September 30, 1994 9

operation targeted drug users and abusers who had previously been evicted from the development
but refused to stay away, continuing to inconvenience and terrorize residents who were taking
their children to school. The operation resulted in 130 arrests and received favorable media
coverage, including reports that the residents cheered the task force members as they performed
their duties.

OIG Special Agents, DEA and Washington, DC Metropolitan Police conducted Operation
Redrum, which has resulted in five arrests and the seizure of $2,500 worth of drugs and $1,200 in
cash. Two of the arrestees are believed to have been involved in the contract murder of a public
housing security guard in retaliation for disrupting narcotics trafficking.

In New York, NY, OIG Special Agents have been working with ATF, other federal agencies,
and the local housing authority police as part of Project Uptown, resulting in 12 arrests, seizure of
at least 25 weapons and $51,000 in cash, and confiscation of illegal drugs with an estimated value
of $240,000. One operation during May 1994 resulted in the arrest of three individuals who had
been illegally occupying a vacant unit and shooting at residents and police from project rooftops.

OIG Special Agents, the FBI, DEA, IRS, and local police investigated drug trafficking in
public housing in Chicago, IL, resulting in the seizure of over one pound of heroin. In August
1994, an investigation by this task force resulted in the indictment of 19 individuals for allegedly
conspiring to sell or distribute hundreds of pounds of cocaine and marijuana in public housing
developments.

A Safe Home/Community Oriented Policing Task Force in Aurora, CO, has resulted in 83
arrests. On one particular day, 28 individuals were arrested, most of whom were living illegally in
HUD assisted multifamily developments and using the apartments for illegal activity. OIG Special
Agents and local police participated in this operation.

Various task force operations in San Francisco, CA, have resulted in 210 arrests. One
particular task force, the Fugitive Recovery Enforcement Team, which includes HUD OIG, the
FBI, ATF, U.S. Marshals, and state and local police, made 90 arrests in one day.

Witness Relocations

Traditionally, witnesses to violent crime are reluctant to come forward or otherwise cooperate
with law enforcement out of fear for their lives or the lives of their loved ones. In the past, the OIG
has worked on an ad hoc basis with other federal, state and local law enforcement agencies to utilize
HUD housing resources for witness relocation or undercover operations. 6

Under Operation Safe Home, this activity has increased substantially due to the enhanced
cooperation between law enforcement and public housing agencies. In August 1994, HUD amended |
the Federal Preference Rule to facilitate the relocation of public housing tenants who have either
provided information on criminal activity to law enforcement or will be testifying as witnesses at
trial, and fear reprisals for their cooperation. On August 4, 1994, a HUD Special Agent in Charge
testified before the House Judiciary Committee, Subcommittee on Crime and Criminal Justice,
concerning this issue.



30 IG Semiannual Report

that the Department, as a whole, was not in compliance with Sections 2 and 4 of FMFIA and with
Credit Reform Act financial reporting requirements. HUD’s non-conformance with FMFIA is
attributed to both its inadequate process for evaluating internal controls and financial systems for
assessing compliance with FMFIA, and widespread material weaknesses and system nonconformance
in most all of HUD’s major programs.

HUD’s most serious internal control weaknesses pertain to its grant and subsidy programs,
including its largest, Section 8 rental assistance program. Existing controls do not assure that funds
provided to public housing agencies and multifamily project owners are correctly calculated based on
recipients’ eligibility and that the objectives for which funding is provided are achieved. Additionally,
HUD’s systems do not yet provide accurate information to estimate commitments under existing
subsidy contracts and budgetary requirements to renew expiring contracts.

Price Waterhouse’s report on the financial statements also discusses significant issues relating to
loss reserves on FHA insured multifamily mortgages and the extent of contractual commitments, both
funded and unfunded, to provide housing and community development assistance in the future.
Because HUD’s internal control structure and systems do not provide reasonable assurance about
whether amounts included in the financial statements are fairly stated in all material respects, Price
Waterhouse could not express an opinion on the Department’s consolidated financial statements.

There are 13 reportable conditions identified that could adversely affect HUD’s ability to record,
process, summarize, and report financial data consistent with the assertions of management in the
financial statements. Six of these include issues which Price Waterhouse also reported previously in
their FY 1993 financial statement audits of FHA and the Government National Mortgage
Association. Seven reportable conditions, three of which are also classified as material weaknesses,
pertain to departmentwide and grant and subsidy program control weaknesses. These seven
reportable conditions relate to the need for HUD to:

¢ Improve financial management systems.

* Continue to implement performance measurement and reporting.

* Strengthen security controls over financial systems.

* Complete initiatives to improve the effectiveness of housing authority monitoring.

© Move forward with initiatives to improve the effectiveness of multifamily project monitoring.

* Continue attempts to refinance Section 235 mortgages.

© Correct problems in the recently implemented loan accounting system.

In audit reports on HUD’s prior years’ financial statements, Price Waterhouse provided various
recommendations to address HUD’s internal control weaknesses. While HUD has taken certain
actions to address these recommendations, corrective actions are not complete.

R



IG Semiannual Report

The owner of a HUD assisted project in Kansas City, MO, was sentenced to 1 year in
prison and ordered to repay HUD $215,000 that the owner diverted for personal use by paying
fictitious companies for work that was never performed. In a separate case, another HUD assisted
project owner was ordered to repay HUD $63,000 in project funds that the owner diverted for
personal use.

The former executive director of a housing management company in Lowell, MA, who
embezzled company funds for his personal use was sentenced to 1 year in prison, 2 years
probation, fined $5,000 and ordered to pay $70,000 in restitution to the management company.

A site manager for a realty management company in Marlton, NJ, was indicted for
submitting claims for rental subsidies for vacant apartments. To date, the company has submitted
vouchers to the New York State Housing Finance Authority for over $91,600 in credits because of
the overpayments.

A management agent for four HUD insured properties in Kansas City, MO, St. Louis, MO,
and Decatur, IL, was indicted on 15 counts of submitting false statements to HUD, fraud,
interstate transportation of stolen property, and tax evasion.

A former site manager for a multifamily cooperative in Washington, DC, convicted on tax
evasion and embezzlement of project funds, received 4 years probation, 1 month home detention
and a $2,400 fine. This was a joint FBI/IRS/OIG investigation.

Community Planning

and Development

HOPE 3

The purpose of HUD’s HOPE 3 Implementation Grant Program is to provide homeownership
opportunities to low-income families, who are first-time homebuyers, to purchase federal, state or
local government owned single family properties. Grant applications are accepted only from private
nonprofit organizations, cooperative associations, and public bodies cooperating with private
nonprofit organizations. OIG initiated 10 audits of HOPE 3 grantees during this reporting period. Of
the five that were completed, in four the OIG found that not all the requirements of the program
were being met. Most importantly, in at least three of the four, the number of properties actually
transferred to low-income families was far below the planned number.

In administering its HOPE 3 implementation grant, the City of Indianapolis, IN (Report No. 94-
CH-256-1029), acquired eligible properties, but only 2 of the 100 properties planned to be
transferred were actually transferred after 18 months of the 2-year project period. In addition, those
two homes, although occupied, had safety violations. The City also did not adequately assure that
families approved for homeownership were eligible, did not assure that subrecipients accounted for
recovered acquisition costs, and could not support $233,000 of $268,000 in reported matching
contributions.

Although 75 percent of the way through the grant period, the Columbus, OH Housing
Partnership (Report No. 94~-CH-256-1028) had transferred only 8 of the 50 properties it had planned

R



APPENDIX 1 - AUDIT REPORTS ISSUED

INTERNAL REPORTS ISSUED

TOTAL TOTAL
ISSUE QUESTIONED UNSUPPORTED FUNDS PUT TO
REPORT NUMBER DATE REPORT TITLE COSTS COSTS BETTER USE
HOUSING
94-FO-131-0002 06/08/94 Audit of the Federal Housing Administration’s Fiscal Year 1993 0 0 0
Financial Statements
94-SE-114-0003 04/20/94 Review of Multifamily Preservation Programs 0 i} i)
5 Audit Related Memoranda 0 0 i)
MISCELLANEOUS
94-FO-177-0003 06/30/94 Audit of the Department of Housing and Urban Development’s i) 0 tt)
Fiscal Year 1993 Financial Statements
5 Audit Related Memoranda 0 0 tt)



September 30, 1994 3

Resource Management

HUD efforts to better utilize existing staff resources have not progressed as planned. HUD’s goal
is to reorganize and improve program delivery by giving Assistant Secretaries direct control over
field resources; eliminating unproductive layers of oversight and support functions; and empowering
staff to directly improve customer service and program performance. The planned implementation
date for the field reorganization was September 30, 1994. However, as of that date, many key field
management positions had not been filled, the union had yet to approve reorganization plans for
major HUD program areas, staffing and workload allocation plans had not been completed, and staff
training and development needs had not been met. In addition, although field offices were delegated
many program and administrative authorities in April 1994, a state of inertia appears to have set in
pending completion of the reorganization.

This summer, the Deputy Secretary held a series of workshops with field managers and union
representatives to clarify the nature and status of the field reorganization. In a September 21, 1994
report to the Secretary, the Deputy Secretary advised that:

A nearly unanimous theme during the workshops was field skepticism that headquarters as a
whole is ready or willing to change its behavior in ways that respect and empower the field....
Field managers believe that headquarters managers and staff, with whom they deal daily, do
not understand the reorganization.... They experience headquarters working directly with
Program clients without involving or informing the field office, not responding in reasonable
timeframes to questions that impact field operations, hiding behind voicemail, second-guessing,
and retracting program authorities.

Some program actions appear contrary to the stated reorganization goal of empowering the field.
This is largely attributed to perceived limitations in the requisite field staff knowledge and skills to
handle some major program problems. For example, Public and Indian Housing (PTH) originally
intended to implement a new risk-based monitoring approach that targeted field resources at the most
troubled public housing agencies (PHAs) to find local solutions to problems. However, a
headquarters organization has been created to deal with the most severely distressed troubled PHAs,
and funding for those PHAs is handled from headquarters. Now, additional actions are underway to
move responsibility for other troubled PHAs to headquarters. The OIG is advised that PIH plans to
continue to involve and thereby further develop field office resources in addressing conditions at
larger troubled PHAs. In a similar situation, the Office of Multifamily Housing is coordinating a
troubled project swat team effort from headquarters, with a strategy for developing greater field staff
Capacity in the process. t

The Office of Administration has developed various analytical tools to assist program management
in identifying streamlining opportunities and making decisions on the redeployment of HUD staff. In
addition, distance learning capability has been established to provide more cost effective staff training
and communication. However, these tools have yet to be substantively used by program managers.
Further, there is still a need to develop more useful and reliable information systems for basic time
distribution and work measurement, and to engrain their use in departmental management. Thus,
departmentwide staffing allocations continue to be made without the benefit of basic data or a
systematic methodology.



TABLE D INSPECTOR GENERAL ISSUED REPORTS WITH RECOMMENDATIONS THAT APPENDIX 2
FUNDS BE PUT TO BETTER USE AT 9/30/94
(Dollars in Thousands)
Number of
REPORTS ‘Aula ee
Riots alue
Al For which no management decision had been made by the commencement of the reporting period 8 $2,627
a2 For which litigation, legislation or investigation was pending at the commencement of the reporting period 5 952
a3 For which additional costs were added to reports in beginning inventory 0 0
As For which costs were added to non-cost reports 1 425
BI Which were issued during the reporting period 3 1,332
B2 Which were reopened during the reporting period 0) 0
Subtotals (A + B) 7 $5,336
e For which a management decision was made during the reporting period 8 1,740
a Dollar value of recommendations that were agreed to by management
. Due HUD Pr 45
. Due Program Participants 6 1,369
Q) Dollar value of recommendations that were not agreed to by management 2 326
D. For which management decision had been made not to determine costs until completion of litigation, legislation or investigation 5 1,915
E For which no management decision had been made by the end of the reporting period 4 $1,681
@y* ($1,242)
——

‘ 6 audit reports also contain recommendations with questioned costs.

> 0 audit report also contains recommendations with funéS due program participants.

> 1 audit report also contains recommendations with funds agreed to by management.

* ‘The figures in brackets represent data at the recommendation level as compared to the report level. See explanation below.



Notes:

1
2

Management did not meet
Management did not meet
No Management Decision.
No Management Decision.
No Management Decision.
No Management Decision.

No Management Decision.

target date. Management decision is over 1 year old.
target date. Management decision is under 1 year old.
Decision expected by December 31, 1994.

Decision expected by November 15, 1994.

Decision expected by October 6, 1994.

Decision expected by December 1, 1994.

Decision expected by November 30, 199%.



HUD HOTLINE

Ie

Calling the Hotline helps ensure your tax dollars are used
efficiently and effectively and benefit only those in need.

Call the Hotline to:
REPORT suspected fraud, waste, or mismanagement
or SUGGEST improvements in HUD
programs and operations

Send written information to the HUD Hotline
Room 8270, 451 7th Street S.W.
Washington, DC 20410-4500

All information is confidential and you may remain anonymous.

Se

Call toll free 1-800-347-3735
in the Washington D.C. area 202-708-4200
by TDD (202) 708-2451



TABLE B

SIGNIFICANT AUDIT REPORTS DESCRIBED IN PREVIOUS SEMIANNUAL REPORTS
WHERE FINAL ACTION HAS NOT BEEN COMPLETED AS OF 9/30/94

APPENDIX 2

REPORT ISSUE DECISION FINAL ACTION
NUMBER REPORT TITLE DATE DATE TARGET DATE
83CH1051 Detroit Housing Department, Public Housing Agency Activities 08/26/83 11/15/84 Note 1
B8FWI017 East Baton Rouge Parish Housing Authority, Low-rent Housing and Section 8 Existing Programs 06/29/88 03/21/89 10/01/95
89SF1004 Las Vegas Housing Authority, Low Income Housing Program 01/20/89 07/18/89 Note 1
89PH1013 Community Development Block Grant Program Subrecipient Activities 07/17/89 01/12/90 09/15/96
9OAT1008 — Community Development Block Grant Program, Use of Program Income 03/09/90 03/30/93 Note 1
90PH1014 Delaware County CDBG Program, Partnership for Economic Development and Other Selected Areas 06/12/90 11/01/90 Note 1
91TS0001 Limited Review of HUD‘s Process for Determining Undue Concentration of Assisted Persons 10/19/90 = 10/01/91 Note 1
91A00001 Multiregion Audit of the Emergency Shelter Grants Program 12/28/90 07/05/91 Note 1
91TS0006 = Multiregion Audit of Interim Financing (Floats) 01/17/91 06/07/91 Note 1
91PH1005 Pittsburgh Housing Authority, Comprehensive Improvement Assistance Program 03/21/91 09/20/91 Note 1
91TS0012 = Audit of the Major Reconstruction of Obsolete Projects Program 04/29/91 10/25/91 Note 1
91TS0014 — Multiregion Audit of the Approval and Monitoring of Management Agents of Multifamily Projects 04/30/91 11/06/92 Note 1
91PH1014 — Urban Redevelopment Authority, Housing Development Grant, Davison Square Apartments 09/19/91 01/13/92 Note 1
92KC1801 Community Development Agency, Purchase of Land in St. Louis Place Neighborhood 10/22/91 03/12/92 Note 1
92KC1002 Department of Housing and Community Development, Section 108 Loan Guarantee 01/10/92 03/01/94 Note 2
92CH1010 Detroit Housing Department, Section 8 Existing Housing Certificate, Voucher, and Mod Rehab Program 01/30/92 09/29/94 09/29/95
92PH1003 Community Development Block Grant Program 03/04/92 06/23/92 Note 1
92Ts0007 = Audit of Fiscal Year 1991 Financial Statements, Federal Housing Administration 03/27/92 09/29/92 12/31/95
92Ts0009 = Mul ttiregion Audit, Special Economic Development Activities 04/29/92 04/22/94 06/30/95
92TS0011 Audit of Fiscal Year 1991 Financial Statements 06/30/92 09/30/94 09/30/95
92PH1009 Community Development Block Grant Program 07/10/92 11/07/92 Note 1
92TS0014 Multiregion Review of the Controls Over the Preparation and Use of Grantee Performance Reports 07/30/92 Note 3

