Office of Inspector General

U.S. Department of Housing and Urban Development U.S. Department of Housing and Urban Development U.S. Department of Housing and Urban Development

October 1, 2005, through March 31, 2006 October 1, 2005, through March 31, 2006

Semiannual Report

to Congress
Profile of Performance Profile of Performance Profile of Performance

For the Period, October 1, 2005, through March 31, 2006

Audit and Investigation Results Audit Investigation Combined

Recommendations That Funds Be Put to Better Use $589,887,746 $592,240,631

Management Decisions on Audits with Questioned Costs $58,627,445 $58,627,445

Indictments/Informations 747Convictions/Pleas/Pretrial Diversions 443 443

Funds Put to Better Use $67,475,744 $67,475,744Collections from Audits $28,210,875 $28,210,875

Administrative Actions 1187 13 1174

Personnel Actions 24 24

Arrests 1,536 1,536

Search Warrants 58 58

Weapons Seized 3 3

Subpoenas Issued

Hotline

Civil Actions 33 33

448 4 452

Investigative Recoveries/Receivables $165,435,894 $165,353,197 $82,697

$2,352,885

Management Decisions on Audits with Recommendationsthat Funds be Put to Better Use

$549,804,443 $549,804,443

Questioned Costs $52,223,731 $52,223,731

747
Inspector General’s Message iii

Inspector General’s Message Inspector General’s Message Inspector General’s Message

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

Housing and Urban Development (HUD) Office of Inspector

General (OIG) Semiannual Report to the Congress for the first half

of fiscal year 2006. In the time since our last report, HUD OIG

employees – auditors, agents, attorneys and support staff – have

been hard at work on their assigned tasks. Whether it is

Hurricane disaster relief, single-family housing fraud, Section 8

rental subsidy fraud, or any fraud against HUD programs or

operations, the HUD OIG is engaged and garnering results, for

which we are justly proud.

During the reporting period, we had $304,049,725 in Funds

Put to Better Use, Questioned Costs of $52,223,731 and $165,435,894 in Recoveries and

Receivables. This is exceptional work by our staff that has resulted in significant positive

impact on fraud and misuse of taxpayer dollars. I am grateful to the auditors, agents, and

evaluators who worked so hard this year to achieve this milestone.

I direct your attention to our high profile audits and investigations. HUD OIG staff

increased and improved their cooperation and collaboration with the Department, and as

a result, developed and implemented better and more effective audit recommendations.

The HUD OIG Office of Investigation agents also enhanced their cooperation with the

Department as a new source or indicator for new investigative avenues.

Our emphasis on the Section 8 Housing Choice Voucher program continues to be a

high priority. Congress was clear that it wanted answers as to why the Section 8 program

was prone to fraud and waste. Our audit plan this year selected 15 programs at public

housing authorities. Although our audits found significant administrative non-compliance

and improper payments, the living conditions of the residents was a greater concern. We

inspected 254 units at three authorities (San Juan, PR; Miami-Dade, FL; and WinstonSalem, NC.) We found 91 percent did not meet minimum housing quality standards, and

39 percent of the failed units had serious deficiencies. Tenants lived in units that were not

decent, safe, nor sanitary. The Department shared our concern about these conditions

and agreed that housing assistance payments for units that did not meet standards had to

stop.

All of this led us to a more efficient and effective HUD OIG, better at recovering

taxpayer funds and bringing people to justice who perpetrate crimes.

It is with obvious and justifiable pride that I thank the staff of the HUD OIG for their

tireless work in their struggle against waste, fraud, and abuse on the Nation’s housing

and urban development programs.

Kenneth M. Donohue

Inspector General
iv Strategic Plan

Strategic Plan Strategic Plan Strategic Plan

Vision

We are a trusted and respected resource for HUD, Congress, and the American

public in ensuring the integrity, efficiency, and effectiveness of HUD

programs and operations. We are committed to working jointly with

HUD management to achieve their goals.

Mission Mission

 Promote the integrity, efficiency, and effectiveness of HUD programs and

operations to assist the Department in meeting its mission.

 Detect and prevent waste, fraud, and abuse.

 Seek administrative sanctions, civil recoveries and/or criminal prosecution

of those responsible for waste, fraud, and abuse in HUD programs and

operations.

