External Reports

72 Audit Reports 72 Audit Reports

Community Planning and Development (8 Reports)

2005-AT-1013 Corporacion para el Fomento Economico de la Ciudad Capital, San

Juan, PR, 09/15/2005. Questioned: $3,588,348; Unsupported:

$1,642,996; Better Use: $4,099,501.

2005-CH-1018 Mount Union College Economic Development Initiative Special

Purpose Grant (B-02-SP-OH-0555), Alliance, OH, 09/28/2005. Better

Use: $1,000,000.

2005-CH-1019 City of Carmel, IN, Economic Development Initiative Special

Purpose Grant (B-02-SP-IN-0220), 09/28/2005. Better Use:

$1,000,000.

2005-CH-1021 City of Indianapolis, IN, Economic Development Initiative Special

Purpose Grant (B-03-SP-IN-0240), 09/30/2005. Better Use:

$134,123.

2005-FW-1008 City of New Orleans, LA, Did Not Contribute Approximately $3.6

Million in HOME Funds, 04/08/2005. Questioned: $3,591,209;

Unsupported: $3,591,209.

2005-LA-1006 Maricopa HOME Consortium/City of Mesa, AZ, HOME Program,

07/28/2005. Questioned: $570,000.

2005-NY-1008 Lower Manhattan Development Corporation, Community

Development Block Grant Program, Disaster Assistance Fund,

New York, NY, 09/27/2005. Better Use: $8,469,385.

2005-PH-1013 Review of the Commonwealth of Pennsylvania’s HOME

Investment Partnership Program, Harrisburg, PA, 07/29/2005.

Questioned: $79,070; Better Use: $6,930,916.

Housing (35 Reports)

2005-AT-1014 National City Mortgage Company, Miamisburg, OH, 09/15/2005.

Questioned: $326,132; Unsupported: $159,690; Better Use:

$153,674.

2005-BO-1007 Fairfield Financial Mortgage Group, Inc., Danbury, CT, 09/26/

2005. Better Use: $1,204,981.

2005-BO-1008 Suburban Mortgage Associates, Inc., Providence, RI, 09/30/2005.

Questioned: $229,673; Better Use: $26,256,580.

2005-CH-1009 Union Federal Bank of Indianapolis, Supervised Direct

Endorsement Lender, Fort Wayne, IN, 04/07/2005. Questioned:

$209,528; Unsupported: $209,528; Better Use: $965,777.

2005-CH-1012 Savannah Trace Apartments, Multifamily Equity Skimming,

Kalamazoo, MI, 08/04/2005. Questioned: $8,665; Unsupported:

$1,045.

Audit Reports Issued

Audit Reports Issued 163
2005-CH-1013 Ivan Woods Senior Apartments, Multifamily Equity Skimming,

Lansing, MI, 08/05/2005. Questioned: $13,279; Unsupported:

$3,089.

2005-CH-1015 National City Mortgage Company, Nonsupervised Lender,

Miamisburg, OH, 08/23/2005. Questioned: $5,500,905;

Unsupported: $3,194,948; Better Use: $63,543,360.

2005-CH-1016 Petersen Health Center, Multifamily Equity Skimming,

Rhinelander, WI, 09/16/2005. Questioned: $728,801.

2005-DE-1003 Citywide Home Loans, Salt Lake City, UT, 05/04/2005.

2005-DE-1004 Aspen Home Loans, American Fork, UT, 05/06/2005. Better Use:

$130,230.

2005-FW-1009 Allied Home Mortgage Capital Corporation, Houston, TX,

05/24/2005.

2005-FW-1010 Broad Street Mortgage Company, Subsidiary of Fieldstone

Mortgage Company, San Antonio, TX, 05/26/2005. Better Use:

$2,324,196.

2005-FW-1011 Harry Mortgage Company, Oklahoma City, OK, 06/01/2005.

Better Use: $138,061.

2005-FW-1013 First Mortgage Company, Oklahoma City, OK, 08/03/2005.

Questioned: $37,086; Better Use: $62,879.

2005-FW-1014 Realty Mortgage Corporation, Flowood, MS, 09/12/2005.

Questioned: $1,277.

2005-FW-1015 MortgageIT Incorporated, New York, NY, 09/15/2005.

Questioned: $1,407.

2005-FW-1016 Aegis Wholesale Corporation, Houston, TX, 09/16/2005.

Questioned: $581; Better Use: $58,088.

2005-FW-1017 Allied Home Mortgage Corporation, Houston, TX, 09/22/2005.

Questioned: $1,919; Better Use: $123,028.

2005-FW-1019 Wells Fargo, Des Moines, IA, 09/28/2005. Questioned: $75,793;

Better Use: $383,469.

2005-KC-1005 Mortgage Express Incorporated, La Vista, NE, 04/21/2005.

2005-KC-1006 Corinthian Mortgage Corporation, Mission, KS, 05/13/2005.

Questioned: $191,639; Unsupported: $191,049; Better Use:

$297,269.

2005-KC-1007 Union Planters Bank, Memphis, TN, 07/07/2005. Questioned:

$641; Better Use: $74,333.

2005-KC-1009 Washington Mutual Bank, Seattle, WA, 09/30/2005. Questioned:

$87,639; Better Use: $224,901.

2005-LA-1003 First Source Financial USA, Henderson, NV, 05/12/2005.

Questioned: $159,663; Better Use: $389,000.

2005-LA-1007 KB Home Mortgage Company, Las Vegas, NV, 08/12/2005.