92801011 New Haven Housing Authority Management Operations 08/14/92 12/10/92 Note 1
92KC1003 Housing Authority of Kansas City, Low Rent Housing Program 08/18/92 03/16/93 Note 1
92PHO802 Philadelphia Housing Authority, Consolidation of Unresolved Audit Recommendations 08/27/92 08/27/92 Note 1
92SF1009 = San Francisco Housing Authority, Low Income Public Housing Program 09/10/92 01/08/93 Note 1
92181017 Commonwealth Mortgage Company, Nonsupervised Mortgagee 09/11/92 Note 3

92SF1012 City of Los Angeles Housing Authority 09/25/92 01/20/93 Note 1
92PH1015 Department of Public and Assisted Housing, Management and Selected Development Operations 09/30/92 03/29/93 Note 1
93HQ0002 — Multiregion Audit of PHAs’ Internal Controls Over the Handling of Cash and Other Monetary Assets 10/16/92 09/23/93 Note 1
93CH1001 = Highland Park Housing Commission, Safeguarding Monetary Assets and Inventory 10/23/92 02/11/93 Note 1
93HQ0004 Interim Audit of Bond Refundings of Section 8 Projects 10/30/92 10/26/93 Note 2
93CH1003 Cuyahoga Metropolitan Housing Authority, Low Income Housing Program 11/17/92 04/05/93 12/31/98
93CH1006 = North Chicago Housing Authority, Safeguarding Monetary Assets and Inventory 12/10/92 06/02/93 Note 1
93CH1007 — Lucas Metropolitan Housing Authority, Low Income Housing Program 12/29/92 04/05/93 Note 1
93NY1002 New York Department of Housing Preservation and Development, Limited Review of CDBG Program 01/29/93 07/06/93 06/30/95
‘93HQ0006 Multiregion Limited Review of the Public Housing Management Assessment Program 02/04/93 09/24/93 Note 1
93A01003 District of Columbia Department of Human Services, Single Family Homeless Initiative 03/03/93 07/26/93 01/31/95
93HQ0005 Limited Review of HUD’S Management and Control of Staff Resources 03/08/93 09/30/93 Note 1
93PH1004 Annapolis Housing Authority, Low Income Housing Program 03/23/93 09/10/93 Note 1
93F00002 = Audit of the Government National Mortgage Association’s Fiscal Year 1992 Financial Statements 03/29/93 01/11/94 Note 2
93101001 Scranton Urban Development Action Grant and Community Development Block Grant Programs 03/31/93 Note 4

93SF1007 — Guam Housing and Urban Renewal Authority, Related Aspects of Financial and Administrative Controls 03/31/93 07/26/93 Note 1
93801005 Cooperative of Charlesnewtown, Inc., Section 8 Program 04/07/93 10/18/93 Note 2
93HQ0008 = Multiregion Audit of CDBG Pregram Benefits to Low and Moderate Income Persons 04/27/93 Note 5

93FO0003 = Audit of Federal Housing Administration’s Fiscal Year 1992 Financial Statements 04/30/93 03/31/94 12/31/98
93HQ0012 — Mulitregion Audit of the Direct Endorsement Program 04/30/93 09/23/93 12/31/94
93HQ0013 Multiregion Audit of Refunding of Bonds for Section 8 Assisted Projects 04/30/93 03/16/94 Note 2



September 30, 1994 13

Results obtained since the initiation of Operation Safe Home are as follows:

Operation Safe Home - Equity Skimming

= Status of Cases in Inventory Number

Presented to AUSA for Litigation 85
Settled Prior to Presentation 10
Pending Presentation 31

Total Cases in Inventory 126

[ Status of Cases Presented
Accepted Civil { 42 d
Accepted Criminal \ 12 \ ly
Accepted Both i - 10

Sub-Total - Cases Accepted 64

Pending AUSA Decision 15
Declined For Prosecution 6
Total Cases Presented 85

Obviously, the equity skimming component of Operation Safe Home is off to a good start, but
obtaining final results will be a lengthy process. While overall success cannot be measured at this
point, final results obtained during this reporting period are encouraging.

Equity Skimming Results
Obtained This Reporting Period

An OIG audit of French Village Apartments, Kansas City, MO, identified the misuse of
$263,000 in project funds by the owner. An investigation by the OIG and the FBI led to the
owner/manager’s pleading guilty to various charges of misappropriating federal funds which caused
the default and payment of a $2.4 million insurance claim by HUD. By the time HUD was finaly
able to take possession of the project, the owner had allowed the property to deteriorate to the point
where it was valued at only $750,000. The owner was sentenced to 2 months in a halfway house to
be followed by 3 years of supervised probation, and $63,000 in restitution to HUD. Civil litigation is
being pursued to further recover funds misused by the owner.

In Austin, TX, the owners of the Lakes at Renaissance Park Apartments and their related
companies were found liable to the government for $1.7 million, including over $30,000 in audit and
$5,000 in legal costs. An OIG audit identified the owners’ improper use of over $800,000 in project
assets. Specifically, the owners loaned project funds to related companies, and their identity-of-
interest management firm charged the project for excessive payroll costs and did not turn over all

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September 30, 1994 31

Rental Assistance

Through subsidies to owners, Section 8 Tenant-Based Programs assist low- and very low-income
families to obtain decent, safe, and sanitary housing. During this reporting period, OIG audits
disclosed accounting, administrative and procedural weaknesses and investigations continued to

disclose eligibility problems.

An OIG audit found that the Puerto Rico Department of Housing’s accounting and administrative
controls needed significant improvement (Report No. 94-AT-203-1026). Lack of proper supervision
and formal procedures contributed to inaccurate records, poor debt collection procedures and
numerous other problems. Of most concern was the $2.7 million difference between the ending
operating reserve balance for the Certificate Program and the actual funds in the bank. In addition,
procedures to select and recertify program participants were not adequate, unsupported costs were
charged to the Section 8 Program, and housing quality standards were not enforced.

Over the 3 years ending June 30, 1993, a housing agency in Raleigh, NC (Report No. 94-AT-
203/251/256-1017) drew over $11 million more in Section 8 projects than was needed. The draws,
ranging from about $3 million for fiscal year 1991 to $4.3 million for fiscal year 1993 — or an
average of $3.7 million a year — were deposited in the state’s general fund. Although the excess
draws were returned at the end of each year, the $403,500 of interest earned was neither returned to
HUD nor used to benefit the Section 8 housing projects.

OIG investigations into the use of false statements to illegally obtain Section 8 assistance led to the
following results this period:

An OIG/FBI investigation led to a Bluefield, WV landlord being sentenced to 6 months home
confinement and 5 years probation, and $5,000 in restitution, The loss to HUD is estimated at
$70,000.

A task force investigation by HUD and Health and Human Services OJGs and state authorities
resulted in a Section 8 tenant in Indianapolis, IN, being sentenced to 3 years probation and 4
months home detention, and $5,000 in restitution. This investigation, known as Operation
Swindle, resulted in the indictment of 19 persons for defrauding government assistance programs.

A joint investigation with the Postal Inspection Service, Secret Service and the Immigration
and Naturalization Service netted the ninth member of a building-wide ring involved in illegal
rental subsidies and other federal benefits in Far Rockaway, NY. The individual, an illegal alien,
pled guilty to making false statements to HUD. To date, 17 persons have been arrested in this
case.

In San Diego, CA, the owner of a subsidized property and the individual who claimed to be
the owner pled guilty to conspiring to obtain $19,200 in Section 8 Low-Income Rental Assistance
benefits to which they were not entitled.

A joint investigation with the Postal Inspection Service led to the manager of an apartment
complex in Peoria, IL, pleading guilty to submitting altered rental applications so that unqualified
Persons could receive housing assistance.

R



Ef ill,
‘lh

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
THE SECRETARY
WASHINGTON, D.C. 20410-0001

*

December 13, 1994

Honorable Al Gore
President of the Senate
Washington, DC 20510

Dear Mr. President:

I am pleased to transmit to you the U.S. Department of
Housing and Urban Development’s (HUD) Semiannual Report of the
Office of the Inspector General (IG). This report covers HUD’s
efforts to address deficiencies in its core management functions
as well as four program areas: Section 8 project-based
assistance, multifamily housing preservation, troubled public
housing authorities, and lead-based paint. The report also
reviews the achievements of Operation Safe Home, the joint law
enforcement effort initiated early this year.

The Inspector General concludes that "HUD is not moving fast
enough to correct its systemic management weaknesses in the areas
of management control environment, resource management, and data

systems." I share the Inspector General’s desire for rapid
progress on these important fronts. Correction of these
deficiencies is essential if HUD is to serve the needs of
America’s families and communities effectively and efficiently.

I believe that we are making significant headway towards
creating a new management culture at HUD -- particularly given
the magnitude of the problems we inherited, the breadth of the
reforms we are undertaking and the tight fiscal environment in
which we operate. Several accomplishments are particularly
noteworthy:

the execution of the Presidential Performance Agreement,
indicating a commitment to set quantifiable performance
measures and be evaluated by our ability to meet those
goals;

the implementation of HUD’s Program and Field Reorganization
Plan, eliminating duplicative layers of bureaucratic review
and streamlining agency decision-making; and

the creation of a top level Management Committee, a vehicle
for addressing Departmental concerns in a disciplined,
collaborative manner.



24 IG Semiannual Report

plague the Department's lead-based paint programs. As for the initiative in public housing, only
redoing suspect testing, under strict protocols that use the latest XRF technology, can give HUD and
PHAs adequate assurance to plan for and begin lead abatement.

A professionally trained and certified workforce to perform the tests and abate the hazards is still
in infancy. Lead inspectors in many states can be licensed by simply completing an 8-hour course.
Unsafe abatement practices such as occurred at Pittsburgh, PA (Report No. 94-AO-209-1804), may
be commonplace in private and public housing renovation, and often increase rather than reduce the
health hazards from lead.

Reliability of XRF readings assumes the lead inspector followed manufacturer protocols carefully
when performing the tests. Similarly, reliability of laboratory analysis assumes the same lead
inspector collected paint samples in the right volume, without contamination, Regulatory controls
over each industry, on the other hand, are just being developed at EPA.

HUD relied on consultants to develop its 1990 Guidelines on Lead-Based Paint Testing and
Abatement and current draft revisions to this guidance. The OIG observed and advised the Assistant
Secretary for Public and Indian Housing that, in our opinion, some consultants had a vested interest
in the services recommended in the Guidelines, but not in controlling the cost of those services.

Actions to Address

the Risks

The OIG believes the Department should suspend further tests and delay abatement at some PHAs
until greater assurance of testing reliability has been obtained. Also, while the Department has
focused rightly on locating the lead-based paint hazards at PHAs, none of the $300 million spent for
testing, abatement, and related consultant services has bought the information most critical to this
health issue -- how many of the young children living in public housing suffer from elevated blood
lead levels. Answering this question should be part of the Department’s public housing policy. It just
makes good common sense to test the children, not just the paint, before committing more millions to
abatement.

As a corollary to the public housing review, the OIG is currently evaluating HUD’s state and local
government grant program and will study alternative methods of reducing lead-based paint hazards in
privately owned housing.



10 IG Semiannual Report

Witnesses have been relocated in all parts of the country. Our Special Agents in Charge in
Boston, Philadelphia, Atlanta, Ft. Worth, Denver, San Francisco and Washington, DC, have
facilitated these efforts. Examples include:

¢ In New England, several witnesses were relocated after their testimony led to a federal
racketeering indictment against individuals for cocaine trafficking and murder.

* In the South, a witness to a murder which occurred in a public housing complex and the
witness’s family were relocated after the hotel in which the witness was being kept under
protective custody was declared unfit for family living. In another case, two witnesses to
murder in a public housing development were relocated to ensure their safety and their
testimony.

* In the West, two public housing tenants who testified against three suspected major heroin
dealers were relocated at the request of the police. In another case, a family living in public
housing who had witnessed the murder of their son by other public housing tenants was
relocated at the request of local police. Again at the request of the police, the witness to a
fatal shooting in a public housing development was relocated after receiving death threats.

¢ In the Mid-Atlantic area, a witness who had provided the FBI with information concerning a
public housing related homicide was relocated.

Violent Crime

Prevention Initiatives

In August 1994, HUD amended public housing eligibility requirements to allow public housing for
police officers and other security personnel who would not otherwise be eligible.

The U.S. Secret Service, working with OIG, HUD Public and Indian Housing officials and the
Baltimore Housing Authority (BHA), has completed a security assessment of a BHA public housing
project. A final report is pending. The assessment, which was based on a complete physical
inspection of the property and interviews with residents, BHA management and local law
enforcement, will provide BHA and HUD personnel with technical guidance on enhancing the
project’s physical security, and will serve as a model for future efforts around the country.

The OIG is working with HUD Public and Indian Housing officials to develop standardized
training programs and standards of operation for public housing police. In this regard, the Federal
Law Enforcement Training Center in Glynco, GA, at the behest of the OIG, is cooperating in the
development of a model training program for potential use by housing police.

The International Association of Chiefs of Police (IACP), in cooperation with the OIG, hosted a
forum consisting of HUD Public and Indian Housing officials and ten police chiefs selected by IACP
from around the country. The main focus of the forum was law enforcement’s role in policing public
housing, and the impact that HUD regulations have on that role. [ACP representatives called upon
Public and Indian Housing to review, strengthen and standardize eviction policies; clarify the role
and responsibilities of housing authority police; and possibly amend laws/regulations to provide
relevant funding for police operations in housing authorities.



16 IG Semiannual Report

statements. The audit pointed out the wide disparity between staffing levels at HUD and at other
entities involved in multifamily housing lending. Because HUD loans are typically much riskier,
more troubled and more staff-intensive, the report stated, the disparity is even greater. The impact of
staffing shortages could be offset somewhat through effective automated data systems. However,
HUD’s systems cannot be relied on to provide relevant, timely, accurate and complete information.
The dollar loss in terms of misspent subsidies, insurance claims and asset management inefficiencies
was judged by Price Waterhouse to likely run in the hundreds of millions of dollars.

HUD’s management controls in the insured/assisted multifamily housing area are also weak. Field
office physical property inspections, financial statement reviews and on-site management reviews
have not been performed in a way that consistently identifies and resolves problems. Field offices are
not adequately following up with owners and their management agents to ensure that problems
identified through HUD monitoring are being addressed. This often contributes to insurance claims,
unacceptable living conditions and excessive or wasteful subsidies.

Program enforcement can be an invaluable control in deterring abuse in HUD programs.
However, HUD’s program enforcement has been weak for many reasons, not the least of which are
the staffing shortages and inadequate data systems. Yet, even when problems are detected, HUD has
typically not taken aggressive enforcement actions on the grounds that such actions could ultimately
harm the tenants or HUD.

In July 1994, the Inspector General testified before the Senate Committee on Governmental
Affairs that equity skimming in insured multifamily housing is a notable area of high risk and
emerging fraud in government programs. Due to HUD’s failure to take aggressive enforcement
action in this area, the OIG has made equity skimming one of the three targeted abuses of Operation
Safe Home. For more details, see the Operation Safe Home segment of this report

Examples of Troubled Projects

Audited This Period

An audit of a management agent/owner of assisted projects in Boston, MA (Report No. 94-BO-
214-1009), disclosed that actions are needed to prevent the two projects from becoming part of
HUD’s property disposition inventory. One project required substantial rehabilitation, estimated to
cost over $6 million, to remain a viable project. The project’s poor condition contributed to the 35
percent turnover of tenants and increasing operating costs and vacancy losses. The second project is
in acceptable physical condition but the management agent/owner indicated that they could not make

a $465,000 payment due September 30, 1994. §
An audit of a cooperative in Framingham, MA (Report No. 94-BO-212-1008), showed that it
failed to increase rents during a period of rapidly rising expenses. As a result, the project is not a

generating sufficient revenue to pay operating costs, service its debt, and fund $1.2 million in
critically needed repairs.