Goal 1

Effectiveness Effectiveness

Help HUD resolve its “Major

Management Challenges”

by being a relevant and

problem-solving advisor to

HUD and our Stakeholders.

Goal 2

Efficiency Efficiency

Maximize results and

provide responsive audit

and investigative work

for mandated, requested,

or self-initiated efforts.

Goal 3

Our Employees Our Employees

Become the “Employer

of Choice” among

Offices of Inspectors

General.

 Contribute to Improving

the Integrity in Single

Family Insurance

Programs.

 Contribute to a Reduction

in Erroneous Payments in

the Rental Assistance

Programs.

 Contribute to Improving

HUD’s Execution and

Accountability of Fiscal

Responsibilities.

 Contribute to resolving

significant issues raised

or confronted by HUD

and our Stakeholders.

 Objectives Objectives

 Achieve a highest

Return on Investment

(ROI) with available

resources.

 Provide quality

results to customers

in a timely manner.

 Invest in people.

 Invest in the

organization.
Strategic Goals v

Strategic Goals Strategic Goals Strategic Goals

Goal 1 - Effectiveness Goal 1 - Effectiveness

Objectives:

 Contribute to improving the integrity of single-family insurance programs.

 Contribute to a reduction in erroneous payments in the rental assistance

programs.

 Contribute to improving HUD’s fiscal accountability.

 Contribute to resolving other significant issues raised or confronted by HUD and our

stakeholders.

Target As of

March

31, 2006

Key Measurements

75% 3 75% of the recommendations reach management decisions within 120 days.

85% 3 85% of the dollars associated with recommendations are sustained.

80% 80% of all audits conducted are targeted at areas of significant interest to

either HUD or OIG stakeholders.

3

80% 3 80% of stakeholders rate OIG products and services good or better.

66% 66% investigations referred for criminal, civil, or administrative action will

focus on FHA single-family mortgage fraud and Section 8 rental assistance

overpayment.

3

Goal 2 - Efficiency Goal 2 - Efficiency

Objectives:

 Maintain a high return on investment (ROI).

 Provide timely and quality results to customers.

Target As of

March

31, 2006

Key Measurements

8:1 3 Sustain a return on investment (ROI) of 8:1.

70% 3 70% of external audits completed within 2000 hours.

4/6

Actions

per FTE

Regional investigative performance for regions without forensic auditors

will average 4 actions per FTE per year. Regions with forensic auditors will

average 6 actions per FTE per year..

3

Goal 3- Employer of Choice Goal 3- Employer of Choice

Objectives:

 Invest in people.

 Invest in the organization.

Target As of

March

31, 2006

Key Measurements

Nov 06 3 Implement a leadership development program for succession planning.

80% NEW 80% of employees rate organization good or better.
vi Audit Charts

Audit Reports Issued by Program

Public and Indian

Housing

40%

Multifamily Housing

13%

Single-Family

Housing

25%

Community

Planning &

Development

10%

Other

12%

Monetary Benefits Identified by Program

Single-Family

Housing

6%

Public & Indian

Housing

18%

Multifamily

Housing

6%

Community

Planning

& Development

6%

Other

64%

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

450

400

350

300

250

200

150

100

50

0

$114

$36

$411

$40 $41

Public and

Indian

Housing

Multifamily

Housing

Other Community

Planning &

Development

Single-Family

Housing
Investigation Charts vii

Investigation Cases Opened by Program (Total: 736) Investigation Cases Opened by Program (Total: 736)

Single-Family

Housing

16% (115)

Public and Indian Housing

65% (486)

Other/GNMA

3% (19)

Community Planning

& Development

6% (42)

Multifamily

Housing

10% (74)

Investigation Recoveries by Program (Total: 165,353,197) Investigation Recoveries by Program (Total: 165,353,197)

Other/GNMA

0% ($30,685)

Public & Indian

Housing

5% ($8,829,801)

Multifamily

Housing

2% ($3,931,894)

Community Planning &

Development

5% ($8,205,359)