Questioned: $79,260; Better Use: $537,578.

Audit Reports Issued

Audit Reports Issued 164
Audit Reports Issued

Audit Reports Issued 165

2005-LA-1010 First Magnus Financial Corporation, Las Vegas, NV, 09/23/2005.

Questioned: $204,826; Better Use: $127,893.

2005-LA-1011 KB Home Mortgage, Phoenix, AZ, 09/26/2005. Questioned:

$446,999; Unsupported: $291,974; Better Use: $781,082.

2005-NY-1007 Security Atlantic Mortgage Company, Inc., Edison, NJ,

09/16/2005. Questioned: $242,848; Unsupported: $6,874; Better

Use: $3,048,552.

2005-NY-1009 Golden First Mortgage Corporation, Nonsupervised Direct

Endorsement Lender, Great Neck, NY, 09/28/2005. Questioned:

$259,154; Better Use: $1,118,717.

2005-PH-1010 Rudolphy/Mercy-Douglass Home for the Blind, Philadelphia, PA,

04/13/2005. Better Use: $37,658.

2005-PH-1011 America House, Incorporated, and Its Subsidiaries, Marshall, VA,

06/01/2005.

2005-PH-1015 Gateway Funding Diversified, Lender Review, Cherry Hill, NJ,

08/11/2005. Better Use: $690,241.

2005-SE-1006 Washington Mutual Bank, Seattle, WA, 07/05/2005. Questioned:

$1,091,214; Unsupported: $907,612; Better Use: $18,695,820.

2005-SE-1007 City Bank, Puyallup, WA, 09/16/2005. Questioned: $349,059;

Unsupported: $323,004; Better Use: $1,068,997.

2005-SE-1008 Idaho Housing and Finance Association, Boise, ID, 09/16/2005.

Questioned: $15,747,156; Better Use: $1,339,881.

Public and Indian Housing (29 Reports)

2005-AT-1009 The Housing Authority of Fulton County, Atlanta, GA,

04/21/2005. Questioned: $2,100,552; Unsupported: $2,100,552;

Better Use: $640,221.

2005-AT-1010 The Chattanooga, TN, Housing Authority, 06/09/2005.

Questioned: $9,201; Better Use: $4,835,024.

2005-AT-1011 The Housing Authority of High Point, NC, 06/27/2005. Better

Use: $524,337.

2005-AT-1012 The Town of Crossville, TN, Housing Authority, 07/06/2005.

Questioned: $547,800; Better Use: $36,000.

2005-AT-1015

The Municipality of San Juan, PR, Housing Authority, Section 8

Housing Choice Voucher Program, 09/29/2005. Questioned:

$544,566; Unsupported: $121,638; Better Use: $559,165.

2005-BO-1003 Milford, CT, Housing Authority, Audit of Selected Programs,

04/25/2005. Questioned: $407,168; Unsupported: $3,735; Better

Use: $1,118,628.

2005-BO-1004 Bridgeport, CT, Housing Authority, Housing Choice Voucher and

Low-Income Public Housing Program Deficiencies, 07/29/2005.

Questioned: $2,330,692; Unsupported: $1,101,060; Better Use:

$1,465,688.
2005-BO-1005 Fall River, MA, Housing Authority, 08/31/2005. Questioned:

$3,530,080.

2005-BO-1006 The Hartford, CT, Housing Authority, 09/06/2005. Questioned:

$3,702,403.

2005-CH-1010 Kankakee County, IL, Housing Authority, Low-Rent Housing

Program, 04/08/2005. Questioned: $129,772; Better Use: $75,396.

2005-CH-1011 Stark Metropolitan Housing Authority, Nonprofit Development

Activities, Canton, OH, 05/31/2005. Questioned: $696,592;

Unsupported: $528,402; Better Use: $261,182.

2005-CH-1014 Kankakee County, IL, Housing Authority, Low-Rent Unit

Conditions, 08/05/2005. Questioned: $129,141; Better Use:

$254,735.

2005-CH-1017 Flint, MI, Housing Commission, Section 8 Housing Program,

09/23/2005. Questioned: $136,467; Better Use: $701,71.

2005-CH-1020 Housing Authority of the City of Gary, IN, Section 8 Housing

Program, 09/29/2005. Questioned: $1,861,053; Unsupported:

$814,274; Better Use: $8,318,795.

2005-DE-1005 The Housing Authority of the County of Salt Lake, UT,

09/16/2005. Better Use: $375,000.

2005-FW-1012 The Housing Authority of the City of Houston, TX, 07/20/2005.

Questioned: $1,960; Better Use: $1,102,162.

2005-FW-1018 The Housing Authority of the City of Houston, TX, Section 8

Housing Choice Voucher Tenants and Units, 09/27/2005.

Questioned: $7,448,762; Unsupported: $7,448,762; Better Use:

$7,939,494.

2005-KC-1004 The Kansas City, KS, Housing Authority, 04/18/2005.

2005-KC-1008 St. Louis, MO, Housing Authority, 07/28/2005. Questioned:

$24,750; Better Use: $173,618.

2005-LA-1004 Housing Authority of the County of Marin, San Rafael, CA,

05/20/2005. Questioned: $318,139.

2005-LA-1005 Housing Authority of the City of Inglewood, CA, 07/11/2005.

Questioned: $1,836,282; Unsupported: $1,836,282.

2005-LA-1008 Housing Authority of the City of Inglewood, CA, Portability,

08/26/2005. Better Use: $1,991,283.