An audit of an apartment complex in Junction City, KS (Report No. 94-KC-212-1801), estimated
that $724,000 in repairs would be needed to restore the physical condition to an acceptable level. In
addition, $38,000 collected from tenants was not deposited, and the accuracy of the records could not

iv



IG Semiannual Report

Former employees of the Housing Authority of Nogales, AZ, were paid $10,000 by Section
8 tenants and applicants to ensure their participation in the program and a former fee inspector
pled guilty to submitting false statements to HUD. The former inspector and several PHA and
bank employees diverted $240,000 in Section 8 assistance from the Authority by creating fictitious
tenants and landlords in whose names rental assistance checks were issued and cashed. The
inspector, the third person to plead guilty in this case, also received payment for inspecting units
that did not exist.

Ten individuals in Washington, DC, including five housing authority employees, were
charged with giving/receiving bribes in return for preferential treatment in the Section 8 program.

A Minneapolis Housing Authority employee was sentenced to 21 months in prison after a
joint investigation with the FBI disclosed the employee demanded cash payments from low-income
housing applicants in exchange for a place in public housing. The bribes ranged from $300 to

Following a joint investigation with the FBI, a former Chicago Housing Authority employee
was charged with making payments to a federal employee for services rendered to the contractor’s
company. The PHA employee also submitted false information in order to receive a HUD funded
contract.

Combatting Equity Skimming in
FHA Insured Multifamily Housing

Equity skimming is the illegal diversion of revenues from an FHA insured project for the personal
use of the owner or management agent. Equity skimming results in substandard living conditions for
low-income families, the need for additional financial assistance from HUD, and losses to the FHA
insurance fund through defaults and HUD’s subsequent payment of insurance claims.

While existing statutes establish both criminal and civil penalties for equity skimming, HUD has
taken few actions under those statutes. At the time Operation Safe Home was announced, there was
an inventory of 72 OIG audits and other reviews that had identified $63 million in potential equity
skimming, but had not resulted in settlements or the imposition of criminal or civil penalties.

The Operation Safe Home strategy in this area entails:

* — extensive OIG collaboration with DOJ and U.S. Attorneys in devising strategies for OIG -
presentation and DOJ pursuit of cases of multifamily equity skimming;

e direct referral of civil equity skimming cases by OIG auditors to DOJ and the U.S. 4
Attorneys, rather than reliance on the HUD Office of General Counsel to make such
referrals; and

* priority attention by the OIG Office of Investigation to equity skimming cases having potential
for criminal prosecution.



September 30, 1994 25
Chapter 4

Other Significant
Audits and
Investigations

This section summarizes other significant OJG audits and investigations in six program areas —
Multifamily Housing, Community Planning and Development, financial management, Section 8
Rental Assistance, Single Family Housing and Homeless Programs.

Multifamily Housing Programs

For years, OIG audits have disclosed project owner and management violations involving
unsupported and unauthorized expenses that contribute to both the physical and financial deterioration
of multifamily projects. These violations are in addition to those addressed in the discussion of
Operation Safe Home. Recent examples include the following:

A management agent in Detroit, MI (Report No. 94-CH-214-1031), charged $2.9 million in
unsupported maintenance costs to 17 HUD insured projects, over $2 million of which may be
unreasonable. The agent also failed to maintain adequate fidelity bond coverage and assure that all
project funds on deposit were fully insured. The audit report recommended that HUD require the
agent to support the reasonableness of the maintenance costs, return to the projects any costs that
cannot be supported, assess only reasonable and supportable maintenance fees in the future, and
maintain adequate project operating procedures.

A management company in Parsippany, NJ (Report No. 94-PH-212-1017), charged over
$952,000 in unauthorized interest expenses to a HUD insured project for advances and loans from
the owner/partners. The management agent also charged HUD insured projects over $115,000 in
unsupported costs, used tenant security deposits to cover project operating shortfalls, and had no
written procurement policy. The audit recommended that the agent reimburse the projects for all
ineligible and unsupported costs, fully fund tenant security deposit accounts, and implement a
written procurement policy. HUD should take administrative sanctions if the agent refuses or fails
to reimburse the ineligible and unsupported costs. a

OIG investigations disclosed the following cases of theft and embezzlement in Multifamily
Housing Programs:

In Newark, NJ, a husband and wife were charged with bribery, conspiracy, and theft in
connection with the improper award of $1.5 million in security contracts to a HUD assisted
project.

The OIG assisted local investigators in a case where the former manager of a multifamily
project in Joppa, MD, was charged with theft of at least $278,000 in project funds.



September 30, 1994 7

Chapter 2
«4% Operation
op” Safe

Operation Safe Home is a campaign to combat violent crime in public and assisted housing, fraud
in the administration of public housing programs, and equity skimming in FHA insured multifamily
housing. These three types of wrongdoing represent particularly high risks to HUD’s programs and
to the well-being of residents in public and assisted housing.

In each of the areas, the overarching Operation Safe Home strategy is to foster aggressive
enforcement action and, in the process, deter further wrongdoing. Operation Safe Home has entailed
significant variations from the traditional OIG audit and investigative programs:

© The Operation Safe Home approach is targeted and proactive, rather than reactive.

© Operation Safe Home focuses OIG attention on violent crime, an area previously outside the
OIG’s ambit.

© Operation Safe Home involves an unprecedented level of OIG collaboration with federal,
state, and local law enforcement agencies, as well as with HUD program staff, partners, and
beneficiaries.

© Operation Safe Home employs new methodologies, such as probes (as distinguished from
audits and investigations) and direct audit and/or investigative referral of civil cases to the
Department of Justice (DOJ) and the U.S. Attorneys, rather than reliance on HUD to make
these referrals.

Announced by the Vice-President on February 4, 1994, Operation Safe Home was 8 months old at
the end of this semiannual reporting period. Obviously, in this short period, the targeted abuses have
not been stopped; and the OIG is still in the process of developing the needed working relationships
and fine-tuning our Operation Safe Home methodologies. However, as detailed below, we have come
a considerable distance.

Combatting Violent Crime
in Public and Assisted Housing
The Operation Safe Home strategy entails:

© collaboration by the OIG and federal, state, and local law enforcement agencies in law
enforcement efforts targeted at public and assisted housing;

* collaboration among the OIG, law enforcement agencies, public/assisted housing managers,
and public/assisted housing residents in devising methods to prevent violent crime; and



Reporting Requirements

The specific reporting requirements as prescribed by the Inspector General Act of 1978, as amended by the
Inspector General Act Amendments of 1988, are listed below.

Source/Requirement Page
Section 4(a)(2)-review of existing and proposed legislation and regulations. Pages 15-34 4
Section 5(a)(1)-description of significant problems, abuses and deficiencies Pages 1-34

relating to the administration of programs and operations of the Department.

Section 5(a)(2)-description of recommendations for corrective action with Pages 15-34
respect to significant problems, abuses and deficiencies.

Section 5(a)(3)-identification of each significant recommendation described in Appendix 2,
previous Semiannual Reports on which corrective action has not been Table B
completed.

Section (5)(a)(4)-summary of matters referred to prosecutive authorities and the Pages 7-34
prosecutions and convictions that have resulted.

Section 5(a)(5)-summary of reports made on instances where information or No instances
assistance was unreasonably refused or not provided, as required by Section
6(b)(2) of the Act.

Section 5(a)(6)-listing of each audit report completed during the reporting Appendix |
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. Pages 15-34
Section 5(a)(8)-statistical tables showing the total number of audit reports and Appendix 2,
the total dollar value of questioned and unsupported costs. Table C
Section 5(a)(9)-statistical tables showing the total number of audit reports and Appendix 2,
the dollar value of recommendations that funds be put to better use by Table D
management.

Section 5(a)(10)-summary of each audit report issued before the commencement Appendix 2,
of the reporting period for which no management decision had been made by Table A
the end of the period.

Section 5(a)(11)-description and explanation of the reasons for any significant None
revised management decision made during the reporting period.

Section 5(a)(12)-information concerning any significant management decision None
with which the Inspector General is in disagreement.


22 IG Semiannual Report

estimated it needed $472 million to modernize its current housing stock, but current trends indicate
$1.3 billion may actually be needed. Ineligible costs identified during the audit totalled nearly $1.5
million and unsupported costs another $3.3 million.

The Authority contracted with the management firm in 1989 and again in 1991, However, having
a management firm work parallel with Authority management did not prove as beneficial as planned.

Neither the board of directors nor the contractor had taken actions to correct long-standing systemic
problems. 1
Because there was no measurable change in Authority management since the last OIG audit more |

than 10 years ago, the OIG recommended HUD put Authority operations entirely under private
management. Since issuance of the OIG audit report, the Housing Authority has terminated its
contract with the management firm and has entered into a "recovery partnership" with HUD. This
joint recovery effort is in its initial stages.

While the OIG audit of the Baltimore Housing Authority (Report No. 94-PH-201-1016) found
that the Authority attempted to improve overall management and living conditions of public housing
residents, improvements have been short-term and operational changes have not been monitored or
completed. Operations, funded at $106 million annually, have been hampered by weaknesses in
fundamental supervision, management practices and oversight.

Citing the immediate need to reduce waiting lists, occupy vacant units, stem vandalism, and
increase dwelling rental income, the Authority moved to rapidly renovate and occupy long vacant
units. By declaring emergency housing conditions, management set aside procurement requirements
and engaged contractors noncompetitively. The renovation budget that began at $1 million and
$10,000 per unit exceeded $25 million and $25,000 per unit in less than 2 years. Noncompetitive
contract awards resulted in substantial overpricing, incomplete and shoddy work, and product
substitution. In addition, noncompetitive procurement and control vested in just one supervisor left
the program vulnerable to fraud. As of September 30, 1994, an ongoing FBI/OIG investigation into
fraudulent activity had resulted in two contractors being charged with giving bribes and two PHA
officials pleading guilty to receiving bribes, one of whom was sentenced to 18 months in jail.

The rapid renovation program depleted the $12 million operating reserve to less than $3 million
and although the number of occupied units increased initially, the increase resulted from earlier
renovation work. In 1994, vacancies rose from 1,600 to 1,800 units, despite a waiting list of over
18,000 families. The Authority also spent over $4.1 million on security services and systems without

assurance of the best price, best qualified firm, or full and open competition. j
Actions to Address f
the Risks

As mentioned in the Systemic Management Problems segment of this report, PIH initiated a new
approach to PHA oversight in order to better diagnose and solve PHA problems across the country.
The risk-based approach to oversight of PHAs centers on flexibility, partnerships, and a commitment
to long-term problem solving. This strategy helps to better focus HUD’s limited capacity on the most
troubled PHAs.

iw



September 30, 1994 19

improve staff capabilities and evaluate staffing levels, that HUD pursue legislative changes for
preserving housing in a more cost effective manner.

As a follow-up to previous preservation work, the OIG Boston Office is currently analyzing two
projects — Sherwood Park Apartments and Georgetowne I and II — to determine the actual effect the
incentives have had on HUD, tenants, owners and the community. As shown in the following chart,
the effect is dramatic.

Sherwood Park Georgetowne I/II

Number of Units 81 967
Jan 91 Sept 92

Date Plan Approved

Incentives

$3.8 million take-out loan and
Section 8 contract authority of
$344,000 for 30 units

$36.9 million take-out loan and
Section 8 contract authority of
$6.3 million for 343 units

$356 to $1,059
$1,690—170% fair market rent
37 or 46%

Rent Increase over 3 years—3-bedroom unit $475 to $995

$1,078

231 or 24%

Over the long-term, in order to avoid a default or project deterioration, HUD will have to either
increase the Section 8 rents or increase the numbers of Section 8 units to keep pace with the
increased debt service and the loss of market rate tenants. It would be far less costly to provide
owners with rehabilitation loans at no cost and eliminate equity take-out loans entirely.

Section 8 rents

No. of tenants moved after plan approved

Actions to Address
the Risks
The OIG recommends repeal of Titles II and VI of the preservation legislation. The OIG estimates
that if the new legislation were developed to provide HUD with the flexibility to analyze and
implement the least costly method of funding long-term low-income housing, costs could be reduced
by tens of billions of dollars. Options could include:

purchasing projects and giving them to housing agencies to manage;

© allowing prepayment and purchasing of new or existing housing or constructing
replacement housing to replace lost units;

¢ allowing prepayment and arranging for Section 8 project-based assistance of units in
currently unassisted projects to replace units lost to prepayment;

¢ allowing prepayment and giving Section 8 vouchers or certificates to those residents
who qualify for rental assistance; and

© providing a grant to rehabilitate the project in exchange for a commitment to retain
low-income housing for the remaining useful life of the project, if a project has no
equity and the owner wants to stay in the program.



established a special office to work with PHA staff, local
governments, and residents to establish performance
standards and other measures for improvement in troubled
PHAs. Already the number of very large PHAs on the troubled
list has been reduced; in fact, ten PHAs have been taken off
this list since early 1993. Second, the Department has
developed a series of initiatives to accelerate the
demolition of the worst public housing inventory. Third,
the Department has proposed and will continue to pursue
various legislative measures to deregulate PHAs, revise
standards for admission to public housing, relieve
restrictions governing replacement housing, reform rent
provisions, and use modernization funds for replacement
housing. Many of these have been recommended by the IG.

Lead-based paint. The IG’s report details earlier findings
of fraud in the testing of lead-based paint in public
housing. The Department has enlisted the assistance of the
Army Corps of Engineers to undertake a comprehensive review
of the quality of public housing lead-based paint testing to
date. In addition, the Center for Lead-Safe Housing has
recently completed a random sampling of lead paint
inspections. The findings and recommendations of these
analyses will be used to ensure that lead-based paint
testing in public housing is accurate and reliable.

The Semiannual Report also reviews progress that has been
made on the Inspector General’s Operation Safe Home initiative.
Operation Safe Home has been a targeted and focused effort that
has made a significant difference on three fronts: addressing
crime in public housing, combatting fraud in public housing, and
tough enforcement against equity skimming in multifamily housing.

Through significant management reform, we are rebuilding our
capacity to serve communities. HUD began this reinvention
process by changing our organization structure and instituting
new systems to assure performance accountability. I look forward

to continuing to make significant changes and improvements in
HUD’s ability to serve our clients.

Sincerely,
LA

Henry G: Cisneros



Progress on these fronts, particularly the Management
Committee, has proven invaluable in the face of serious cuts and
shortfalls in HUD’s FY 1995 salaries and expenses budget. In
prior years such cuts and shortfalls were addressed by simply
paring back funding for systems development/maintenance and
training. This fiscal year the Management Committee decided that
savings would be achieved through hard choices -- attrition,
hiring freezes and cuts in other staff-related accounts. That
action is a clear sign of the change in management culture that
has taken hold in the past two years.

In addition, the Department has made substantial strides in
issues related to resource management deficiencies. We have
developed analytical tools which will help the Department to
manage the panoply of human, technological, financial, and other
resources. These tools have already been utilized in planning
the HUD field reorganization and in areas of process redesign,
cost-benefit analysis, workload measurement and staffing
redeployment. Process redesign initiatives are underway in at
least five offices in HUD, including the Office of Fair Housing
and Equal Opportunity, whose efforts were recently awarded with a
"Hammer Award" from the National Performance Review and President
Clinton for innovative business redesign initiatives.

In the program arena, the Inspector General highlights four
program areas of concern.

e Section 8 project-based assistance: The IG’s report finds
that a significant number of assisted housing properties are
neglected by their owners and are in substandard condition.
I agree with this assessment, having personally visited many
such properties in the past two years. The Department has
adopted an aggressive strategy that: takes stronger measures
against corruption and fraud; reduces subsidy costs;
establishes SWAT teams to address troubled projects; finds
new owners where necessary, repairs properties and engages
residents. This strategy will ultimately result in the
workout and restructuring of our assisted portfolio.

Multifamily Housing Preservation: The IG’s report finds that
the flawed design and implementation of the multifamily
preservation program adopted by Congress in 1990 has
resulted in excessive costs to the federal government. I
agree with this assessment. The Department has developed a
more cost-efficient program for preserving the housing
stock. Legislative revisions will be proposed in the new
year.