Single-Family

Housing

88% ($144,355,458)
AIGA Assistant Inspector General for Audit

AIGI Assistant Inspector General for Investigations

ARIGA Assistant Regional Inspector General for Audit

ASAC Assistant Special Agent in Charge

ATF Bureau of Alcohol Tobacco and Firearms

CDBG Community Development Block Grants

CID Criminal Investigation Division

CPD Community Planning and Development

DAIGA Deputy Assistant Inspector General for Audit

DAIGI Deputy Assistant Inspector General for Investigation

DEA Drug Enforcement Administration

DOJ U.S. Department of Justice

FBI Federal Bureau of Investigation

FDIC Federal Deposit Insurance Corporation

FEMA Federal Emergency Management Agency

FFMIA Financial Management Improvement Act of 1996

FHA Federal Housing Administration

FHASL Federal Housing Administration Subsidiary Ledger

FINCEN Financial Crimes Enforcement Network

FIRMS Facilities Integrated Resources Management System

FY Fiscal Year

GAO Government Accountability Office

GNMA Government National Mortgage Association (aka Ginnie Mae)

HAP Housing Assistance Payment

HHS U.S. Department of Health and Human Services

HIV Human Immunodeficiency Virus

HKFTF Hurricane Katrina Fraud Task Force

HOME Home Investment Partnership Program

HOPWA Housing Opportunities for Persons with AIDS

HRRC Hurricane Recovery and Response Center

HUD U.S. Department of Housing and Urban Development

IG Inspector General

Acronyms List Acronyms List Acronyms List

viii Acronyms List
Acronyms List ix

IRS Internal Revenue Service

JTTF Joint Terrorism Task Force

LAS Loan Accounting System

MAHRA Multifamily Assisted Housing Reform Act

NAHRO National Association of Housing and Redevelopment Officials

OA Office of Audit

OI Office of Investigation

OIG Office of Inspector General

OMB Office of Management and Budget

OND Officer Next Door

PDDA Presidentially-Declared Disaster Areas

PFCRA Program Fraud Civil Remedies Act

PHA Public Housing Authorities

PHSI Public Housing Safety Initiatives

PIH Office of Public and Indian Housing

PMA President’s Management Agenda

REAC Real Estate Assessment Center

REAP Resource Estimation and Allocation Process

REO Real Estate Owned

RESPA Real Estate Settlement and Procedures Act

RHIIP Rental Housing Integrity Improvement Project

RIGA Regional Inspector General for Audit

SA Special Agent

SAC Special Agent in Charge

SSA Social Security Administration

SSN Social Security Number

TEAM Total Estimation and Allocation Mechanism

TND Teacher Next Door

USAO U.S. Attorney’s Office

USDA U.S. Department of Agriculture

USMS U.S. Marshals Service

USPS U.S. Postal Service

VA U.S. Department of Veterans Affairs

VOE Verifications of Employment
x Table of Contents

Table of Contents Table of Contents Table of Contents

Chapter 1 - HUD’s Management and Performance Challenges 1

The HUD Office of Inspector General 2

Major Issues Facing HUD 2

Chapter 2 - HUD’s Single Family Housing Programs 9

Audits 10

Investigations 18

Chapter 3 - HUD’s Public and Indian Housing Programs 33

Audits 34

Investigations 47

Chapter 4 - HUD’s Multifamily Housing Programs 61

Audits 62

Investigations 67

Chapter 5 - HUD’s Community Planning and Development Programs 71

Audits 72

Investigations 76

Chapter 6 - Hurricane Relief Oversight 83

Chapter 7 - Other Significant Audits and Investigations/OIG Hotline 91

Audits 92

Investigations 96

OIG Hotline 96

Chapter 8 - Outreach Efforts 99

Chapter 9 - Review of Policy Directives 107

Proposed Rules 108

Proposed Notices 109

Mortgagee Letter 110

Chapter 10 - Audit Resolution 115

Delayed Actions 116

Significant Management Decisions with Which the OIG Disagrees 119

Federal Financial Management Improvement Act of 1996 121

Appendix 1 - Audit Reports Issued 123

Appendix 2 - Tables 131

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

Decision at March 31, 2006 132

Table B - Significant Audit Reports Described in Previous Semiannual Reports

in Which Final Action Had Not Been Completed as of March 31, 2006 134

Table C - Inspector General Issued Reports with Questioned and Unsupported

Costs at March 31, 2006 145

Table D - Inspector General Issued Reports with Recommendations that Funds

Be Put to Better Use at March 31, 2006 146

Explanations of Tables C and D 147

HUD OIG Operations Telephone Listing 149
Reporting Requirements xi

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

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

Source/Requirement Pages

Section 4(a)(2)-review of existing and proposed legislation and regulations. 107-114

Section 5(a)(1)-description of significant problems, abuses, and 1-97, 107-122

deficiencies relating to the administration of programs and operations

of the Department.