2005-LA-1009 Housing Authority of the City of Inglewood, CA, Housing Quality

Standards, 09/07/2005. Questioned: $295,686; Unsupported:

$261,411.

2005-NY-1005 The Housing Authority of the City of Newark, NJ, Bond Financing

Activities and Section 8 Housing Choice Voucher Administrative

Fee Reserves, 05/26/2005. Questioned: $6,524,886; Better Use:

 $729,423.

Audit Reports Issued

Audit Reports Issued 166
2005-NY-1006 Syracuse, NY, Housing Authority, Section 8 Housing Choice

Voucher Program, 08/10/2005.

2005-PH-1009 Richmond, VA, Redevelopment and Housing Authority,

04/08/2005. Questioned: $7,552,981; Better Use: $60,956.

2005-PH-1012 The Lycoming County Housing Authority, Williamsport, PA,

06/06/2005. Better Use: $2,888,300.

2005-PH-1014 McKeesport, PA, Housing Authority, Section 8 and Public

Housing Programs, 07/29/2005.

2005-SE-1005 Housing Authority of the City of Tacoma, WA, 05/24/2005.

Questioned: $33,012.

Audit-Related Memorandums* Audit-Related Memorandums*

General Counsel (1 Report)

2005-CH-1803 Actions under Program Fraud Civil Remedies Act, Charles

Gahan, Former Loan Officer of AIM Financial, Inc., Caledonia,

MI, 09/15/2005. Questioned: $15,000.

Housing (2 Reports)

2005-AT-1801 Residential Lending Corporation, Direct Endorsement Mortgagee,

Duluth, GA, 06/30/2005.

2005-AT-1804 American Financial Network, Direct Endorsement Lender, Boca

Raton, FL, 09/29/2005.

Public and Indian Housing (2 Reports)

2005-AT-1802 Housing Authority of Winston-Salem, NC, 08/23/2005.

2005-AT-1803 Montgomery, AL, Housing Authority, Section 8 Housing Choice

Voucher Program, 09/07/2005. Questioned: $3,920.

* The memorandum format is used to communicate the results of reviews not performed in accordance

with generally accepted government auditing standards, to close out assignments with no findings and

recommendations, to respond to requests for information, to report on the results of a survey, to report

results, or to report the results of civil actions or settlements.

  

Audit Reports Issued

Audit Reports Issued 167

Appendix 2

Tables
Table A Table A

Audit Reports Issued Prior to Start of Period with No Audit Reports Issued Prior to Start of Period with No

Management Decision as of September 30, 2005 Management Decision as of September 30, 2005

* Significant Audit Reports Described in Previous Semiannual Reports

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

 Management Decision for Management

Decision

Tables

Tables 170

* 2005-CH-1004

Lakewood Care Center,

Multifamily Equity

Skimming,

Milwaukee, WI

At the end of the semiannual period,

management decisions had not been

reached on two of four reported

recommendations. The Inspector General

referred the issue to the Deputy Secretary in

June 2005 because agreement could not be

reached with the Office of Housing. The

Deputy Secretary subsequently asked the

Office of Housing to meet with the Inspector

General’s staff to further attempt to reach

agreement. The Office of Housing’s

proposed timetable to accomplish the

regulatory changes to Section 232 projects

was unacceptable. Strengthening the

regulatory agreement has been a matter of

concern to Congress. The Office of

Housing’s proposed 21-month timetable

did not show priority to the matter and was

contrary to the OIG recommended

completion date of September 30, 2006.

Additionally, the Office of General Counsel

informed OIG that 12 months is the average

length of time needed to get a final rule

published. After further consideration, on

October 7, 2005, the Office of Housing

agreed to initiate notice and comment

rulemaking and publish a final rule with a

target date of December 31, 2006.

12/22/2004

10/31/2005

* 2005-CH-1005

Wood Hills Assisted

Living Facility,

Multifamily Equity

Skimming,

Kalamazoo, MI

At the end of the semiannual period,

management decisions had not been

reached on two of five reported

recommendations. The Inspector General

referred the issue to the Deputy Secretary in

June 2005 because agreement could not be

reached with the Office of Housing. The

Deputy Secretary subsequently asked the

Office of Housing to meet with the Inspector

General’s staff to further attempt to reach

agreement. The Office of Housing’s

proposed timetable to accomplish the

regulatory changes to Section 232 projects

01/12/2005

10/31/2005
Report Number & Title Reason for Lack of Issue Date/Target

 Management Decision for Management

Decision

was unacceptable. Strengthening the

regulatory agreement has been a matter of

concern to Congress. The Office of Housing’s

proposed 21-month timetable did not show

priority to the matter and was contrary to the

OIG recommended completion date of

September 30, 2006. Additionally, the Office

of General Counsel informed the OIG that 12

months is the average length of time needed to

get a final rule published. After further

consideration, on October 7, 2005, the Office of

Housing agreed to initiate notice and comment

rulemaking and publish a final rule with a

target date of December 31, 2006.