Troubled Public Housing Authorities (PHAs). The IG’s report
provides additional information on the persistent management
deficiencies in a number of large PHAs, so-called "troubled
PHAs." The Department has taken a series of steps to
address the management problems at these agencies and
improve the living conditions of residents. First, HUD has



IG Semiannual Report

¢ HUD programmatic initiatives specifically geared to preventing violent crime.

Since the onset of Operation Safe Home, OIG agents have been assigned to 76 law enforcement
task forces working in public and assisted housing. Operation Safe Home was a catalyst for
formation of 46 of these task forces. As of September 30, 1994, task force operations had resulted in
1,013 arrests for crimes involving drugs and weapons, as well as confiscation of at least 193
weapons, $385,000 in cash, and illegal drugs with an estimated street value of at least $1.3 million.
OIG personnel have facilitated the relocation of 54 witnesses to violent crime in public/assisted
housing, and have worked with HUD and other agencies in a variety of other initiatives to improve
the safety and security of persons living in public and assisted housing.

The initial focus of the violent crime initiative has necessarily been on law enforcement actions.
As we gain ground, the OIG will need increasingly to turn its attention to forging an alliance among
law enforcement, HUD, HUD partners, and HUD beneficiaries to put in place effective crime
prevention mechanisms.

Law Enforcement

Task Force Operations

The following examples reflect the nature of the task force operations. Results for this semiannual
reporting period alone included 989 arrests, confiscation of at least 168 weapons, $300,000 in cash,
and illegal drugs with an estimated value of at least $1 million.

In Miami, FL, OIG Special Agents have been working with the Dade County police, as part
of Operation Take Back, which has resulted in 75 arrests, and seizure of 17 weapons and almost
one pound of illegal drugs. In addition to the law enforcement efforts, Operation Take Back
promotes better community/police relationships through aggressive outreach efforts.

In Baltimore, MD, OIG Special Agents have been working with ATF, the U.S. Secret
Service, and local and housing authority police as part of Project Uptown, which has resulted in
71 arrests, and seizure of 22 weapons, 3 vehicles, $9,000 in cash, and illegal drugs with an
estimated value of $25,000. Many of the arrests were made inside public housing units identified
as stash houses.

In New Orleans, LA, operations by the Safe Home Task Force have resulted in 85 arrests
and seizure of 28 weapons, $15,000 in cash, and over 1 pound of cocaine. Several of the arrestees
were either suspected or wanted murderers. The task force consists of OIG Special Agents, DEA, ,
U.S. Marshals, U.S. Secret Service, federal agencies and state and local police.

In New Haven, CT, at least 41 individuals have been arrested and $24,000 in cash and 11 >
weapons seized following operations by OIG Special Agents, DEA and State Police working as
part of a Gang Task Force.

In Boston, MA, OIG Special Agents have been working with DEA, state, local, and housing
authority police as part of the Anti-Gang Fugitive Unit. This operation has yielded 182 arrests of
persons living both legally and illegally in public housing for such crimes as rape, assault, and
drug and weapons charges. In addition, in September 1994, the Anti-Gang Fugitive Unit
conducted Operation Back to School/Clean Sweep at a particular public housing development. This



INSPECTOR GENERAL’S MESSAGE

The objectives of this report are to: focus on key management and program problems that
require action by HUD, OMB, and the Congress; and provide an overview of Office of
Inspector General (OIG) activities during the semiannual reporting period.

Chapters 1 and 3 present key management and program problems affecting HUD
operations.

- In Chapter 1, we conclude that HUD is not moving fast enough to correct its systemic
management weaknesses in the areas of management control environment, resource
management, and data systems. The OIG believes that correction of these weaknesses
is necessary if HUD is to achieve substantial improvement in its program delivery and
results.

+3 In Chapter 3, we define major risks associated with four of HUD’s program areas:
project-based assisted multifamily housing, multifamily preservation, public housing,
and lead-based paint testing and hazard abatement. In each case, we recommend
actions by HUD, OMB, and/or the Congress to mitigate the risks.

Chapters 2 and 4 present an overview of OIG activities this reporting period.

e Chapter 2 is a progress report on Operation Safe Home, the OIG-led campaign to
combat violent crime in public and assisted housing, fraud in the administration of
public housing programs, and equity skimming in FHA insured multifamily programs.
Obviously, in the 8 months since the announcement of Operation Safe Home, these
abuses have not been stopped. But the progress made toward that goal reflects an
extraordinary level of responsiveness, commitment, and concern on the part of OIG
staff and Federal, State, and local law enforcement agencies.

id Chapter 4, in summarizing other significant OIG audit and investigative results this
period, provides assurance that broad OIG coverage of HUD programs and activities
continues to identify significant opportunities for strengthening program integrity,
efficiency, and effectiveness.

f
This report’s straightforward treatment of problem areas needing attention reflects the

HUD OIG’s commitment to being an agent of change. As part of that commitment, the OIG
stands ready to assist HUD and the Congress in the process of bringing about change.

< /
Libr, (+ ‘i Ge
Susan Gaffney Pp)

Inspector General



14

IG Semiannual Report

remaining cash upon foreclosure. After the owners refused a repayment demand by the HUD San
Antonio Office, the government filed suit against them. The court’s judgment awarded HUD double
damages against the owners individually, the management agent, and the related companies.

A civil complaint for almost $600,000 was filed in Auburn, AL, against the four general partners
and management agent of Hudson Arms Apartments, Phase I and II. This followed a 1993 OIG audit
report which identified equity skimming by the partners and the management agent. The mortgages
for these projects were assigned to HUD in March 1992, and HUD subsequently paid claims of $1.6
and $2.5 million, respectively.

The U.S. District Court in Milwaukee, WI, granted HUD a $590,000 double damages judgment
against the former owners of Lisbon Square and Wrightown, two HUD assisted projects. The owners
admitted misusing project funds, and in October 1989, agreed to repay HUD $295,000. When they
failed to comply, the Office of Housing, with assistance from the Office of General Counsel, began
foreclosure proceedings, sold the projects, and brought a claim against the owners.

The current owners of Candlelight Apartments I and II, Ltd., Warren, OH, entered into a
settlement agreement to repay $17,000 to the federal government and accepted personal liability for
up to $125,000 in repairs. The equity skimming violations resulted from the unauthorized use and
unsupported expenditure of project assets and income. The U.S. Attorney’s Office also filed a civil
complaint against the former owners for the misuse of $250,000 in project funds.

The owner of Bryan Woods Apartments in Garner, NC, repaid the project over $97,000
questioned in an OIG audit report. The HUD Greensboro Office had tried unsuccessfully, since
November 1991, to make the owner return the funds. The field office received evidence of the
repayment on April 6, 1994, the same day the OIG presented, and the U.S. Attorney accepted, this
case for affirmative action as part of Operation Safe Home.

As a result of an OIG review of the operations of Erica Village, a project in Vancouver, WA, the
owner repaid the project $30,727. This amount was improperly withdrawn from the project when the
insured loan was in default. The project’s mortgage has since been made current.

Related Audits Issued

During This Reporting Period

An OIG audit of Hermanos Melendez Hospital in Bayamon, PR, disclosed that the owners
improperly used $8.2 million in project funds for unauthorized construction costs, personal expenses,
and interest and penalties on late payments and overdrafts. The report also questioned the propriety
of another $3.8 million related to the owners’ acquisition of supplies and services,

An OIG audit of Westwood I Apartments in Coalinga, CA, disclosed that the owner diverted over -
$397,000 from project accounts, encumbered the project with $769,000 in unauthorized liens,
received $293,000 in Section 8 overpayments and failed to record over $213,000 in project receipts.

An OIG audit of Ya Po Terrace in Eugene, OR, reported that the former project administrator
authorized payment of $174,000 of Section 202 elderly housing funds. Most of the disbursements in
question appear to have been for the personal benefit of the former project administrator and
therefore are potential multifamily equity skimming violations.



U.S. DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT

OFFICE OF INSPECTOR GENERAL

SEMIANNUAL REPORT TO THE CONGRESS

For the Period Ending September 30, 1994

32nd Report to the Congress

As Required hy Public Law 95-452

hills)



TOTAL TOTAL

ISSUE QUESTIONED UNSUPPORTED FUNDS PUT TO
REPORT NUMBER DATE REPORT TITLE COSTS COSTS BETTER USE
94-SE-212-1006 04/13/94 Ya Po Ah Terrace, Multifamily Mortgagor Operations 146250 75252 0
94-SE-204-1007 07/22/94 Grandview Residents Council, Technical Assistance Grant, 0 0 0

Public Housing Resident Management Program
94-SE-201-1008 09/30/94 Comprehensive Improvement Assistance and Comprehensive Grant Programs 15552 0 0
94-SF-214-1007 04/25/94 Andrade Realty, Inc., Multifamily Management Agent 0 0 0
24 Audit Related Memoranda 0 0 0
COMMUNITY PLANNING AND DEVELOPMENT
94-AT-251-1014 04/11/94 Jefferson County Housing Authority, Section 8 Moderate Rehabilitation 0 0 0
Single Room Occupancy Program
94-AT-252-1016 04/18/94 Martin Luther King Jr Center for Non-Violent Social Change, Inc., 0 0 0
Indirect Cost Rate
94-AT-255-1018 05/18/94 Kentucky Housing Corporation, HOME Program 0 0 0
94-AT-243-1019 05/31/94 Town of Warsaw, Community Development Block Grant Program 0 0 0
94-AT-255-1023 08/08/94 HOME Programs i Birmingham, Mobile, and Montgomery, Alabama o 0 0
94-AT-251-1025 09/08/94 CARP of GA Inc., Support Housing Demonstration and Single Family 557328 557328 0
Property Disposition Homeless Initiative Programs

~~ 94-AT-251-1026 09/27/94 Puerto Rico Department of Housing, Section 8 Housing Assistance Program 2935109 2811731 0

94-CH-259-1023 05/18/94 Institution of Housing and Community Development, 21384 8209 0
Single Family Property Disposition Homeless Initiative

94-CH-241-1024 05/25/94 City of Saginaw, Community Development Block Grant Program, 565900 565900 0
Special Economic Development Activities

94-CH-256-1025 06/10/94 New Cities Community Development Corporation, Hope IIT 0 0 0
Implementation Grant

94-CH-256-1028 06/30/94 Columbus Housing Partnership, Inc., Hope II1 Implementation Grant 0 0 0

94-CH-256-1029 06/30/94 City of Indianapolis Hope III Implementation Grant 0 0 0

94-CH-259-1032 07/29/94 North Star Community Development Corporation, Technical Assistance 0 0 0
Grant Program

94-CH-255-1035 08/31/94 State of Wisconsin Home Program 0 0 0

94-CH-255-1037 09/22/94 Chicago Department of Housing, Home Program 123013 110148 0

94-FW-241-1007 04/06/94 Brownsville Community Development Block Grant Program 13461916 1272758 0

94-FW-241-1008 04/01/94 City of Abilene Community Development Block Grant Program 147762 147762 0

94-FW-256-1010 07/28/94 Tarrant County Housing Partnership, Inc., Hope III Implementation 0 0 0
Grant Program

94-FW-259-1012 08/15/94 Southern Dallas Development Corporation, Technical Assistance Grant 0 0 0

94-NY-251-1007 05/06/94 State of New York Emergency Shelter Grant Program 61656 32291 0

94-NY-243-1013 09/30/94 City of Auburn Community Development Block Grant Program 15137 0 0

94-NY-256-1014 09/28/94 Trenton 1992 Hope III Implementation Grant 0 0 0

94-PH-251-1010 05/11/94 Pennsylvania Department of Community Affairs, Permanent Housing 388154 352916 0
for Handicapped Homeless Persons

94-PH-259-1015 08/18/94 Urban League of Pittsburgh, Technical Assistance Grant 0 0 0

94-SF-241-1008 07/13/94 San Bernardino\County Community Development Block Grant Program 1434400 1434400 0
2 Audit Related Memoranda 0 0 0

>
ADMINISTRATION
94-A0-263-1003 06/02/94 National Fair Housing Alliance, Interim Cost Audit 38140 28366 t)
94-AO-263-1004 06/15/94 Strategic Resources, Inc., Interim Cost Audit 210762 209645 0



Chapter 1

PB Systemic
Management

Problems

Three systemic management problems continue to adversely impact HUD’s program performance
— management control environment, resource management, and data systems. Unless and until there
is significant improvement in these three critical areas, there can be no substantial improvement in

HUD’s program delivery and results.

In our Semiannual Report as of March 31, 1994, the OIG commended the HUD management team
on their grasp of the problems in these three areas and on their willingness to tackle the tough root
causes of the problems. At that point, plans had been formulated for:

© strategic management planning and reporting systems;

© streamlined operations and program structure;

© work and performance measurements and resource management tools; and
© improved staff development and automated data systems.

While these planning efforts laid the proper groundwork, little has been accomplished to date in
terms of actually correcting the problems. Some delay may reasonably be attributed to the magnitude
and complexity of the problems. However, the absence of strong leadership and consistent follow-
through has also been a factor.

The OIG’s assessment of HUD’s progress on its systemic problems is summarized in the
following chart and discussed in greater detail in the following sections.

Systemic Problems Progress Report
No General Detailed Notable Objective
Action Strategy Plans Implementation Improvement Met
Mgmt. Control
Environment

Resource
Management

Data
Systems

Management Control Environment

In our March 31, 1994 Semiannual Report to the Congress, the OIG was optimistic about
management's plans to improve its basic management control structure, but cautioned HUD ...fo stay
the course and devote increasing attention to melding the individual management improvement efforts
into a coherent, institutionalized framework. That caution is as relevant today as it was 6 months
ago. HUD has a continuing need for departmentwide leadership that will transcend the parochial
interests of program components and make the difficult policy, budget, and resource allocation



CHAPT!

Pr
tf yy = CHAPT'

Ue CHAPT!

F a CHAPT!

APPENDIX 1 —

APPENDIX 2 —

APPENDIX 3 —

Table of Contents

ER 1 SYSTEMIC MANAGEMENT PROBLEMS ............0.000 000s

River OPERATION WAPETHOME of. tic atehs ler ra teiaiatcdamtrea s. <u arocenal<
WIGKENT Mote) ence Ls kere ei rcte ds ares ake ee Me Cs Sects
FRAUD IN PUBLIC HOUSING ADMINISTRATION ........-..00.0.000%
IMULTIEAMILY "HOUITY SRIMMINGS Af ois. cay aientin gaa eng grist ee Pras f

ER 3. MAJOR PROGRAMMATIC ISSUE AREAS ............ ean Bis he
BYOROMUGTION (aio kirtersddleia sustitsuthe sss (5a ava) 5. Pa isis fe Chola ede evs
PROJECT-BASED ASSISTED MULTIFAMILY HOUSING ...........-....-
MULTIFAMILY PRESERVATION PROGRAM ....... Asia tre ant a Lt
PUBLIC HOUSING PROGRAMS ..................- PA eR APE TS
LEAD-BASED PAINT TESTING AND HAZARD

ABATEMENT PROGRAMS ............-.-0+-00505 ee a SO

ER 4 OTHER SIGNIFICANT AUDITS AND INVESTIGATIONS ................