Section 5(a)(2)-description of recommendations for corrective action with respect 9-97

to significant problems, abuses, and deficiencies.

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

described in previous semiannual report on which corrective action

has not been completed.

Section 5(a)(4)-summary of matters referred to prosecutive authorities 9-97

and the prosecutions and convictions that have resulted.

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

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

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

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

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

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

recommendations that funds be put to better use.

Section 5(a)(7)-summary of each particularly significant report 9-97

and the total dollar value of questioned and unsupported costs.

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

audit reports and the total dollar value of questioned and

unsupported costs.

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

reports and the dollar value of recommendations that funds be put

to better use by management.

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

commencement of the reporting period for which no management

decision had been made by the end of the period.

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

any significant revised management decisions made during the

reporting period.

Section 5(a)(12)-information concerning any significant management 119-121

decision with which the Inspector General is in disagreement.

Section 5(a)(13)-the information described under section 05(b) of the 121

Federal Financial Management Improvement Act of 1996.

Reporting Requirements Reporting Requirements Reporting Requirements

Chapter 1 Chapter 1 Chapter 1

HUD’s Management HUD’s Management HUD’s Management

and Performance Challenges and Performance Challenges and Performance Challenges
2 HUD’s Management and Performance Challenges

The HUD Office of The HUD Office of The HUD Office of

Inspector General Inspector General Inspector General

The U.S. Department of Housing and

Urban Development (HUD) Inspector

General is one of the original 12 Inspectors

General authorized under the Inspector

General Act of 1978. Over the years, the

Office of Inspector General (OIG) has forged

a strong alliance with HUD personnel in

recommending ways to improve

departmental operations and in prosecuting

program abuses. OIG strives to make a

difference in HUD’s performance and

accountability. OIG is committed to its

statutory mission of detecting and

preventing fraud, waste, and abuse and

promoting the effectiveness and efficiency

of government operations. While

organizationally located within the

Department, OIG operates independently

with separate budgetary authority. This

independence allows for clear and objective

reporting to the Secretary and the Congress.

OIG’s activities seek to

 Promote efficiency and effectiveness in

programs and operations,

 Detect and deter fraud and abuse,

 Investigate allegations of misconduct

by HUD employees, and

 Review and make recommendations

regarding existing and proposed

legislation and regulations affecting

HUD.

The Executive Office and the Offices of

Audit, Investigation, Counsel, and

Management and Policy are located in

Headquarters. Also, the Offices of Audit and

Investigation have staff located in eight

regions and numerous field offices.

Major Issues Facing HUD

The Department’s primary mission is to

expand housing opportunities for American

families seeking to better their quality of life.

HUD seeks to accomplish this through a

wide variety of housing and community

development grant, subsidy, and loan

programs. HUD’s fiscal year (FY) 2006

enacted budget is about $48 billion,

including about $12 billion in emergency

supplemental appropriations to address the

impact of the hurricanes that devastated the

Gulf of Mexico coastal areas during 2005.

Additionally, HUD assists families in

obtaining housing by providing Federal

Housing Administration (FHA) mortgage

insurance for single-family and multifamily

properties. At the end of FY 2005, FHA’s

outstanding mortgage insurance portfolio

was about $416 billion. The Government

National Mortgage Association (GNMA),

also known as Ginnie Mae, through its

mortgage-backed securities program, gives

issuers access to capital markets through the

pooling of federally insured loans.

With about 8,800 staff nationwide, HUD

relies upon numerous partners for the

performance and integrity of a large number

of diverse programs. Among these partners

are hundreds of cities that manage HUD’s

Community Development Block Grant

(CDBG) funds, hundreds of public housing

authorities that manage assisted housing

funds, thousands of HUD-approved lenders

that originate and service FHA-insured

loans, and hundreds of Ginnie Mae

mortgage-backed securities issuers that

provide mortgage capital.