Tables 171

Tables
Table B

Significant Audit Reports Described in Previous Semiannual Reports in Which Final Significant Audit Reports Described in Previous Semiannual Reports in Which Final Significant Audit Reports Described in Previous Semiannual Reports in Which Final

Action Had Not Been Completed as of September 30, 2005 Action Had Not Been Completed as of September 30, 2005

Report Report Title Issue Decision Final

Number Date Date Action

1997-CH-1010 Major Mortgage Corporation, 09/17/1997 01/06/1998 Note 2

2000-FO-0002 Federal Housing Administration, 02/29/2000 08/09/2000 12/31/2005

Audit of FY 1999 Financial

Statements

2000-KC-0002 Housing Subsidy Payments 09/29/2000 02/21/2001 12/31/2006

2001-FO-0002 Federal Housing Administration, 03/01/2001 07/24/2001 12/21/2006

Audit of Fiscal Year 2000

Financial Statements

2001-FO-0003 Audit of HUD Fiscal Year 2000 03/01/2001 07/18/2001 12/31/2006

Financial Statements

2001-CH-1007 Detroit, MI, Housing 05/16/2001 09/13/2001 06/30/2011

Commission, Hope VI Program

2001-AT-0001 Nationwide Audit Results on 06/29/2001 01/29/2002 02/15/2006

the Officer/Teacher Next Door

Program

2002-SF-0001 Nonprofit Participation, HUD 11/05/2001 08/30/2002 10/15/2006

Single Family Program

2002-FO-0002 Federal Housing Administration, 02/22/2002 05/30/2002 12/31/2006

Audit of FY 2001 and 2000

Financial Statements

2002-FO-0003 HUD, Audit of Fiscal Years 02/27/2002 08/16/2002 Note 1

2001 and 2000 Financial

Statements

2002-PH-1001 Williamsport, PA, Community 03/19/2002 08/27/2002 11/15/2005

Development Block Grant and

Home Investment Partnership

Programs

2002-BO-1003 Newport, RI, Resident 04/30/2002 09/16/2002 01/15/2008

Council, Inc.