JMETIBAMIGY SHOUSING PROGRAMS: oi 6 as See adhe eis st ee a
COMMUNITY PLANNING AND DEVELOPMENT .........-.0 00000 eee
RINANGIAL MANAGEMENT. G. x03.4.5ceje eh S.50e, Fun wad A ato dS be Pate ear whe
RENTAL ASSISTANCE as
SINGLE FAMILY HOUSING PROGRAMS .....-.-- 0000 severe eeeeee
PRONE IE PesSt ROMER Sh FoncSag eae ce ie oan. Gey A fo Uae ERO ENA aga 4

AUDIT REPORTS ISSUED

TABLE A-AUDIT REPORTS ISSUED PRIOR TO START OF PERIOD WITH
NO MANAGEMENT DECISIONS AT 9/30/94

TABLE B-SIGNIFICANT AUDIT REPORTS DESCRIBED IN PREVIOUS 8
SEMIANNUAL REPORTS WHERE FINAL ACTION HAS NoT BEEN
COMPLETED AS OF 9/30/94

TABLE C-INSPECTOR GENERAL ISSUED REPORTS WITH QUESTIONED
AND UNSUPPORTED Costs AT 9/30/94

TABLE D-INSPECTOR GENERAL ISSUED REPORTS WITH
RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE AT 9/30/94

PROFILE OF PERFORMANCE

15
15
15

mle
. 20

123



U.S. Department of Housing and Urban Development

Office of Inspector General
Washington, D.C. 20410-4500

November 1994
HUD-1502-IG “oma SevORTUMITY



September 30, 1994 33

A mortgagor in Atlanta, GA, was sentenced to 18 months in prison, 3 years supervised
release, and 400 hours of community service, and was ordered to pay nearly $606,000 in
restitution to HUD. The mortgagor submitted false employment information to obtain 18 FHA
insured mortgages worth over $1 million. All of the properties have gone into foreclosure, costing
HUD over $600,000.

A Washington, DC mortgagor was sentenced to 6 months community confinement, 3 years
probation, and 50 hours of community service for making false statements and aiding and abetting
the submission of false statements. A joint OIG/Postal Inspection Service investigation disclosed
that the mortgagor obtained two FHA insured mortgages and assumed another, all of which have
been foreclosed. The estimated losses to HUD are $250,000.

Following an FBI/OIG investigation, an individual in Rochester, NY, was sentenced to 18
months in prison, 3 months supervised release, and restitution of over $200,000, and ordered to
pay back taxes and a special assessment. In addition to credit card fraud and tax evasion, the
individual obtained nearly $130,000 in HUD insured mortgages using false names.

An individual in Indianapolis, IN, previously convicted of forgery and impersonating a HUD
official, received a 2-year suspended sentence, 2 years probation, and 100 hours of community
service. A joint investigation with the Indianapolis Police Department disclosed that the individual,
while posing as a HUD official, obtained varying amounts of money in a fraudulent "rent to buy"
scheme.

A former mortgage company president in Denver, CO, was indicted on false statement and
wire fraud charges. A joint FBI/OIG investigation disclosed that the individual fraudulently
obtained 12 FHA insured loans.

In St. Louis, MO, a $17.4 million civil suit was filed against First Union Mortgage
Corporation, formerly Cameron Brown Mortgage Company. The suit seeks to recover damages
and civil penalties arising from false statements and claims submitted to HUD. The suit alleges
that First Union knew that second deeds of trust executed by 43 investors/strawbuyers would be
forgiven at closing and the properties would be deeded back to the sellers.

A strawbuyer in Little Rock, AR, pled guilty after a joint investigation with the FBI
disclosed that the strawbuyer assumed approximately 25 single family mortgages and quit claimed
the properties to co-conspirators. Losses to HUD are in excess of $800,000.

A mortgagor in Chicago, IL, was sentenced to 8 months in prison after a joint investigatfon
with the Veterans Affairs OIG disclosed that the mortgagor, along with several other individuals,
fraudulently obtained mortgages on 10 properties, resulting in more than a $200,000 loss to HUD.

Equity skimming

An investor in Minneapolis, MN, who assumed more than 40 FHA mortgages on single
family properties, pled guilty after an FBI/OIG investigation. The multiple foreclosures resulted in
approximately $2.5 million in claim payments. Loss to the government amounted to $1 million.

As a result of an FBI/OIG investigation, a mortgagor in Chicago, IL, was sentenced for
submitting false statements to obtain several FHA insured loans. The mortgagor provided false

R



September 30, 1994 21

In May 1994, the Inspector General testified before the House Subcommittee on Housing and
Community Development, Committee on Banking, Finance and Urban Affairs, on HUD’s Public
Housing Programs, and more specifically, how the performance of the District of Columbia
Department of Public and Assisted Housing (DPAH) compares to that of other PHAs. The IG
testified that some large PHAs continue to experience serious management problems along with
extensive social and financial distress. Today, Public Housing Programs must meet not only the
housing needs of residents but social needs as well. Billions of dollars are needed for capital
improvements. HUD’s operating subsidies are increasing at a faster rate than operating receipts. An
inefficient operating subsidy delivery system is a contributing factor. Also, administrative
expenditures are increasing at a faster rate than maintenance expenditures. Increasing federal program
requirements are a factor, As a result, PHAs are becoming more dependent on federal operating
subsidies to meet their costs and less is being spent on repairing the housing stock. While the
severity of needed repairs ranges widely from easily corrected to major, in too many situations
residents live in units that threaten their health and safety. However, even when tenants move out
there is insufficient incentive to aggressively seek new occupants because, under current rules, HUD
continues to subsidize the vacant unit, with only a loss of the smaller tenant rental income on the
unit.

Over the years, real progress in overcoming long-term problems has been slow. However, HUD’s
many changes in its monitoring strategies and procedures have resulted in HUD’s knowing more
about the conditions and causes of problems at troubled PHAs. It is now evident that each PHA has
its own unique set of wide-ranging and major concerns involving administrative, management, and
social matters. Thus, many PHAs remain on the troubled list for years -- despite program-wide
initiatives to address the problems.

Recently, HUD has stepped up its pace of intervention and has attempted to make local
government more accountable for turning things around. While it is too soon to tell whether this
strategy will result in meaningful, long-term changes, there are indications that positive actions are
being taken in the short term. In addition, PIH management has taken aggressive steps to
Significantly reduce the patchwork of federal laws and regulations that hinders rather than encourages
management improvements.

Major Housing Authority

Audits This Period f
The OIG audit of the Housing Authority of New Orleans (Report No. 94-FW-201-1005),

designated a financially troubled agency by HUD in 1979, found that the Authority and its
management contractor did not effectively manage its activities. Operations, funded by HUD at $60.5
million in 1993, were inefficient, ineffective and uneconomical; units were not decent, safe and
sanitary and there was not an effective and economical maintenance operation to provide such units;
projects did not comply with HUD modernization standards; purchases were not always fairly and
teasonably priced; and the commitment, leadership, and management initiatives needed to provide a
safe environment for residents were not evident.

The impact of the mismanagement is tremendous. Poor maintenance led to increased insurance
claims, pushing the potential liability to $40 million and threatening receivership. The Authority

vv



REPORT NUMBER

TOTAL
QUESTIONED
REPORT TITLE COSTS

TOTAL
UNSUPPORTED
COSTS

FUNDS PUT TO
BETTER USE

94-CH-262-1022 04/25/94
94-NY-262-1006 04/06/94

94-AO-272-1005 08/30/94

Residential Care for Developmentally Disabled, Inc., Advisory
Report on Final Costs

New York City Partnership, Inc., Advisory Report on Final Costs
1 Audit Related Memoranda

MISCELLANEOUS

National Center for Lead-Safe Housing, Interim Cost Audit 260349

240979



20 IG Semiannual Report

The OIG’s April 1994 audit also pointed out that establishing a partnership with state and local
housing agencies would greatly enhance HUD’s ability to implement the cost saving options
recommended.

The Congress, HUD and property owners recognize the need to make the program more cost
efficient. HUD recently formed a work group consisting of HUD staff, property owners and resident
representatives to develop and evaluate potential legislative and administrative changes to the
program. In addition, the Assistant Secretary for Housing/Federal Housing Commissioner agreed to
pursue legislative changes, stating that his office would consider the audit recommendations, along .
with changes developed by the work group.

Related Solutions

Similar actions are needed to better address troubled assisted multifamily housing projects, as well
as the costly preservation of projects eligible for prepayment. In both instances, HUD needs greater
program flexibility to pursue the least costly alternative for providing decent, safe and sanitary
housing to project residents. Sufficient flexibility would be provided if the Congress were to act on
the proposals discussed in the above two sections titled "Actions to Address the Risks."

In determining the most advantageous means of continuing to house existing subsidized tenants,
HUD will need to conduct a project by project analysis, which considers not only the project’s
physical and financial condition, but also the housing market and social conditions of the community,
too. To the extent that HUD does not have the capacity to perform such analyses, contracting for
adequate capacity should be considered. The cost of the analytical effort should be more than offset
by program savings to taxpayers, and improved program service to low-income residents.

During the next 5 years, nearly 12,000 project-based subsidy contracts will expire. This presents a
rare Opportunity to determine if there are other, preferable subsidy contract arrangements or
alternatives to providing decent, safe and sanitary housing for tenants in existing projects. The House
Subcommittee on Employment, Housing and Aviation, Committee on Government Operations, has
proposed holding a summit meeting in December 1994 with House and Senate members, OIG, GAO,
HUD and various tenant and owner groups to analyze alternative actions for continuing to house low-
income people residing in project-based assisted housing.

Public Housing

Programs ti

The Risks

Although most public housing agencies and their employees manage their programs well, over the
past decade the OIG has reported a pattern of serious operating and management problems at many
large urban public housing agencies (PHAs). The reports disclosed deteriorating living conditions
coupled with rampant spending, uncollected rents, and virtually nonexistent cash management and
control practices. OIG audits during this semiannual reporting period found some improvements in
the administration of Public Housing Programs, notably the Office of Public and Indian Housing’s
new approach to PHA oversight. However, long-standing and pervasive management problems
remain, which will take years to overcome.

Ce



OIG Mission Statement and Values

The OIG’s mission is independent and objective reporting to
the Secretary and the Congress for the purpose of bringing
about positive change in the integrity, efficiency, and
effectiveness of HUD operations.

OIG values are as follows:

° Relationships among OIG components and staff are
characterized by teamwork and respect.

° Diversity is valued and promoted in the workforce.

o Excellence in the workforce is fostered through
continuing concern for professionalism and career

development.

o As a general rule, emphasis is placed on "doing" rather
than reviewing, by delegating operational authority,
responsibility, and accountability to the lowest
appropriate level.

© Identifying and meeting client needs in a timely fashion
is a primary concern. Clients are defined as the
Secretary, the Congress, HUD managers and employees,
and the public.

process and rely on innovative as well as traditional
methods to address issues of significance having
potential payback in terms of improved integrity,
effectiveness, and efficiency.

© OIG operations are focused on substance rather than | |



September 30, 1994 11

Combatting Fraud in Public
Housing Administration

The Operation Safe Home strategy in this area entails:

* a joint OIG, Federal Bureau of Investigation (FBI), and DOJ commitment to aggressively
investigate and prosecute alleged theft, misuse, or diversion of public housing funds; and

* anew program of probes by OIG audit/investigative teams to identify additional cases of
potential fraud for further investigation by the OIG and the FBI.

Since the announcement of Operation Safe Home on February 4, 1994, the OIG/FBI/DOJ
commitment to investigate and prosecute fraud in public housing administration has resulted in 45
indictments, 22 pleas/convictions, and sentences that include 49 months of incarceration and
fines/restitutions totalling in excess of $175,000.

In addition, under Operation Safe Home, teams of OIG auditors and investigators conducted fraud
probes at 19 housing authorities. These probes were targeted to specific, high risk housing authority
administrative operations; relied heavily on interviews to obtain information; were completed within
5-6 weeks each; and resulted in referrals for further investigation, rather than official reports.

The 19 probes resulted in 8 referrals for further investigation, and had the additional benefit of
enabling a broader OIG presence in housing authorities throughout the country. The OIG is currently
revising its housing authority selection criteria and internal operating procedures to enhance the
efficiency and effectiveness of the additional six probes planned for completion by June 30, 1995.

Prosecutions of Fraud
in Public Housing Administration

The following examples illustrate the actions that resulted this reporting period from the
OIG/FBI/DOJ commitment to aggressively investigate and prosecute fraud in public housing
administration. These totalled 34 indictments, 18 pleas/convictions, and fines/restitution totalling in
excess of $170,000.

In New York, NY, three individuals with organized crime affiliations pled guilty in federal
court to participating in a fraudulent scheme which included bid rigging to obtain lucrative
window installation contracts let by the New York City Housing Authority.

In Baltimore, MD, one housing authority employee was sentenced and another pled guifiy in
connection with their involvement in accepting bribes from contractors in exchange for awarding
renovation contracts. ‘Two of the contractors were also charged with paying bribes.

A contractor in Miami, FL, was convicted of submitting inflated invoices totalling $26,000 in
connection with public housing renovation work. A public building inspector was also convicted
for grand jury tampering in connection with this matter.

The former public housing Section 8 coordinator in Rock Falls, IL, pled guilty to stealing
$69,000 in federal funds by creating fictitious Section 8 landlords and housing assistance
contracts. -



HUD HOTLINE

ae the Hotline helps ensure your tax dollars are used
efficiently and effectively and benefit only those in need.

Call the Hotline to:
REPORT suspected fraud, waste, or mismanagement
or SUGGEST improvements in HUD
programs and operations

Send written information to the HUD Hotline
Room 8270, 451 7th Street S.W.
Washington, DC 20410-4500

All information is confidential and you may remain anonymous.

——

Call toll free 1-800-347-3735
in the Washington D.C. area 202-708-4200
by TDD (202) 708-2451



IG Semiannual Report

Investigation activities resulted in the following:

The former director of the Office of Community Improvement and an architect in Lincoln
Park, MI, were convicted of making false statements. A joint FBI/OIG investigation disclosed
that the individuals received $250,000 in federal funds after falsely claiming that they had incurred
certain expenses.

An excavating and grading company in Granite City, IL, was ordered to pay $51,400 in
fines and assessments after admitting to falsifying records that stated a minority contractor was
being used on the project.

The former commissioner of the Yonkers, NY Planning and Development Department was
sentenced to 46 months in federal prison. The commissioner was previously convicted for using
his office to solicit and extort payment from persons seeking to do business with his office or to
obtain CDBG funds. This was a joint FBI/OIG investigation.

HUD filed a civil complaint against a landlord in Brooklyn, NY, under the Program Fraud
Civil Remedies Act. The landlord submitted fraudulent property appraisal letters from nonexistent
real estate companies as part of an application for a $230,000 Section 312 loan.

CDBG Material

Weakness Closed

The Secretary’s Management Report on Material Weaknesses identified two control weaknesses in
the monitoring of the State/Small Cities CDBG Program: lack of timely written guidance or technical
assistance; and inadequate monitoring of compliance by grant recipients. An OIG review (Report No.
94-AO-142-0805) disclosed that corrective actions were completed. The only action remaining is for
the Assistant Secretary for Community Planning and Development to issue economic development
regulations to incorporate the 1992 amendments to Title I of the Housing and Community
Development Act and revise the monitoring handbook to reflect policy changes. Therefore, the OIG
is recommending the material weakness be considered closed.

Financial Management

FHA Financial Statements

The OIG issued the results of Price Waterhouse’s audit of FHA’s financial statements for the
year ended September 30, 1993 (Report No. 94-FO-131-0002). OIG concurs with Price
Waterhouse’s opinion that the financial statements present fairly FHA’s financial position and results
of its operations and cash flows in conformity with generally accepted accounting principles. For FY
1993, FHA operations resulted in an excess of revenue over expenses of $1.6 billion. This is
attributable to a $1.6 billion decrease in the multifamily loss reserves for the fiscal year, which was
recorded as a credit in the statement of operations.

Price Waterhouse’s report on internal controls included the same five reportable conditions
disclosed in the prior year’s audit, the first four of which are classified as material weaknesses. The
reportable conditions are:

R



September 30, 1994 29

HUD must implement its plan to mitigate resource shortages and periodically assess the
plan’s effectiveness. Because HUD has been unable to obtain the necessary levels of additional
staff and fund resources to properly manage the FHA programs as currently designed, HUD has
begun to examine alternatives to restructure FHA’s programs and operations so as to curtail or
eliminate staff-intensive activities and free-up staff to concentrate on the more critical functions.
However, if after significant implementation of the action plan, it is found that problems in loan
servicing and risk management persist, then HUD may have to consider structural changes.