Achieving HUD’s mission continues to

be an ambitious challenge for its limited

staff, given the agency’s diverse mission, the

thousands of program intermediaries

assisting the Department in this mission,

and the millions of beneficiaries in its

housing programs. HUD’s management

problems have for years kept it on the

Government Accountability Office’s (GAO)
HUD’s Management and Performance Challenges 3

list of agencies with high-risk programs.

HUD’s management team, GAO, and OIG

share the view that improvements in human

capital, acquisitions, and information

systems are essential in removing HUD

from its high-risk designation. More

specifically, HUD must focus these

improvements on rental housing assistance

programs and single-family housing

mortgage insurance programs, two areas

where financial and programmatic exposure

is the greatest. That HUD’s reported

management challenges are included as part

of the President’s Management Agenda

(PMA) is indicative of HUD’s important role

in the Federal sector. HUD’s current

Administration places a high priority on

correcting those weaknesses that put HUD

on GAO’s high-risk list.

As of December 2005, HUD’s PMA

scoring status was “green” for three of the

nine initiatives applicable to HUD. The

status of the six remaining initiatives are

four with a “yellow,” and two with a “red”

score. Based upon a comprehensive set of

standards, an agency is “green” if it meets

all of the standards for success, “yellow” if

it has achieved some but not all of the

criteria, and “red” if it has even one of the

number of serious flaws. HUD’s most

notable accomplishment during this

semiannual reporting period was to achieve

a “green” score for the E-Government

initiative. HUD’s baseline score for

improved financial performance remains at

“red” because of one repeat and one new

material weakness reported in our audit of

HUD’s FY 2005 financial statements. Also,

the Office of Management and Budget

(OMB) established a new initiative for HUD

in the area of “credit program

management,” and assigned a status score

of “red.”

Each year in accordance with the

Reports Consolidated Act of 2000, HUD OIG

is required to submit a statement to the

Secretary with a summary assessment of the

most serious challenges facing the

Department. OIG submitted its latest

assessment on October 18, 2005. These

reported challenges are the continued focus

of our audit and investigative efforts. HUD

is working to address these challenges and

in some instances, has made significant

progress in correcting them. The

Department’s management challenges and

current efforts to address these challenges

are as follows.

Financial Management Systems. Since

FY 1991, OIG has annually reported that the

lack of an integrated financial system in

compliance with all Federal Financial

Management System requirements is a

weakness in internal controls. While some

progress has been made, a number of

long-standing deficiencies remain. For the

past several years, OIG’s financial audits

have also reported weaknesses in internal

controls and security over HUD’s general

data processing operations and specific

applications. The effect of these weaknesses

is that HUD cannot be reasonably assured

that system information will remain

confidential, protected from loss, and

available to those who need it without

interruption.

HUD has completed certification and

accreditation for 41 of its 44 financial

management systems. However, the quality

of the underlying documents and the actual

certification and accreditation process

varied by application. While a number of

vulnerabilities were closed, additional

vulnerabilities, identified through oversight

activities, were not corrected before

accreditation. In addition, certification and

accreditation of the general support systems

on which these applications reside have not

been completed and are ongoing.

The weaknesses noted in our FY 2005

Consolidated Financial Audit relate to the

need to

 Incorporate better risk factors and

monitoring tools into FHA’s single
family insured mortgage program risk

analysis and liability estimation

process and

 Continue to improve its review over

the FHA credit reform estimation

process.

In prior years, OIG reported on

weaknesses in HUD’s compliance with

Federal Financial Management System

requirements, including the need to enhance

FHA’s management controls over its

portfolio of integrated insurance and

financial systems. During the past several

years, HUD has made progress in

implementing a new financial system at

FHA and addressing most of the weaknesses

that OIG identified, including initiating a

vision statement for a departmentwide

fully integrated financial system. These

improvements enabled OIG to conclude that

the weakness in financial management

system requirements should be reclassified

from a material weakness to a reportable

condition.

Departmentwide Organizational

Changes and Human Capital Management.