2002-AT-1002 City of Tupelo, MS, Housing 07/03/2002 10/31/2002 04/30/2010

Authority Housing Programs

Operations

Tables

Tables 172
Tables

Tables 173

Report Report Title Issue Decision Final

Number Date Date Action

2002-KC-0002 Nationwide Survey of HUD’s 07/31/2002 11/22/2002 06/30/2006

Office of Housing Section 232

Nursing Home Program

2002-FW-1002 Houma, LA, Housing Authority,09/18/2002 01/16/2003 04/15/2006

Low Rent Housing Program,

Cash & Procurement Controls

2002-NY-1005 The Legal Aid Society, 09/23/2002 03/31/2003 Note 1

New York, NY, Outreach and

Training Assistance Grant and

Public Entity Grant

2002-FW-1003 New Mexico Public Interest 09/30/2002 03/31/2003 Note 1

Education Fund, Albuquerque,

NM, Outreach and Training

Assistance Grant and Public

Entity Grant

2002-PH-1003 Delaware Housing Coalition, 09/30/2002 03/31/2003 Note 1

Outreach and Training

Assistance and Intermediary

Training Assistance Grant,

Dover, DE

2002-PH-1004 Tenants’ Action Group of 09/30/2002 03/31/2003 Note 1

Philadelphia, PA, Outreach and

Training Assistance Grant

2002-PH-1006 Legal Aid Bureau, Inc., 09/30/2002 03/31/2003 Note 1

Baltimore, MD, Outreach and

Training Assistance Grant

Number FFOT0020MD

2002-PH-1007 Legal Aid Bureau, Inc., 09/30/2002 03/31/2003 Note 1

Baltimore, MD, Outreach and

Training Assistance Grant

Number FFOT98012MD

2002-SF-1006 Legal Aid Society of Honolulu, 09/30/2002 03/31/2003 Note 1

HI, Outreach and Training

Assistance Grant

2003-SE-1001 Community Alliance of Tenants 10/31/2002 03/31/2003 Note 1

Outreach and Training

Assistance and Intermediary

Training Assistance Grants,

Portland, OR
Report Report Title Issue Decision Final

Number Date Date Action

2003-SE-1002 Tenants Union, Seattle, WA, 12/02/2002 03/31/2003 Note 1

Outreach and Training Assistance

Grant and Intermediary Training

Assistance Grant

2003-FO-0002 Federal Housing Administration 01/21/2003 05/22/2003 12/31/2006

Audit of Fiscal Year 2002 and

2001 Financial Statements

2003-FO-0004 Audit of HUD’s Financial 01/31/2003 05/22/2003 10/31/2005

Statements Fiscal Years 2002

and 2001

2003-FW-1001 Housing Authority of the City 02/21/2003 06/20/2003 04/15/2006

of Morgan City, LA, Low-Rent

Program

2003-KC-1803 Richmond Terrace Retirement 03/24/2003 06/19/2003 10/01/2005

Center, Richmond Heights, MO

2003-NY-1003 Empire State Development 03/25/2003 07/16/2003 12/31/2005

Corporation, New York, NY,

CDBG Disaster Assistance Funds

2003-CH-1014 Coshocton, OH, Metropolitan 03/28/2003 07/28/2003 04/30/2047

Housing Authority, Public

Housing Program

2003-DE-0001 HUD Office of Multifamily 03/31/2003 03/31/2003 Note 1

Housing Assistance

Restructuring’s Oversight of

the Sec 514 Program Activities

2003-CH-0001 HUD’s Oversight of 05/07/2003 09/11/2003 Note 2

Empowerment Zone Program

2003-BO-1003 City Of Bridgeport, CT, Home 05/16/2003 09/16/2003 10/31/2005

Investment Partnership Program

2003-CH-1017 Housing Continuum, Inc., 06/13/2003 10/10/2003 Note 2

Homebuyers Assistance

Program, Geneva, IL

2003-KC-0001 Survey of HUD’s 06/24/2003 07/10/2003 Note 2

Administration of Section 3

of the HUD Act of 1968

2003-AO-0002 HUD Training Academy 07/15/2003 10/24/2003 Note 2

2003-CH-1018 Chicago, IL, Housing 07/18/2003 01/14/2004 12/31/2005

Authority, Outsourced Property

Management Contracts Review

Tables

Tables 174
Tables

Tables 175

Report Report Title Issue Decision Final

Number Date Date Action

2003-NY-1005 Empire State Development 09/30/2003 01/28/2004 03/31/2007

Corporation, New York, NY,

CDBG Disaster Assistance Funds

2004-KC-1001 East Meyer Community 11/24/2003 03/29/2004 11/30/2005

Association, Use of HUD Grant

Funds, Kansas City, MO

2004-CH-1001 Kankakee, IL, County Housing 11/26/2003 03/24/2004 12/31/2005

Authority, Section 8 Housing

Program

2004-CH-1002 Waukesha County CDBG and 11/26/2003 04/29/2004 Note 2

HOME Investment Partnership

Programs, Waukesha, WI

2004-PH-0001 Procedures for Filing Uniform 11/26/2003 04/14/2004 04/15/2007

Commercial Code Continuation

Statements

2004-DP-0001 Fiscal Year 2003 Review of 12/01/2003 05/28/2004 03/31/2006

Information Systems Controls

in Support of the Financial

Statements Audit

2004-BO-1004 Danbury, CT, Housing 12/05/2003 04/05/2004 12/01/2008

Authority, Capital Fund

Program

2004-FO-0003 HUD Audit of Fiscal Year 12/19/2003 07/20/2004 11/30/2005

2003 and 2002 Financial

Financial Statements

2004-AT-0001 Public Housing Authority 01/13/2004 05/20/2004 05/13/2006

Development Activities

2004-AT-1001 Housing Authority of 01/15/2004 05/14/2004 12/31/2006

the City of Cuthbert, GA,

Administration of Housing

Development Activities

2004-AO-0001 Award and Administration of 02/06/2004 06/30/2004 Note 2

Lead-Based Paint Hazard

Reduction Grants

2004-DP-1002 Application Control Review of 02/25/2004 07/14/2004 10/15/2006

 the Tenant Rental Assistance

 Certification System

2004-FW-1002 Jester Trails Apartment, 02/26/2004 05/18/2004 Note 2

 Multifamily Project,

 Houston, TX
Report Report Title Issue Decision Final

Number Date Date Action

2004-FW-1003 City of New Orleans, LA, 03/15/2004 09/07/2004 04/15/2006

 Section 108 Loan Program,

 Jazzland Theme Park

2004-NY-1001 Empire State Development 03/25/2004 06/30/2004 Note 2

Corporation, CDBG Disaster

Assistance Funds, New York, NY

2004-AT-1006 Puerto Rico Public Housing 04/22/2004 07/12/2004 07/31/2006