Insured mortgage servicing must place more emphasis on early warning and loss prevention.
By monitoring both those who endorse FHA mortgage insurance and borrowers, HUD would
prevent note assignments and property conveyances and ease FHA staff burden when excessive
numbers of mortgages and properties must be managed, serviced and sold. Although these efforts
must be made in both the multifamily and single family areas, the potential losses are greater in
the multifamily area.

FHA must promptly resolve the growing number of Secretary-held multifamily and single
family mortgages. Selling a considerable portion of the Secretary-held mortgage note portfolios
would be a positive step in reducing the workload for field office staff and allow them to
concentrate on monitoring the financial and operational health of the insured portfolio.

Continued emphasis must be placed on improving accounting and financial management
systems. Financial statement information on a program by program and regional basis will greatly
improve the ability of management to identify those programs which are performing outside
expected norms.

FHA must perform a complete review of the security and processing controls for all
computer systems. Internal controls surrounding access to computer systems, and key input and
processing controls surrounding them, are not adequate to provide reasonable assurance that
funds, property and assets are safeguarded and assets, liabilities, revenues and expenses are
properly recorded and accounted for to permit preparation of reliable financial reports and
maintain accountability over FHA assets.

The report on compliance with laws and regulations disclosed noncompliance with the financial
reporting requirements of the Credit Reform Act, resulting in the credit reform "liquidating account"
being overstated and the "financing account" being understated by $500 million.

While FHA has taken certain actions to address recommendations made in audit reports on prior
years’ financial statements, corrective actions are not complete. t

HUD Consolidated
Financial Statements

The OIG issued the results of Price Waterhouse’s audit of HUD’s consolidated financial
statements for the year ended September 30, 1993 (Report No. 94-FO-177-0003). Price Waterhouse
was unable to express an opinion on HUD’s consolidated financial statements and their disclaimer of
opinion also applies to HUD’s consolidating statements. The auditors noted that HUD, in its
December 1993 Report on Compliance with the Federal Managers’ Financial Integrity Act, stated

R



TABLE C INSPECTOR GENERAL ISSUED REPORTS WITH QUESTIONED AND UNSUPPORTED COSTS
AT 9/30/94

(Dollars in Thousands)

Unsupported
Costs

For which no management decision had been made by the commencement of the reporting period $51,791 $34,336

For which litigation, legislation or investigation was pending at the commencement of the reporting period 33,457 22,018

For which additional costs were added to reports in beginning inventory 1,077

For which costs were added to non-cost reports 357

Which were issued during the reporting period

Which were reopened during the reporting period

Subtotals (A+B) $118,196 $74,459

For which a management decision was made during the reporting period : 57,065 42,361

0) Dollar value of disallowed costs:
. Due HUD > 2,301 285
. Due Program Participants 20,550 11,015

Q) Dollar value of costs not disallowed 34,214 31,061

For which management decision had been made not to determine costs until completion of litigation, legislation, or investigation 27,854 9,858

For which no management decision had been made by the end of the reporting period $33,277 $22,240
($21,355) ($14,683)

* 6 audit reports also contain recommendations that funds be put to better use

2 3 audit reports also contain recommendations with funds due program participants.

17 audit reports also contain recommendations with funds agreed to by management

* The figures in brackets represent data at the recommendation level as compared to the report level. See Table D for an explanation.



September 30, 1994 17

be evaluated as access was denied. In March 1994, the owners transferred the property to HUD as
part of a bankruptcy settlement.

Actions to Address
the Risks

HUD is taking positive steps to improve its management and enforcement performance. However,
most of these actions are long-term in nature, requiring a sustained commitment to staffing and
systems development, and improved portfolio management. The OIG believes HUD needs to move
aggressively now to lay a foundation for decisions about the future of project-based assisted projects.
In our judgment, that foundation must begin with comprehensive analysis of each project that enables
logical conclusions about potential alternatives.

The July 1994 testimony before the House Subcommittee on Employment, Housing and Aviation,
Committee on Government Operations, led to the introduction of H.R. 5115, the Section 8 Project-
Based Program Management Improvement Act of 1994. This bill would require HUD to identify all
troubled Section 8 project-based projects and perform complete financial and social impact analyses.
The OIG strongly supports enactment of this type of legislation.

To assist in this process, the OIG Office in Seattle, at the request of the Subcommittee, performed
financial analyses of two troubled projects — Holiday Lake Apartments in Pompano Beach, FL, and
Sierra Nevada Arms in Las Vegas, NV. The analyses were performed to determine whether it would
be more cost effective to provide Section 8 tenant-based vouchers to all residents in the projects, or
to rehabilitate the projects with borrowed funds and provide Section 8 project-based assistance to all
units in the properties to cover the cost of the rehabilitation. As reported at a recent Subcommittee
hearing, OIG analyses showed that the rehabilitation option is less expensive than the voucher option
for both projects, but the Inspector General cautioned that each individual project would have to be
reviewed on its own merit for these kinds of decisions to be made. In this regard, the OIG is
planning to assist HUD in the development of a model to use in evaluating troubled projects.

Legislative action is also necessary to enable HUD to implement reasoned decisions that are in the
best interests of the residents as well as the federal government. For instance, the OIG supports the
provisions of H.R. 5115 that would permit HUD to recapture Section 8 funds for reuse as vouchers
and certificates; repeal a prohibition on lowering Section 8 rents; require HUD to develop regulations
on conducting comparability reviews; and allow HUD to switch between applying two different

methods for determining rent increases when refinancing.
f

Multifamily Preservation
Program
The Risks

Because of the anticipated high cost of preserving affordable housing, the OIG is looking closely
at the Multifamily Preservation Program under the Emergency Low-Income Housing Preservation
Act of 1987 and the Low-Income Housing Preservation and Resident Homeownership Act of 1990.
The Inspector General recently testified before the Subcommittee on Employment, Housing and
Aviation of the House Committee of Government Operations that the program is an emerging

iw



Profile of Performance
APRIL 1, 1994 THROUGH SEPTEMBER 30, 1994 APPENDIX 3

| Investigation
Audit 5 Combined FY 1994
; Monitored Total Total
OIG/Joint Cases ' Total
Cases

Cash Recoveries $14,125,214 $2,108,888 $2,108,888 | $16,234,102 $34,817,150
Other Recoveries 95,843 95,843 95,843 24,166,003
Court Ordered Restitution 5,031,125 $10,949 5,042,074 5,042,074 9,356,007
PFCRA Recoveries 2,400 2,400 2,400 648,609

Total Cash Recoveries $14,125,214 $7,238,256 $10,949 $7,249,205 $21,374,419 $168,987,769
Cost Efficiencies $868,065 | $868,065 $7,586,331
Commitments to Recover $24,202,006 $173,673 $173,673 || $24,375,679 $70,763,094
Funds
Cost Efficiencies Sustained $2,269,420 $2,269,420 $9,300,459
Fines Levied $101,333 $5,200 $106,533 $106,533 $5,721,817
Indictments 454 5 459° 459 705
Convictions 151 14 165° 165 387
Total Years Suspended 14/349 0/12 14/361 14/361 35/753
Sentences/Probation
Total Years Prison Sentences 109 10 119 119 545
Administrative Actions Against 20 59 15 74 94 330
Persons/Firms Doing Business
with HUD
Subpoenas Served 3 27 | 59 86 145

' Cases where HUD/OIG is monitoring the investigation but has no active participation.
2 290 indictments and 5 convictions resulted from Operation Safe Home.



established a special office to work with PHA staff, local
governments, and residents to establish performance
standards and other measures for improvement in troubled
PHAs. Already the number of very large PHAs on the troubled
list has been reduced; in fact, ten PHAs have been taken off
this list since early 1993. Second, the Department has
developed a series of initiatives to accelerate the
demolition of the worst public housing inventory. Third,
the Department has proposed and will continue to pursue
various legislative measures to deregulate PHAs, revise
standards for admission to public housing, relieve
restrictions governing replacement housing, reform rent
provisions, and use modernization funds for replacement
housing. Many of these have been recommended by the IG.

Lead-based paint. The IG’s report details earlier findings
of fraud in the testing of lead-based paint in public
housing. The Department has enlisted the assistance of the
Army Corps of Engineers to undertake a comprehensive review
of the quality of public housing lead-based paint testing to
date. In addition, the Center for Lead-Safe Housing has
recently completed a random sampling of lead paint
inspections. The findings and recommendations of these
analyses will be used to ensure that lead-based paint
testing in public housing is accurate and reliable.

The Semiannual Report also reviews progress that has been
made on the Inspector General’s Operation Safe Home initiative.
Operation Safe Home has been a targeted and focused effort that
has made a significant difference on three fronts: addressing
crime in public housing, combatting fraud in public housing, and
tough enforcement against equity skimming in multifamily housing.

Through significant management reform, we are rebuilding our
capacity to serve communities. HUD began this reinvention
process by changing our organization structure and instituting
new systems to assure performance accountability. I look forward
to continuing to make significant changes and improvements in
HUD’s ability to serve our clients.

Sincerely,

t

Henry G./Cisneros



EXTERNAL REPORTS ISSUED

TOTAL TOTAL

ISSUE QUESTIONED UNSUPPORTED FUNDS PUT TO
REPORT NUMBER DATE REPORT TITLE costs COSTS BETTER USE

HOUSING

94-AO-209-1002 04/29/94 Memphis Housing Authority, Lead-Based Paint Activities 0 0 0
94-AT-212-1015 04/15/94 Hospital Hermanos Melendez, Inc., Mortgagor Operations 12056252 3872494 1144542
94-AT-203-1017 04/28/94 North Carolina Housing Finance Agency: Section 8, Hope 3, 403505 i} 142321
and Homeless Programs
94-AT-201-1020 06/29/94 Rocky Mount Residential Management Council, Inc., Technical ti) 0 i)
Assistance Grant
94-AT-201-1021 08/03/94 Corporation for Enterprise Development, Technical Assistance Grant o
94-AT-203-1022 08/04/94 Housing Authority of the City of Macon, Section 8 23924
Recertification Inspections
94-AT-219-1024 08/25/94 Other Fees Claimed by General Contractor, Meadow Terrace and 706785
Greenwood Park Apartments
94-BO-212-1008 05/11/94 Cochituate Homes, Multifamily Project Operations 0
94-BO-214-1009 07/25/94 TFG Management Company, Inc., Management Agent 0
94-CH-201-1021 04/08/94 Akron Metropolitan Housing Authority, Low-Income Housing and Section 8 0
Voucher and Certificate Programs
94-CH-201-1026 06/17/94 Laurel Homes Resident Management Corporation, Technical Assistance Grant 0
94-CH-202-1027 06/24/94 Luna Pier Housing Commission, Safeguarding Monetary Assets and Inventory 0
94-CH-214-1030 07/08/94 United Church Homes, Inc., Management Agent 35044
94-CH-214-1031 07/08/94 Hartman and Tyner, Inc., Multifamily Mortgage Insurance Program 2038176 2038176
94-CH-214-1033 08/18/94 Quality Quaker Management, Inc., Multifamily Mortgagor Operations 15290 0
94-CH-202-1034 08/24/94 Alexander County Housing Authority, Comprehensive Review 7469 0
94-CH-202-1036 09/09/94 East Tawas Housing Commission, Safeguarding Monetary Assets and Inventory 23842
94-DE-212-1002 06/10/94 Villa West Apartments - Moderate Rehabilitation Housing Program 0 0
94-DE-202-1003 08/25/94 Fort Berthold Housing Authority 0 i‘)
94-DE-202-1004 09/21/94 Salt Lake County Housing Authority, Survey of Comprehensive Grant and ) 0
Comprehensive Improvement Assistance Programs
94-FW-201-1005 06/29/94 New Orleans Housing Authority, Public Housing Operations 4769820 3308060
94-FW-212-1009 05/03/94 Inverness Apartments, Multifamily Mortgagor Operations 312812 i)
94-FW-202-1011 08/15/94 Mercedes Housing Authority, Personnel Practices, Maintenance 91270 86374
and Drug Elimination Grant
94-NY-214-1008 06/17/94 Westbeth Development Fund Corporation, Inc., Mertgagor Operations QO 0
94-NY-212-1009 07/07/94 Carriage House Manor, Inc., Multifamily Mortgagor Operations 211459 0
94-NY-201-1010 08/29/94 Schenectady Municipal Housing Authority, Technical Assistance Grant i) 0
94-NY-212-1011 09/23/94 Michael Walsh Homes Development Fund Company, Inc., Multifamily 165364 113014
Project Operations
94-NY-202-1012 09/29/94 Utica Housing Authority, Low-Rent Housing and Section 8 Programs 0 0
94-PH-212-1011 06/20/94 Summertree Apartments, Multifamily Mortgagor Operations 50773 i)
94-PH-204-1012 07/26/94 Ida Barbour Tenant Council, Technical Assistance Grant 7957 7957
94-PH-204-1013 08/11/94 Roberts Village Resident Management Corporation, Technical 2986 2986
Assistance Grant
94-PH-212-1014 08/15/94 Neshaminy Woods Apartments, Multifamily Mortgagor Operations 137127 23426
94-PH-201-1016 09/23/94 Housing Authority of Baltimore City, Public Housing Activities 954913 216426
94-PH-212-1017 09/26/94 LCL Management Company, Multifamily Management Agent 1067758 115369
94-PH-204-1018 09/30/94 McKeesport Housing Authority, Selected Management Operations 167975 103214

0
tt)



IG Semiannual Report

information to strawbuyers in connection with 16 properties, and then skimmed nearly $300,000
in rents from the properties. He was sentenced to 5 years probation, 300 hours of community
service and restitution of $8,000.

A real estate agent in Norfolk, VA, was sentenced to 52 months in prison and 3 years of
supervised release after pleading guilty to single family equity skimming. A mortgage loan officer
was also sentenced to 21 months in prison, 3 years probation and restitution of $5,000. The
individuals assumed delinquent FHA and VA mortgages under fictitious names and collected and
deposited rents into checking accounts opened under assumed names. Losses to the government
exceed $200,000.

Following a joint FBI/OIG investigation, an investor in Minneapolis, MN, pled guilty to
single family equity skimming charges and was sentenced to 3 years probation and 6 months
confinement in a community correction center. The potential loss to HUD is $175,000.

Homeless Programs

During this reporting period, OIG audits focused on program administration in the Supportive
Housing Demonstration Program and the Permanent Housing for Handicapped Homeless Persons
Program. Audits disclosed deficiencies in program administration that led to ineligible subsidies and a
lack of services to some homeless individuals and families.

The Comprehensive Addiction Rehabilitation Program of Decatur, GA (Report No. 94-AT-251-
1025), did not effectively manage its programs. An OIG audit disclosed that the organization
provided only about 34 percent of its planned services to the homeless, and in effect, drew over
$557,000 in excess Supportive Housing Demonstration grant funds. The organization misclassified
many of its clients as homeless, and did not monitor the transition of the homeless to permanent
housing. In addition, because of its poor accounting system and lack of monitoring, the organization
could not provide accurate financial and activity reports.

An audit of the Permanent Housing for Handicapped Homeless Persons Program, as administered
by the Pennsylvania Department of Community Affairs, Harrisburg, PA (Report No. 94-PH-251-
1010), revealed that the grantee did not effectively manage its program. Because the subgrantees did
not ensure contract costs were reasonable or grant funds were adequately matched, over $352,000 of
program expenditures were unsupported and the subgrantees accepted unqualified residents, charged
excessive rents and received ineligible subsidies. According to the grantee, it could not provide the
required subgrantee monitoring and reporting to HUD.



IG Semiannual Report

It is critical that HUD:

* complete the field reorganization and streamline and reorganize headquarters operations to
support field operations and free resources for effective program delivery;

complete systems to provide management information on workload and resource capacity,
utilization and cost;

ensure existing staff resources have the requisite knowledge and skills to perform critical
program functions; and

establish interim resource utilization strategies while pursuing longer term program and resource
management improvement strategies.

While it is widely accepted that HUD has insufficient resources to effectively administer its
programs as currently structured, it is also clear that available resources could be better utilized.