For many years, one of the Department’s

major challenges has been to effectively

manage its limited staff resources to

accomplish its primary mission. In recent

years, the Department has contracted out

numerous functions essential to the

accomplishment of its overall mission, in

part due to staffing issues. Many of the

weaknesses facing HUD, particularly those

concerning HUD’s oversight of program

recipients, are exacerbated by HUD’s

resource management shortcomings.

Accordingly, OIG considers it critical for the

Department to address these shortcomings

through the successful completion of

ongoing plans. To operate effectively and

hold individuals responsible for

performance, HUD needs to know that it has

the right number of staff with the proper

skills in the right positions.

To address its human capital needs and

respond to the PMA, HUD developed a

comprehensive Five-Year Strategic Human

Capital Management Plan that identifies

three strategic goals for human capital:

 Mission-focused agency to align

employees and work to support HUD’s

mission;

 High quality workforce, which

recruits, develops, manages, and

retains a diverse workforce; and

 Effective succession planning to

ensure retirees over the next 5 years are

succeeded by qualified employees.

The human capital management plan is

the Department’s primary tool for advancing

its human capital transformation. To

ensure HUD maintains progress toward

accomplishing the goals outlined in its

5-year strategy, HUD tracks progress against

the interim milestones biweekly. In line with

its strategic plan, HUD has increased its

focus on human capital management

through a variety of initiatives.

To address staffing imbalances and

other human capital challenges, the

Department has most recently embarked on

an “optimal organization study” to ensure

HUD is positioned to provide maximum

service to its constituents. The focus of the

study is to develop a vision for the future by

assessing what HUD’s work will be, how

HUD should be organized to carry out the

work, and the required skills in relation to

full-time employees (FTE) and training

efforts. The final product for this effort is

scheduled during the third quarter of the

fiscal year.

HUD continued to implement its FiveYear Strategic Human Capital Management

Plan, with results that are enabling it to

recruit, develop, manage, and retain a highperformance workforce that is capable of

effectively supporting HUD’s mission.

4 HUD’s Management and Performance Challenges
FHA Single-Family Origination. FHA’s

single-family insurance programs enable

millions of first-time, minority, low-income

elderly, and other underserved households

to realize the benefits of homeownership.

HUD manages about $368 billion in singlefamily insured mortgages. Effective

management of this high-risk portfolio

represents a continuing challenge for the

Department. The PMA has committed HUD

to tackling long-standing management

problems that expose FHA homebuyers to

fraudulent practices.

HUD has taken a number of actions to

reduce risks to homebuyers including the

following:

 Established an automated systems

control to preclude the predatory

lending practice of “property flipping”

on FHA-insured loans;

 Established an “appraiser watch”

process, wherein appraisers with poor

performance records are automatically

targeted for monitoring and

disqualification from program

participation if they violate FHA

standards;

 Established an automated underwriting system, the Technology Open

to Approved Lenders (TOTAL)

Scorecard to increase lender efficiency

through more consistent, objective

evaluations of the credit worthiness of

borrowers; and

 Initiated a process for the electronic

verification of Social Security numbers

to further reduce fraud in FHA

applications.

While the GAO and OIG have

reported improved monitoring of lender

underwriting and default tracking and

expanded loss mitigation to help reduce

mortgage foreclosures, HUD needs to

further strengthen lender accountability and

take strong enforcement actions against

program abusers that victimize first-time

and minority homebuyers.

In support of HUD and the PMA, OIG’s

Strategic Plan for FY 2006 gives priority to

detecting and preventing fraud in FHA

mortgage lending through targeted audits

and investigations. OIG’s audits target

lenders with high default rates. The detailed

testing focuses on mortgage loans that

defaulted and resulted in FHA insurance

losses. Results from these audits have noted

significant lender underwriting deficiencies,

prohibited late endorsed loans, inadequate

quality controls, and other operational

irregularities. OIG’s recommendations have

sought monetary recoveries through loan

indemnifications exceeding $159.7 million,

loss reimbursements of more than $10.2

million, and appropriate civil remedies.

During the current semiannual reporting

period, OIG completed 31 external audits of

FHA-approved mortgage lenders as well as

three internal audits of single-family

program activities. Additionally, OIG’s

investigative workload in single-family

fraud prevention continues to grow

dramatically. During the current semiannual

period, OIG opened 115 investigative cases

and closed 261 cases in the single-family

housing program area, resulting in 255

indictments, 288 arrests, and 111

convictions/pleas/pretrial conversions.