Administration, San Juan, PR

2004-SE-1004 Seattle, WA, Housing Authority, 05/21/2004 09/20/2004 12/31/2005

Moving to Work Demonstration

Program

2004-PH-1007 City of McKeesport, PA, 05/28/2004 09/24/2004 03/31/2009

CommunityDevelopment Block

Grant Program

2004-FW-0001 Management Controls over 06/18/2004 10/14/2004 10/27/2005

Grantee and Subgrantee

Capacity, Community Planning

and Development, Washington, DC

2004-DE-1003 Housing Authority of the City 06/22/2004 10/20/2004 10/31/2005

of Greeley, CO, and Weld County

Housing Authority Tenant Selection

and Continued Occupancy Activities

2004-PH-1009 First Funding, Incorporated, 06/29/2004 10/25/2004 10/31/2005

Nonsupervised Loan

Correspondent, Largo, MD

2004-LA-1005 Guild Mortgage Company DBA, 07/09/2004 11/06/2004 12/31/2005

Residential Mortgage Bankers,

San Diego, CA

2004-AT-0002 Effectiveness of the 07/12/2004 12/13/2004 12/31/2005

Departmental Enforcement

Center

2004-KC-1003 Wells Fargo Home Mortgage, 07/16/2004 03/25/2005 01/31/2006

Nonsupervised Direct

Endorsement Lender,

Des Moines, IA

2004-AT-1011 Opelika, AL, Housing Authority, 07/23/2004 07/23/2004 10/31/2005

Public Housing Programs

Tables

Tables 176
Tables

Tables 177

Report Report Title Issue Decision Final

Number Date Date Action

2004-KC-1004 Gershman Investment 07/28/2004 11/12/2004 11/30/2005

Corporation, Nonsupervised

Direct Endorsement Lender,

Clayton, MO

2004-AT-1012 Housing Authority of the City 08/02/2004 11/29/2004 12/31/2020

of Durham, NC

2004-PH-1010 Lambeth Apartments, Section 08/04/2004 10/02/2004 06/30/2006

236/Section 8, Multifamily

Housing Review, Pittsburgh, PA

2004-CH-1803 Somerset Point Nursing Home, 08/09/2004 08/09/2004 06/29/2006

Multifamily Equity Skimming,

Shaker Heights, OH

2004-KC-1005 The City’s Housing Program 08/11/2004 08/17/2004 10/31/2005

and the Role of the Housing

Economic Development Finance

Agency, Kansas City, MO

2004-AT-1013 Housing Authority of the City 08/19/2004 12/15/2004 02/28/2006

of Lakeland, FL

2004-SE-1006 Apreva, Inc., Nonsupervised 08/19/2004 01/11/2005 10/31/2006

Mortgagee, Bellevue, WA

2004-CH-1008 Cornerstone Mortgage Group, 09/10/2004 01/05/2005 01/31/2006

Limited Nonsupervised Loan

Correspondent, Inverness, IL

2004-PH-1012 Mortgage America Bankers, LLC, 09/10/2004 01/06/2005 09/30/2006

Nonsupervised Loan

Correspondent, Kensington, MD

2004-FW-1008 United Properties Management, 09/14/2004 01/13/2005 11/30/2005

Inc., Multifamily Management

Agent, Little Rock, AR

2004-NY-1004 Lower Manhattan Development 09/15/2004 01/12/2005 12/31/2005

Corporation, Community

Development Block Grant Disaster

Assistance Funds, New York, NY

2004-FW-1009 Mays Property Management, Inc., 09/17/2004 02/23/2005 10/14/2005

Multifamily Management Agent,

Little Rock, AR

2004-LA-1007 Housing Authority of Maricopa 09/22/2004 01/14/2005 01/20/2006

County, Phoenix, AZ
Report Report Title Issue Decision Final

Number Date Date Action

2004-CH-1009 Decatur Mortgage Company, 09/23/2004 02/24/2005 12/09/2005

LLC, Nonsupervised Loan

Correspondent, Indianapolis, IN

2004-LA-1008 United States Veterans Initiative, 09/27/2004 03/31/2005 01/04/2006

Inc., Inglewood, CA

2004-NY-1005 Jersey City, NJ, Housing 09/27/2004 12/17/2004 12/12/2005

Authority, Section 8 Contract

Administrator

2004-DE-1004 New Freedom Mortgage 09/29/2004 01/28/2005 06/30/2006

Corporation, Single Family Direct

Endorsement Mortgagee, Salt Lake

City, UT

2004-FW-1010 Housing Authority of the City of 09/29/2004 12/17/2004 10/31/2005

Houston, TX, Housing Choice

Voucher Subsidy Standards

2005-KC-1001 Karim Enterprises, DBA Prime 10/04/2004 12/22/2004 06/30/2006

Mortgage, St. Charles, MO

2005-BO-1001 Waterbury, CT, Housing 10/31/2004 02/09/2005 10/31/2005

Authority, Selected Programs

2005-PH-1001 The Lehigh County Housing 10/15/2004 12/22/2004 11/30/2005

Authority, Emmaus, PA

2005-DP-0001 Fiscal Year 2004 Review of 10/19/2004 02/16/2005 03/31/2006

Information Systems Controls in

Support of the Financial

Statements Audit

2005-SE-1001 Tulalip Tribes Housing 10/21/2004 02/02/2005 10/21/2005

Authority, Marysville, WA

2005-AT-1001 The Housing Authority of the 11/01/2004 03/10/2005 12/31/2005

City of Carrollton, GA

2005-FW-1801 Highland Meadows Apartments, 11/02/2004 02/24/2005 02/28/2006

Dallas, TX

2005-LA-1801 The Carmichael, CA, 11/04/2004 01/27/2005 10/31/2005

Rehabilitation Center

2005-FW-1001 City of New Orleans, LA, Section 11/05/2004 03/02/2005 04/15/2006

108 Program, Louisiana ArtWorks

2005-AT-1002 The Housing Authority of the 11/15/2004 12/15/2004 11/15/2005

City of Charleston, SC

Tables

Tables 178
Tables

Tables 179

Report Report Title Issue Decision Final

Number Date Date Action

2005-FO-0002 Federal Housing Administration’s 11/15/2004 11/15/2004 12/31/2006

Financial Statements for Fiscal

Years 2003 and 2004

2005-FO-0003 Additional Details to Supplement 11/15/2004 03/15/2005 12/31/2005

Our Report on HUD’s Fiscal Year

2004 Financial Statements

2005-LA-1001 Housing Authority of the County 11/18/2004 05/06/2005 06/30/2008

of San Joaquin, Stockton, CA

2005-AT-1004 Housing Authority of the City 11/19/2004 03/15/2005 03/15/2015

of Durham, NC

2005-FW-1002 Domicile Property Management, 11/19/2004 01/18/2005 01/18/2006

Inc., Multifamily Management

Agent, San Antonio, TX