Data Systems

While HUD has made some progress in the data systems area, the major business areas still lack
adequate automated data systems support.

On the positive side, HUD has focused on improving the systems development budget allocation
and project planning and management processes. Control over specific systems and systems
development has been placed with program heads. In addition, financial systems funding is withheld
from projects unless an Information Strategy Planning (ISP) process has been completed. Also, it is
encouraging that HUD recently met many of its milestones on certain active development projects,
such as the administrative accounting system and PIH’s Section 8 systems project. However, this
same type of commitment is needed to make real progress in planning and fulfilling HUD’s many
other program accounting and business system applications needs. Systems budget support is also
needed from OMB and the Congress.

The OIG commends HUD’s recent efforts to model the best information management practices
from private industry, as assessed by the General Accounting Office. In particular, the attempt to
manage information systems projects as investments is a step in the right direction. A Technology
Investment Board (TIB) was created to recommend resource allocations for future technology
investments in information systems. However, the Board’s attempt to develop recommendations for
FY 95 was flawed because individual program officials naturally represented and fought for their
own needs, and there was a lack of consistent, substantive input for decision making. Stronger
leadership by the Chairperson of the TIB is needed to guide the TIB in establishing and adhering to a
more rigorous methodology for resource allocation, with a focus centered on the Department as .
whole, rather than individual program areas.

Stronger TIB leadership is also needed to focus senior management on the strategic use of
information, to bridge the differing perspectives of top management, line users, and the Office of
Information Policies and Systems (IPS). Problems in defining information needs have been evidenced
in HUD’s major systems integration projects, as depicted in the following progress chart and
discussion below:

Los



Explanation of Tables C and D

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

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



IG Semiannual Report

for IBS will be slowed because of a severe budget reduction in FY 95. IBS and HUDCAPS
must be closely coordinated in order to avoid duplication and inefficiency since the systems
will eventually merge. Whenever possible, IBS should rely on the functions already
developed under HUDCAPS.

* The Office of Community Planning and Development is developing the Integrated
Disbursement and Information System (IDIS) to support its major programs. However,
CPD’s plans do not include options based on funding and staffing levels. Over the years,
funding for CPD systems has not been level. Also, the milestones for task completion were
not based on an evaluation of resource availability.

¢ The agency and administrative accounting projects have been combined into one overall
accounting project and the software to support the accounting functions has been successfully
installed on the HUD standard computer system. However, much work remains. The
administrative accounting component is operational, but existing program accounting systems,
representing the bulk of the accounting operations, need to be converted.

HUD continues to face funding shortfalls for data systems infrastructure. Supporting HUD’s
current and planned automated systems is a vast array of mainframe computers, PC computers,
telecommunication networks, and technical support functions. Sufficient hardware and software
support is required to insure that HUD’s systems are able to perform their desired tasks. HUD
allocated almost $145 million for systems operations and information technology for FY 1995. While
this included $11 million to upgrade workstations and LANs to support new integrated financial
management systems, over $27 million of identified strategic investments in equipment and system
support improvements could not be funded.

HUD needs to plan software maintenance based on current and projected resource requirements.
The Department has neither defined the activities that constitute software maintenance, nor
established an adequate system to track maintenance costs. Thus, scarce resources cannot be allocated
on a firm, defensible basis.

The need remains for a strong focal point, with a broad perspective and sufficient technical
expertise to make and enforce decisions on systems needs departmentwide. There is also a need to
hold program management and technical support accountable for satisfactorily completing systems
development projects.



Progress on these fronts, particularly the Management
Committee, has proven invaluable in the face of serious cuts and
shortfalls in HUD’s FY 1995 salaries and expenses budget. In
prior years such cuts and shortfalls were addressed by simply
paring back funding for systems development/maintenance and
training. This fiscal year the Management Committee decided that
savings would be achieved through hard choices -- attrition,
hiring freezes and cuts in other staff-related accounts. That
action is a clear sign of the change in management culture that
has taken hold in the past two years.

In addition, the Department has made substantial strides in
issues related to resource management deficiencies. We have
developed analytical tools which will help the Department to
manage the panoply of human, technological, financial, and other
resources. These tools have already been utilized in planning
the HUD field reorganization and in areas of process redesign,
cost-benefit analysis, workload measurement and staffing
redeployment. Process redesign initiatives are underway in at
least five offices in HUD, including the Office of Fair Housing
and Equal Opportunity, whose efforts were recently awarded with a
"Hammer Award" from the National Performance Review and President
Clinton for innovative business redesign initiatives.

In the program arena, the Inspector General highlights four
program areas of concern.

e Section 8 project-based assistance: The IG’s report finds
that a significant number of assisted housing properties are
neglected by their owners and are in substandard condition.
I agree with this assessment, having personally visited many
such properties in the past two years. The Department has
adopted an aggressive strategy that: takes stronger measures
against corruption and fraud; reduces subsidy costs;
establishes SWAT teams to address troubled projects; finds
new owners where necessary, repairs properties and engages
residents. This strategy will ultimately result in the
workout and restructuring of our assisted portfolio.

Multifamily Housing Preservation: The IG’s report finds that
the flawed design and implementation of the multifamily
preservation program adopted by Congress in 1990 has
resulted in excessive costs to the federal government. I
agree with this assessment. The Department has developed a
more cost-efficient program for preserving the housing
stock. Legislative revisions will be proposed in the new
year.

Troubled Public Housing Authorities (PHAs). The IG’s report
provides additional information on the persistent management
deficiencies in a number of large PHAs, so-called "troubled
PHAs." The Department has taken a series of steps to
address the management problems at these agencies and
improve the living conditions of residents. First, HUD has



September 30, 1994 27

to transfer. Three of four occupied units had health and safety violations, and families were not
required to certify that they intended to occupy units as a principal residence. In addition, the
Partnership sold a home to an ineligible buyer, drew down excess administrative costs, and may not
assure matching non-federal funds are provided within timeframes established in the grant agreement.

The Tarrant County, TX Housing Partnership and its subrecipient, the City of Ft. Worth (Report
No. 94-FW-256-1010), transferred only 45 of the 175 planned properties although it was also 75
percent through the grant period. The Partnership may be in default of its grant agreement, and if
performance does not improve, will deny low-income families the opportunity to become
homeowners. If the Partnership does not meet an acceptable completion schedule, HUD should
terminate or reduce the HOPE 3 grants.

The City of Trenton, NJ, planned to transfer 40 properties to eligible families, but just 2 months
short of the end of the grant had transferred none (Report No. 94-NY-256-1014). The City plans to
request a 1-year extension that should allow 26 properties to be transferred. However, environmental
clearances — the problem that has delayed the project so far — have not been obtained for the
remaining 14 properties,

Use of CDBG Funds

Instances of misspent Community Development Block Grant (CDBG) funds have been repeatedly
reported in past Semiannual Reports to the Congress. Successful prosecutions of those defrauding the
program have also been reported. The following represent results during this period.

An OIG audit disclosed that for 3 years San Bernardino County, CA, rehabilitated fewer than
100 single family housing units even though its Comprehensive Housing Affordability Strategy stated
there were over 9,800 in need of rehabilitation (Report No. 94-SF-241-1008). The County also could
not support that $1.4 million spent for job creation and retention activities primarily benefitted low-
and moderate-income persons. In addition, about $615,000 in CDBG funds were spent for repairs but
the repairs were either not performed, incomplete, incorrect, or too costly, and $347,000 in loans
was awarded for the rehabilitation of houses where the work, in some cases, did not meet required
inspection standards. Also, special grant funds of $486,000, approved in October 1990 to relocate
and expand a domestic violence shelter, have remained undisbursed for more than 3 years.

In Brownsville, TX (Report No. 94-FW-241-1007), documentation to support $1.3 million in
CDBG funds for eligible activities could not be provided. The City did not adequately monitor
subrecipient activities or supervise work done by code inspectors, and used CDBG funds for local
government building costs.

A subrecipient in Saginaw, MI (Report No. 94-CH-241-1024), was not monitored to assure it
properly funded loans, determined that a national CDBG Program objective was met, and pursued
collections on delinquent loans. As a result, loans totaling $566,000 may not have met program
eligibility requirements, and HUD had no assurance that the loans did not unduly enrich for-profit
businesses.

R



September 30, 1994 15

Chapter 3
Major
Programmatic
Issue Areas

The OIG focused significant resources this reporting period on four major programmatic areas:
Section 8 project-based assisted multifamily housing; the multifamily preservation program; large
troubled public housing agencies; and the lead-based paint testing program.

Project-Based Assisted
Multifamily Housing
The Risks

In July 1994, the Inspector General testified before the House Subcommittee on Employment,
Housing and Aviation, Committee on Government Operations, that, while the majority of Section 8
assisted multifamily housing stock is relatively trouble free and of good quality, a disturbing number
of projects are neglected by their owners. Tenants, with their rent subsidies tied to these projects, are
essentially trapped in deplorable living conditions and HUD’s risk for significant financial loss is
enormous. That risk is evident first by rents at many HUD assisted projects that are significantly
higher than those for comparable unassisted units, and second, by the tremendous losses HUD’s
insurance funds absorb when deteriorated projects default.

To put the financial risk in perspective, over 20,000 properties housing about 1.5 million families
are currently receiving Section 8 project-based assistance. The estimated cash outlays for fiscal years
1993 and 1994 were about $4.3 billion annually. Additional tens of billions of dollars are provided to
owners and syndicators through tax shelters and tax credits. Notwithstanding these tremendous
outlays, OIG audits consistently report that substandard units continue to be subsidized because HUD
does not enforce its contracts or recover misspent funds to improve project and tenant conditions. A
recent HUD study of 10,000 HUD subsidized projects estimated the cost of physical improvements at
about $1.1 billion, whereas cash reserves for repairs totalled only $145 million. t

These troubled projects need immediate attention. HUD must improve its loss mitigation
procedures while at the same time ensuring that low-income families are provided adequate housing.

HUD's Performance in
Mitigating the Risks
As discussed previously, HUD suffers major systemic weaknesses that significantly impact its
ability to turn these troubled projects around. HUD lacks the resources needed, in terms of both
numbers and expertise, to adequately service loans and Section 8 contracts. The scope of these
shortages was illustrated in the June 1994 Price Waterhouse audit report of FHA’s financial

iw



4 .
‘a
‘lil

+

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
THE SECRETARY
WASHINGTON, D.C. 20410-0001

December 13, 1994

Honorable Thomas S. Foley
Speaker of the House

of Representatives
Washington, DC 20515

Dear Mr. Speaker:

I am pleased to transmit to you the U.S. Department of
Housing and Urban Development’s (HUD) Semiannual Report of the
Office of the Inspector General (IG). This report covers HUD’s
efforts to address deficiencies in its core management functions
as well as four program areas: Section 8 project-based
assistance, multifamily housing preservation, troubled public
housing authorities, and lead-based paint. The report also
reviews the achievements of Operation Safe Home, the joint law
enforcement effort initiated early this year.

The Inspector General concludes that "HUD is not moving fast
enough to correct its systemic management weaknesses in the areas
of management control environment, resource management, and data
systems." I share the Inspector General’s desire for rapid
progress on these important fronts. Correction of these
deficiencies is essential if HUD is to serve the needs of
America’s families and communities effectively and efficiently.

I believe that we are making significant headway towards
creating a new management culture at HUD -- particularly given
the magnitude of the problems we inherited, the breadth of the
reforms we are undertaking and the tight fiscal environment in
which we operate. Several accomplishments are particularly

noteworthy:

the execution of the Presidential Performance Agreement,
indicating a commitment to set quantifiable performance
measures and be evaluated by our ability to meet those
goals;

the implementation of HUD’s Program and Field Reorganization
Plan, eliminating duplicative layers of bureaucratic review
and streamlining agency decision-making; and

the creation of a top level Management Committee, a vehicle
for addressing Departmental concerns in a disciplined,
collaborative manner.



TABLE A AUDIT REPORTS ISSUED PRIOR TO START OF PERIOD WITH NO MANAGEMENT DECISION AT 9/30, APPENDIX 2
TARGET FOR
REPORT ISSUE MANAGEMENT
NUMBER REPORT TITLE DATE REASON FOR LACK OF MANAGEMENT DECISION DECISION
*92TS0014 + Multiregion Review of Controls Over 07/30/92 Management decisions made on 7 of 9 recommendations. At 9/30, CPD 12/31/94
the Preparation and Use of Grantee response was under review. Based on response, 1 recommendation was
Performance Reports closed. Additional information was requested for the remaining
recommendat ion.
*92TS1017 Commonwealth Mortgage Company 09/11/92 No management decision has been made on the report recommendation. The 12/31/94
Nonsupervised Mortgagee mortgagee’s parent company was taken over by the Resolution Trust
Philadelphia, PA Corporation (RTC). RTC provided requested input on October 6, 1994. The
Office of General Counsel is considering whether to file a claim.
93HQ0804 Material Weakness Verification 03/26/93 Management decisions made on 2 of 4 recommendations. At 9/30, CPD 12/31/9%
Reporting CDBG Program Income response was under review. After review, additional information was
and Miscellaneous Revenue requested.
*93HQ1001 © Scranton, PA UDAG and CDBG 03/31/93 Management decisions made on 12 of 42 recommendations. Proposed action 11/15/94
Programs plan under review by OIG.
*93HQ0008 + Multiregion Audit of CDBG Program Benefits 04/27/93 No management decisions have been made on the 6 report recommendations. 10/06/94
to Low and Moderate Income Persons At 9/30, CPD response was under review. Based on response, all
recommendations were closed.
*93AT1018 Municipality of Aguadilla, PR 06/08/93 Management decisions made on 24 of 25 report recommendations. That 12/01/94
CDBG Program recommendation was transferred to Headquarters in March for action. CPD
staff is considering the matter.
*93HQ0015 Multiregion Audit of Large Troubled PHAs 09/24/93 Management decisions made on 11 of 16 recommendations. Target dates for 11/30/94
Report on Performance and Status implementing the proposed corrective actions for the remaining 5
recommendations have not been established.
*94HQ0001 Multiregion Review of the Shelter Plus 10/14/93 No management decisions have been made on the 13 report recommendations. 12/31/94
Care Program CPD agrees that controls need to be strengthened but does not agree that
represent a material weakness. This position is under consideration
within the OIG.
*94AT1012 Housing Authority of the City of Atlanta 03/11/94 No management decisions have been made on the 24 report recommendations. 11/30/94
OIG disagreed with the proposed management decisions of 9/30. Because of
Personnel changes at the PHA, no one at the PHA has the authority to
resolve audit issues.
*94PH1008 Logan Assistance Corporation 03/25/94 Management decisions made on 8 of 13 recommendations. Additional 11/30/94
HUD-Funded Property Acquisition information was requested from the auditee on the remaining 5
and Relocation Programs > recommendations.
94NY1004 National Development Council 03/28/94 No management decisions have been made on the 5 report recommendations. 12/31/94

Consulting Contracts With CDBG Recipients
and Cooperative Agreement With HUD

Awaiting additional information detailing corrective actions from CPD.



September 30, 1994 23

During this reporting period, the OIG reviewed the implementation of this new approach, as
piloted in four locations: Chicago, Minneapolis-St. Paul, Milwaukee, and New York (Report No.
94-CH-101-0802). The OIG found the new field office structure was implemented within established
parameters and the Chicago and Minneapolis-St. Paul Offices, which had been in the pilot program
for about a year, had implemented the risk-based monitoring procedures. As a result, the monitoring
activities of those two offices were better focused on the PHAs with the weakest performance, and
the PHAs were generally pleased with the change in approach.

The Office of Public and Indian Housing’s improved oversight must be supplemented by improved
legislative and regulatory tools concerning rents, funding, admissions and replacement housing. The
OIG supports the following provisions that were contained in S. 2281, the Housing Choice and
Community Investment Act of 1994:

© the deregulation of small PHAs and high performing PHAs;

* rent reforms such as ceiling rents to keep working families in public housing and the
disallowance of earned income for certain residents who obtain employment; and

© the use of modernization funds for replacement housing.

Although these provisions were not acted on in the previous Congressional session, they should be
reconsidered.