OIG’s audit of FHA’s FY 2005 financial

statements also reported a need to

 Incorporate better risk factors and

monitoring tools into its single-family

insured mortgage program risk

analysis and loan liability estimation

process,

 Continue improvement in the review

over the credit reform estimation

process, and

HUD’s Management and Performance Challenges 5
 Continue enhancement of

management controls over the

portfolio of integrated insurance and

financial systems.

OIG has tailored its audit and

investigation techniques to complement this

need, to support HUD management

improvements, and to provide an added

deterrence to mortgage fraud. OIG

developed a comprehensive training course

for its staffs on auditing single-family

lenders and conducting single-family fraud

investigations. To date, 154 auditors and 150

investigators have completed the singlefamily training courses.

Public and Assisted Housing Program

Administration. HUD provides housing

assistance funds under various grant and

subsidy programs to public housing

agencies and multifamily project owners.

These intermediaries, in turn, provide

housing assistance to benefit primarily lowincome households. The Office of Public and

Indian Housing (PIH) and the Office of

Housing monitor these intermediaries’

administration of the assisted housing

programs.

Accurate and timely information about

households participating in HUD housing

programs is necessary to allow HUD to

monitor the effectiveness of the program,

assess agency compliance with regulations,

and analyze the impacts of proposed

program changes. The level of reporting is a

criterion for housing agencies’ performance

in both the Public Housing Assessment

System and the Section 8 Management

Assessment Program. HUD’s goal is to

obtain 85 percent reporting of tenant data

into the system.

HUD’s ability to effectively monitor

housing agencies and assisted multifamily

projects continues to present challenges in

achieving the intended statutory purposes

of the housing assistance funds. These

weaknesses have been reported for a

number of years in OIG’s annual audits of

HUD’s financial statements. However, HUD

has demonstrated significant progress in

addressing weaknesses impacting the

accuracy of payments made under these

programs. Most notably, HUD was the first

agency to receive a “green” baseline goal

score on the PMA “eliminating improper

payments” initiative and has maintained

this score.

The estimate of erroneous payments

that HUD reports in its Performance and

Accountability Report relates to HUD’s

inability to ensure or verify the accuracy of

subsidy payments being determined and

paid to assisted households. HUD has

surpassed interim goals for reducing the FY

2000 estimated $2 billion in net annual rental

housing assistance overpayments. HUD’s

interim goals were for a 15 percent reduction

in FY 2003, 30 percent reduction in FY 2004,

and 50 percent reduction in FY 2005. These

goals were established based on the FY 2000

estimates of improper payments attributed

to both housing administrator errors in

subsidy determinations and tenant

underreporting of income upon which

benefits are based.

Although 60 percent of all subsidy

determinations were found to be in error in

2000, that number declined to 41 percent in

FY 2003 and 34 Percent in FY 2004. The

baseline estimate of gross annual improper

payments has been reduced from $3.2 billion

in 2000 to $1.6 billion in 2003 and $1.2 billion

in 2004.

Paralleling HUD efforts, OIG’s

investigative and audit focus concentrates

on fraudulent practices and the lack of

compliance with the Section 8 program

statute and requirements. To comply with a

congressional request, OIG conducted 21

external audits of the Section 8 Housing

Choice Voucher program during the current

semiannual reporting period. These external

audits addressed whether housing agencies

are correctly calculating subsidy amounts,

6 HUD’s Management and Performance Challenges
correctly determining family income,

complying with housing quality

standards, fully using authorized

vouchers, and implementing controls to

prevent duplicative and fraudulent

housing assistance payments. OIG’s

recommendations for these audits

questioned costs of more than $5 million and

identified more than $63 million that could

be put to better use.

Administering Programs Administering Programs Administering Programs

Directed Toward Victims of Directed Toward Victims of Directed Toward Victims of

Hurricanes Katrina, Rita, and Hurricanes Katrina, Rita, and

Wilma

In the aftermath of Hurricanes Katrina,

Rita, and Wilma, the operations of HUD

have been thoroughly tested in the Gulf

Coast area and have created extraordinary

challenges for the residents, HUD

employees, and the business community.