2005-CH-1003 Royal Oak Township Housing 11/29/2004 03/29/2005 03/29/2006

Commission, Public Housing

Program, Ferndale, MI

2005-PH-1002 The Huntington, WV, Housing 12/02/2004 03/30/2005 04/30/2006

Authority

2005-PH-1003 The Town of Clifton, VA, Single 12/21/2004 04/19/2005 04/17/2006

Family Property Disposition

Discount Sales Program

2005-PH-1004 Corrective Action Verification 12/21/2004 04/20/2005 04/30/2007

Review of the Housing Authority

of Baltimore, MD, Section 8

Certificate and Voucher Programs,

Audit Report No. 2001-PH-1003

2005-CH-1004 Lakewood Care Center, 12/22/2004 01/26/2005 Note 3

Multifamily Equity Skimming,

Milwaukee, WI

2005-CH-1801 RVA Properties Inc., 12/22/2004 12/26/2004 06/30/2006

Multifamily Equity Skimming,

Farmington Hills, MI

2005-LA-1804 Canoga Care Center, Canoga 01/03/2005 09/26/2005 12/30/2005

Park, CA

2005-CH-1005 Wood Hills Assisted Living 01/12/2005 02/16/2005 Note 3

Facility, Multifamily Equity

Skimming, Kalamazoo, MI
Report Report Title Issue Decision Final

Number Date Date Action

Tables

Tables 180

2005-LA-1805 Housing Authority of the City of 01/21/2005 04/05/2005 12/31/2005

Los Angeles, CA

2005-NY-1802 Arlington Arms, Jersey City, NJ 01/21/2005 04/11/2005 11/04/2005

2005-KC-1003 Leader Mortgage Company, 01/25/2005 04/08/2005 03/31/2006

Lenexa, KS

2005-AT-1005 Pan American Financial 01/27/2005 05/17/2005 05/31/2006

Corporation, Nonsupervised

Direct Endorsement Lender,

Guaynabo, PR

2005-FW-1004 American Property Financial, 01/28/2005 05/27/2005 05/31/2006

Nonsupervised Loan

Correspondent, San Antonio, TX

2005-SE-1003 Oregon Housing and 02/09/2005 05/27/2005 05/01/2006

Community Services, Salem, OR

2005-PH-1006 Mortgagee Review of the 02/16/2005 06/28/2005 07/31/2006

Peoples National Bank Branch

Office, Towson, MD

2005-AT-1006 The Jefferson County Housing 02/24/2005 05/31/2005 04/23/2006

Authority, Birmingham, AL

2005-FW-1005 New Orleans, LA, African- 02/25/2005 05/12/2005 04/15/2006

American Museum

2005-DE-1002 Boulder County, CO, Housing 03/09/2005 06/29/2005 12/31/2010

Authority

2005-PH-1007 Lehigh County Housing 03/09/2005 05/02/2005 04/30/2006

Authority, Emmaus, PA

2005-LA-1002 Housing Authority of Maricopa 03/14/2005 07/11/2005 08/31/2007

County, Mixed Finance

Development Activities,

Phoenix, AZ

2005-AT-1007 Interstate Financial Mortgage 03/15/2005 08/04/2005 07/31/2006

Group Corporation, Nonsupervised Direct Endorsement

Lender, Miami, FL

2005-NY-1003 Lower Manhattan 03/23/2005 07/19/2005 Note 2

Development Corporation,

Community Development Block

Grant Disaster Assistance Funds,

New York, NY
Report Report Title Issue Decision Final

Number Date Date Action

Tables

Tables 181

2005-PH-1008 The Housing Authority of the 03/24/2005 07/13/2005 12/31/2006

City of Pittsburgh, PA, Moving

to Work Demonstration Program

2005-SE-1004 Wells Fargo Bank, NA, Fife, WA, 03/24/2005 08/22/2005 05/31/2006

Branch, Supervised Mortgagee,

Loan Underwriting

2005-AT-1008 Trust America Mortgage, Inc., 03/25/2005 07/25/2005 04/30/2006

Nonsupervised Direct Endorsement

Lender, Cape Coral, FL

2005-FW-1006 Housing Authority of the City of 03/25/2005 05/25/2005 02/28/2006

Houston’s Contractor, Section 8

Housing Assistance Payments,

Houston, TX

2005-CH-1007 RBC Mortgage Company, 03/29/2005 05/25/2005 02/28/2006

Nonsupervised Mortgagee,

Houston, TX

2005-PH-1001 Criteria Governing Local 03/29/2005 07/27/2005 02/28/2006

Government Participation in

HUD’s Single Family Property

Disposition Discount Sales Program

AUDITS EXCLUDED: NOTES:

27 audits under repayment plans 1 Management did not meet the

 target date. Target date is over 1

 year old.

30 audits under formal judicial review, 2 Management did not meet the

investigation, or legislative solution target date. Target date is under

 1 year old.

 3 No Management decision.
Table C

Inspector General Issued Report with Questioned and Inspector General Issued Report with Questioned and

Unsupported Costs as of September 30, 2005 Unsupported Costs as of September 30, 2005

(Thousands)

Reports Number of Questioned Unsupported

Audit Reports Costs Costs

A1 For which no management 22 28,204 19,184

decision had been made by the

commencement of the reporting

period

A2 For which litigation, legislation, 16 20,700 8,794

or investigation was pending at

the commencement of the

reporting period

A3 For which additional costs were - 601 190

added to reports in beginning

inventory

A4 For which costs were added to 2 260 0

noncost reports

B1 Which were issued during the 55 75,235 25,328

reporting period

B2 Which were reopened during the 0 0 0

reporting period

 Subtotals (A + B) 95 125,000 53,496

C For which a management 441 53,463 28,491

decision was made during the

reporting period

(1) Dollar value of disallowed costs

 Due HUD 252 15,101 10,143

 Due program participants 25 37,676 17,933

(2) Dollar value of costs not 93 686 415

 disallowed

D For which management decision 10 18,568 8,135

had been made not to determine

costs until completion of litigation,

legislation, or investigation 

E For which no management 41 52,969 16,870

decision had been made by <88>4 <52,560>4 <16,867>4

the end of the reporting period 

1 26 audit reports also contain recommendations with funds to be put to better use.

2 7 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.