Lead-Based Paint Testing and
Hazard Abatement Programs

HUD’s lead-based paint program in public housing has plunged ahead without adequate controls,
driven by a Congressional mandate and consultants from an unregulated industry eager for
government funded business. Based on OIG findings, results from contracted testing at many PHAs
nationwide should be considered suspect and unreliable.

The Risks

Unless closely supervised, testing contractors can and have falsified test results. Abusive practices,
such as occurred at PHAs in Memphis, TN (Report No. 94-AOQ-209-1002), and Birmingham, AL
(Report No. 94-AO-209-1809), and poor quality control over testing elsewhere (HUD BCA 94-C-
154-D21), make the reliability of X-Ray Fluorescent (XRF) and laboratory test results questiondble
for many public housing agencies. These contractors shortcut XRF testing protocols, both in number
of units tested and the extent of tests in each unit. When units were tested, the contractors often spent
only 20 minutes on tests that should have taken 2 hours. Follow-up investigative and audit work
resulted in the Department’s suspension of these companies and their employees.

The falsified testing occurred primarily when the contractors prepared manual records of XRF test
results, and PHA oversight was deficient. However, PHA staff cannot and should not have to
monitor contractors at every unit. Fortunately, automated technology is now available in the XRF
industry to reduce inadvertent operator error and discourage fraud. Unfortunately, the Environmental
Protection Agency (EPA) and HUD appear reluctant to recommend use of this technology as a
quality assurance tool. We therefore anticipate that inconsistent testing and fraud will continue to

ae



IG Semiannual Report

Two former rental assistance recipients were indicted for theft and unlawful use of food
stamps after they allegedly concealed social security benefits from the Clackamas County, OR
housing authority in order to receive nearly $16,000 in rental assistance.

In Spokane, WA, a husband and wife were charged with defrauding the housing authority by
misrepresenting themselves as landlord and tenant to obtain Section 8 rental assistance to which
they were not entitled.

Single Family

Housing Programs

Over the years, OIG audits, investigations and Semiannual Reports to the Congress have identified
patterns of irregularities, questionable practices, fraud and abuse in a number of HUD’s Single
Family Housing Programs, While progress has been made to correct some of these abuses, many still
persist.

Key to ridding the Single Family Programs of problems and deficiencies is alleviating the three
systemic problems that affect almost everything that HUD does — management control environment,
resource management, and data systems. In June 1994, the Assistant Inspector General for Audit
testified before the House Subcommittee on Housing and Community Development, Committee on
Banking, Finance and Urban Affairs, on the financial condition of the Federal Housing
Administration, and more specifically, the Single Family Housing Programs. The Assistant Inspector
General pointed out that the controls over HUD’s multi-billion dollar Single Family Note Servicing
and Property Management Programs are inadequate. While there has been extensive analysis and
strategic planning devoted to solving the problems, it is too soon to tell if the planned activities will
materialize and make a significant difference. Key efforts include changing staffing patterns and
skills; finding alternative methods such as mortgage sales to reduce workloads; and modifying or
reengineering current processes, such as assignments and property disposition. The OIG believes that
if the Office of Housing sustains its current momentum and focus, many of the past asset
management problems will be alleviated over time.

OIG investigations continue to uncover significant fraudulent activities in the Single Family
Programs, which are designed to encourage loans to first-time homebuyers and others who might not
qualify for conventional mortgage loans. For the most part, the cases tend to be isolated instances of
malfeasance by mortgagee personnel or brokers in the origination of loans, and by speculators and
investors in equity skimming and strawbuying schemes. Equity skimming is the process of taking
rent receipts but not making the mortgage payments. A strawbuyer is paid to act as the buyer of a
property and to then transfer the property to a speculator who eventually defaults on the mortgage. In
all cases, HUD and the taxpayers are the losers.

Loan Origination

Fraud

A contractor in Atlanta, GA, pled guilty to 29 counts of false statements to obtain 46 Title I
loans. The contractor conspired with others to obtain the loans, totalling over $1.1 million, for
properties they did not own.

R



18 IG Semiannual Report

scandal. With an estimated 400,000 units eligible for assistance, tens of billions of dollars are at
stake. During the testimony, the IG recommended Congress repeal all multifamily preservation
legislation and terminate all processing so that no more projects are preserved under the statutes.

The testimony on the Multifamily Preservation Program was based, in part, on an April 1994 OIG
review (Report No. 94-SE-114-0003), which disclosed that the Preservation Program -- by
compensating owners through substantial FHA insured equity take-out loans or increased annual
distributions -- increases the risk of default to the FHA insurance fund. Although well intentioned,
the program is inflexible and enormously costly.

0
0
x0
FI Estimated Cost of
ay Preservation Program
Over 40 Years
10)
® 186 93 18.6 372 MA
BILLIONS OF DOLLARS

In the 1980s, owners with prepayment clauses could prepay their HUD insured mortgages, and
take their projects out of the low-income housing market. Because of the fear of loss of subsidized
housing, especially in areas such as California and Massachusetts where real estate costs were
escalating, the Congress passed the Emergency Low-Income Housing Preservation Act of 1987,
followed by the Low-Income Housing Preservation and Resident Homeownership Act of 1990.
Through these Acts, HUD could pay owners to keep projects in the program.

Under the Preservation Program, equity take-out loans and increased annual distributions for
owners are financed by HUD and residents through increased rents and subsidies. Preservation
increases the risk to the FHA insurance fund if HUD rental subsidies do not offset increased
vacancies and unassisted resident rents are lower than the Section 8 rents.

Even if a project is not needed to meet the needs of very low-income residents, only the owner
can decide to remove it from the program. HUD does not have the flexibility to examine the housing
market and exclude a project because lower cost alternatives are available, it is not needed, or it is
not likely to leave the program.

Related OIG Audit Work

On April 27, 1993, the OIG had reported that more guidance and training were needed for field
office staff to ensure properties were awarded appropriate incentives and accurate valuations of
preservation value (Report No. 93-HQ-114-0010). That audit recommended, in addition to steps to

iv



2

IG Semiannual Report

decisions. HUD also needs reliable and accurate information on which to base decisions and to form
the framework for ensuring accountability.

HUD’s Strategic Performance System, the primary vehicle for integrating major management
elements, has yet to meet its objectives. The system was intended to improve coordination of
program policy, budgetary, and operational activities; provide clear and comprehensive priorities and
actions; establish a basis for monitoring progress and measuring performance; and ensure
accountability.

The two key components of the Strategic Performance System are the Secretary's Performance
Report and the Management Committee. The initial June 10, 1994 Performance Report pulled from
the Presidential Performance Agreement, the First Year Priorities, and operating component
Management Plans in establishing priorities, commitments and milestones. However, that
Performance Report has not been updated since it was first compiled. Progress against HUD’s major
management initiatives needs to be closely tracked on a more frequent basis. The OIG has been
advised that efforts are underway to provide automated updates and access to the report.

The Management Committee, comprised of the Deputy Secretary and principal staff, first met on
March 16, 1994. Although the Committee has provided a needed forum to focus on crosscutting
departmental concerns and management improvements, the OIG has found the Committee activities to
be fragmented, largely process oriented, and generally reactive in nature. The Committee did not
monitor and ensure progress against performance milestones. The agenda was largely member driven
and the members had their own parochial interests. In many instances, key management decisions
were made outside the Committee, or without the benefit of the Committee’s advance discussion.
Finally, the Committee did not effectively coordinate the budgetary, legislative and operational
planning processes to ensure consistency. The Committee needs to focus on ensuring the effective
functioning of the Strategic Performance System to improve overall management of HUD.

The OIG has observed specific program management actions that have delayed progress in
reforming HUD. For example:

© Certain initiated improvement actions — such as the Single Family Assignment Program Business
Process Redesign Project, the Community Planning and Development Program Streamlining Task
Force effort, and the Multifamily Housing Program Enforcement Task Force — were deferred or
redirected, delaying needed improvements in resource utilization and program delivery.

© Certain claimed strategies or plans — such as the Federal Housing Administration (FHA)
Mortgage Insurance and Multifamily National Systems Projects — were reconsidered because they
lacked sufficient detail or buy-in to proceed.

© Proposals were developed for a dozen new HUD programs with little regard for the impact on
HUD’s capacity to improve its core program delivery.

Once a viable course of action is chosen, it must be effectively implemented. In doing so, it is
essential that organizational and programmatic changes are reflected in written policies and
procedures supporting and guiding internal operations and outside program participation. In revising
the underlying management control structure of its programs, management needs to consider relative
program risks and available resources, and devise a balanced approach to management control. While
HUD management has advanced this concept, it has yet to be put in actual practice.



TARGET FOR

REPORT ISSUE MANAGEMENT

NUMBER REPORT TITLE DATE REASON FOR LACK OF MANAGEMENT DECISION DECISION

94PH1009 Timberwoods Mutual Homes, Inc. 03/31/94 No management decisions have been made on the 14 report recommendations. 11/30/94
Multifamily Mortgagor Operations OIG disagreed with the proposed management decisions. Auditee has agreed
to provide more information.

* SIGNIFICANT AUDIT REPORTS DESCRIBED IN PREVIOUS SEMIANNUAL REPORTS.



REPORT
NUMBER

REPORT TITLE

TISSUE
DATE

DECISION
DATE

FINAL ACTION
TARGET DATE

93CH1019
93CH1020
93HQ1002
93CH1021
93CH1022
93PH1006
93HQ1004
93AT1018
93PH1809
93F00004
93PH1008
93CH1026
93DE 1006
93HQ1006
O3FWIO1S
93SF1012
93801009
93SF1013
93HQ0015
93SF1016
93PH1010
93SF1017
93CH1031
93HQ0017
93HQ0018
93NY1008
944Q0001
94AT 1002
94CH1004
94001801
94AT 1005
94AT0001
94CH1010
94AT1008
94CH1013
94PH1007
94FW1004
94DE0001
94CH1016
94AT1012
94KC1003
94FW1006
94PH1008

Peoria Housing Authority, Low-Income Housing Program

Pontiac Housing Commission, Low-Income Housing Program

Community Realty Management, Inc., Multifamily Management Agent

Aurora Housing Authority, Low-Income Housing Program

The Meadows, Retirement Service Center

Newport News Community Development Block Grant Program

Professional Properties Inc., Multifamily Management Agent

Municipality of Aguadilla, Puerto Rico, Community Development Block Grant Program
Philadelphia Housing Authority, Special Report on a Limited Review of Contracting

Audit of HUD’s Fiscal Year 1992 Consolidated Financial Statements

District of Columbia Housing Finance Agency

Yellowbird Limited, Multifamily Mortgagor Operations

Denver Community Development Corporation, Community Development Block Grant Program
Retirement Housing Foundation, Inc., Multifamily Management Agent

City of San Antonio, Community Development Block Grant Program

Los Angeles Community Development Block Grant Program

Lambert Park Apartments, Multifamily Project

Santa Clara County Housing Authority, Section 8 Housing Program

Multiregion Audit of Large Troubled PHAs, Report on Performance and Status

Maricopa County, Department of Housing and Community Development, Conventional & Section 8 Programs
Philadelphia Office of Services to the Homeless and Adults, Emergency Shelter Grant Program
Richmond Housing Authority, Comprehensive Improvement Assistance Program

Indiana Family and Social Services Administration, Section 8 Existing and Housing Voucher Programs
Single Family Homeless Initiative

Multiregion Audit of Delegated Processing Program

New York City Housing Authority, Low-Rent Housing

Multiregion Review of the Shelter Plus Care Program

City of Miami Emergency Shelter Grant Program

Michigan State Housing Development Authority, Section 8 Existing and Housing Voucher Programs
Richmond Redevelopment and Housing Authority, Survey of Lead Based Paint Activities
Tennessee Housing Development Agency, Section 8 Housing Programs

Report of the Allocation and Award of Home Program Funding

Cincinnati Community Development Block Grant Program

Progress Point, Inc dba Bright Beginnings, Supportive Housing Demonstration Program
Chicago Housing Authority, Maintenance Operations

Washington Capital Associates, HUD-Approved Coinsurance Lender

Austin Department of Planning and Development, Community Development Block Grant Program
Office of Housing Deficiency Judgments Program

River Rouge Housing Commission, Low Income Housing Program

Housing Authority of the City of Atlanta, Public Housing Mangement Operations

Maplewood Loop Apartments, Multifamily Mortgagor Operations

Wichita Falls Community Development Block Grant Program

Logan Assistance Corp., HUD-Funded Property Acquisition and Relocation Programs

Audits Excluded:

21 audits under repayment plans

57 audits under formal judicial review, investigation, or legislative solution

05/04/93
05/14/93
05/25/93
05/26/93
05/27/93
05/28/93
06/03/93
06/08/93
06/29/93
06/30/93
07/19/93
08/05/93
08/10/93
08/17/93
08/27/93
09/17/93
09/22/93
09/22/93
09/24/93
09/24/93
09/28/93
09/28/93
09/30/93
09/30/93
09/30/93
09/30/93
10/14/93
10/18/93
11/10/93
12/02/93
12/02/93
12/27/93
12/30/93
01/14/94
01/14/94
02/16/94
02/24/94
02/25/94
03/07/94
03/11/94
03/14/94
03/17/94
03/25/94

06/18/93
09/28/93
12/17/93
09/28/93
09/28/93
12/16/93
12/08/93
Note 6
11/26/93
03/31/94
12/20/93
02/01/94
12/07/93
03/31/94
12/13/93
09/30/94
03/11/94
01/27/94
Note 7
01/21/94
01/26/94
09/26/94
03/30/94
03/29/94
02/07/94
03/29/94
Note 3
04/18/94
04/18/94
04/11/94
09/21/94
09/01/94
03/30/94
07/07/94
07/28/94
09/30/94
08/12/94
05/27/94
07/15/94
Note 7
07/13/94
05/25/94
Note 7

Note 1
Note 1
12/01/94
Note 1
Note 1
10/01/94
Note 2

11/01/94
03/30/98
Note 2
01/28/95
12/07/94
03/31/95
11/21/94
01/30/95
Note 2
01/15/95

01/21/95
01/03/95
09/15/95
01/28/95
12/31/94
12/31/94
03/31/95

04/17/95
11/09/94
Note 2
09/30/95
06/30/95
03/15/95
02/01/95
03/31/99
03/31/95
07/31/95
01/31/95
07/15/95

06/30/95
05/15/95



September 30, 1994 5

Systems Project Progress Report

Business Information
No Strategy System Plan System Pilot Testing/
Action Stage Stage Development Limited Use Operational

System

PIH HUDCAPS
PIH IBS
CPD IDIS

Agency
Accounting
A
Accounting

© The Control Files Subsystem/Tenant Rental Assistance Certification System (CFS/TRACS),
initiated in response to Congressional concerns over HUD’s inability to budget and account
for Section 8 subsidy programs, is HUD’s largest systems development effort. CFS/TRACS
has been under development for over 4 years and progress is slow. However, project
management has been improved.

© The FHA Management Information System (FHAMIS) is progressing very slowly. The
project lacks a definitive plan for improving business applications and integrating information
to better support Office of Housing program delivery and management. Current efforts are
directed at migrating existing systems to a common systems architecture to make future
improvements easier to accomplish. Some new functionalities, such as Electronic Data
Interchange to automate Single Family Mortgage Insurance Claims, are being implemented.
Efforts are underway to strengthen project management and program office responsibility for
planning each of the major program systems components of FHAMIS.

© The Office of Housing’s integrated Multifamily Housing program system, a major component
of FHAMIS, is not progressing satisfactorily. Delays occurred because of insufficient initial
business and information strategic planning. A lack of strong project management was also a
factor.

© The Office of Public and Indian Housing (PIH) is using the same software as the
administrative accounting system to develop the HUD Central Accounting Program System
(HUDCAPS) to support its tenant-based Section 8 subsidy activity. While HUDCAPS has
satisfactorily met its October 1994 pilot test phase, the other major PIH systems development
effort, the Integrated Business System (IBS), is still in the business strategy stage. Progress

i>