Tables

Tables 182
Tables

Tables 183

Table D

Inspector General Issued Report with Recommendations That Funds Be Inspector General Issued Report with Recommendations That Funds Be

Put to Better Use as of September 30, 2005 Put to Better Use as of September 30, 2005

(Thousands)

Reports Number of Dollar Value

 Audit Reports

A1 For which no management decision had been 20 198,412

made by the commencement of the reporting

period

A2 For which litigation, legislation, or investigation 7 17,438

was pending at the commencement of the

reporting period

A3 For which additional costs were added to reports - 838

in beginning inventory

A4 For which costs were added to noncost reports 1 4,200

B1 Which were issued during the reporting period 57 227,894

B2 Which were reopened during the reporting period 0 0

 Subtotals (A + B) 85 448,782

C For which a management decision was made 391

 249,185

during the reporting period

(1) Dollar value of recommendations that were

 agreed to by management

 Due HUD 222 98,506

 Due program participants 18 147,705

(2) Dollar value of recommendations that were 93 2,974

 not agreed to by management

D For which management decision had been made 5 15,102

not to determine costs until completion of

litigation, legislation, or investigation

E For which no management decision had been 41 184,495

made by the end of the reporting period <45>4 <182,223>4

1 26 audit reports also contain recommendations with questioned costs.

2 2 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.
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 recognize their efforts.

The closing inventory for items with no management decision on tables C and D

(line E) reflects figures at the report level as well as the recommendation level.

  

Tables

Tables 184
Tables 185 Operations Telephone Listing

HUD OIG Operations Telephone Listing HUD OIG Operations Telephone Listing

Office of Audit Office of Audit Office of Audit

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

Region 1, Boston, MA 617-994-8380

 Hartford, CT 860-240-4800

Region 2, New York, NY 212-264-4174

Albany, NY 518-464-4200

Buffalo, NY 716-551-5755

Newark, NJ 973-622-7900

Region 3, Philadelphia, PA 215-656-3401

Baltimore, MD 410-962-2520

Pittsburgh, PA 412-644-6372

Richmond, VA 804-771-2100

Region 4, Atlanta, GA 404-331-3369

Birmingham, AL 205-731-2630

Miami, FL 305-536-5387

Greensboro, NC 336-547-4001

Jacksonville, FL 904-232-1226

Knoxville, TN 865-545-4369

San Juan, PR 787-765-5202

Region 5, Chicago, IL 312-353-6236

Columbus, OH 614-469-5737

Detroit, MI 313-226-6190

Region 6, Fort Worth, TX 817-978-9309

Houston, TX 713-718-3199

New Orleans, LA 504-589-7267

Oklahoma City, OK 405-609-8606

San Antonio, TX 210-475-6895

Region 7, Kansas City, KS 913-551-5870

St. Louis, MO 314-539-6339

Denver, CO 303-672-5452

Region 8, Los Angeles, CA 213-894-8016

Phoenix, AZ 602-379-7250

San Francisco, CA 415-489-6400

Region 9, Seattle, WA 206-220-5360
Office of Investigation Office of Investigation

Headquarters Office of Investigation, Washington, DC 202-708-0390

Region 1, Boston, MA 617-994-8450

Manchester, NH 603-666-7988

Meriden, CT 203-639-2810

Region 2, New York, NY 212-264-8062

Buffalo, NY 716-551-5755

Newark, NJ 973-622-7900

Region 3, Philadelphia, PA 215-656-3410

Baltimore, MD 410-962-4502

Pittsburgh, PA 412-644-6598

Richmond, VA 804-771-2100

Region 4, Atlanta, GA 404-331-3359

Miami, FL 305-536-3087

Greensboro, NC 336-547-4000

Jacksonville, FL 904-232-1226

Memphis, TN 901-544-0644

Nashville, TN 615-736-7000

San Juan, PR 787-766-5868

Tampa, FL 813-228-2026

Region 5, Chicago, IL 312-353-4196

Cleveland, OH 216-522-4421

Columbus, OH 614-469-6677

Detroit, MI 313-226-6280

Indianapolis, IN 317-226-5427

Minneapolis-St. Paul, MN 612-370-3106

Region 6, Arlington, TX 817-652-6980

Houston, TX 713-718-3197

Little Rock, AR 501-324-5409

New Orleans, LA 504-589-6847

Oklahoma City, OK 405-609-8601

San Antonio, TX 210-475-6894

Region 7, Kansas City, KS 913-551-5866

St. Louis, MO 314-539-6559

Denver, CO 303-672-5350

Billings, MT 406-247-4080

Salt Lake City, UT 801-524-6090

Operations Telephone Listing

HUD OIG Operations Telephone Listing 186
Operations Telephone Listing

HUD OIG Operations Telephone Listing 187

Region 9, Los Angeles, CA 213-894-0219

San Francisco, CA 415-489-6683

Phoenix, AZ 602-379-7255

Sacramento, CA 916-498-5220

Las Vegas, NV 702-366-2144

Seattle, WA 206-220-5380

  
Report fraud, waste, and mismanagement

 in HUD programs and operations by:

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

Faxing the OIG Hotline: 202-708-4829

Sending written information to:

Department of Housing and Urban Development

Inspector General Hotline (GFI)

451 7th Street, SW

Washington, DC 20410

Emailing the OIG Hotline: hotline@hudoig.gov

Internet:

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

All information is confidential,

and you may remain anonymous.
Semiannual Report to Congress

Office of Inspector General

Semiannual Report to Congress Semiannual Report to Congress

April 1, 2005 through September 30, 2005 April 1, 2005 through September 30, 2005

www.hud.gov/offices/oig www.hud.gov/offices/oig

No. 54 HUD-2005-15-OIG HUD-2005-15-OIG