The potential losses to HUD and its housing

and community development programs are

significant.

Congress estimates that damage to

residential structures will range from $17 to

$33 billion. In the Presidentially Declared

Disaster Areas (PDDA), HUD’s FHA singlefamily insurance fund insured more than

328,000 mortgages having an unpaid

principal balance of $23 billion. The

hurricanes affected 79 Ginnie Mae issuers,

causing GNMA to assess a $500 million risk

of loss to its investment portfolio. FHA’s

multifamily program in the PDDA insured

859 properties with an amortized principal

balance of $3 billion. Assets of HUD’s public

housing authorities (PHA) program

suffered tremendous damage, affecting both

property structures and housing of almost

102,000 families. The Housing Authority of

New Orleans (HANO) received a $21.8

million grant from the public housing

capital fund reserve for the cost and repair

of its public housing inventory before a full

  

assessment could be performed. HUD’s

Office of Community Development (CPD)

plans to reprogram existing funds of $380

million for the disaster areas. To expedite

the process, CPD issued numerous waivers

to streamline its grant programs including

Home Investment Partnership program

(HOME), Emergency Shelter Grants, and

CDBG.

HUD’s response to Hurricanes Katrina

and Rita falls into three separate categories:

(1) use of existing appropriations on the

ground just before hurricane impact, (2) new

appropriations for hurricane relief, and (3)

Federal Emergency Management Agency

(FEMA) funds administered by HUD in

support of mission-critical assignments.

HUD was provided $1.525 million to provide

personnel to assist FEMA as part of the

housing task force in Baton Rouge. HUD is

administering the Katrina Disaster Housing

Assistance Program (KDHAP), which was

previously funded to a level of $79 million

and has received new appropriations of $390

million in housing vouchers for families

displaced by Rita and Katrina, and HUD has

received new appropriations of $11.5 billion

in emergency CDBG funds for recovery

expenses associated with Hurricanes Rita

and Katrina. HUD is preparing to

administer the new funds, which will be

grants made directly to the five Gulf States

impacted by the hurricanes. The Governors

of Louisiana, Mississippi, Alabama, Florida,

and Texas, respectively, have identified the

appropriate State agency to receive the

funds and are submitting plans to HUD

detailing how the block grant funds will be

used.

See Chapter 6 of this Semiannual Report

for further information on the challenges

HUD faces in responding to these disasters

along with HUD OIG’s efforts to prevent and

detect fraud and provide audit coverage

for the billions of dollars HUD is

administering to aid in the recovery.

HUD’s Management and Performance Challenges

7

Chapter 2 Chapter 2

HUD’s Single-Family HUD’s Single-Family HUD’s Single-Family

Housing Programs Housing Programs Housing Programs
The America’s Mortgage’s LaPlace

branch manager formed an identity-ofinterest company, Imagine Foundation and

provided prohibited gifts to borrowers.

Imagine Foundation provided $400,000 in

gift funds to 73 America’s Mortgage

borrowers. The Internal Revenue Service

(IRS) denied Imagine Foundation’s

application for nonprofit status because it

did not meet nonprofit requirements.

According to the IRS, America’s Mortgage’s

owner served on the board of Imagine

Foundation. Under HUD requirements, the

gifts should be considered as inducements

to purchase, requiring the sales price to be

reduced dollar for dollar in determining the

maximum mortgage amount. Therefore,

HUD overinsured 73 FHA loans totaling

more than $7.6 million.

Additionally, America’s Mortgage did

not originate and process loans in

accordance with HUD’s regulations, nor did

its quality control plan meet HUD’s

regulations, further putting FHA-insured

loans at risk.

OIG recommended that HUD require

America’s Mortgage to write down the loans

for the $400,000 in inappropriate gifts by

Imagine Foundation, indemnify 73 loans

totaling $6.9 million, and reimburse HUD

$300,000 for claims paid on four loans.

Further, HUD should take administrative

action as appropriate, including debarment

and civil monetary penalties, against the

president and board of Imagine Foundation.

America’s Mortgage should develop and

implement a quality control plan that

complies with HUD’s requirements before

it is allowed to underwrite additional loans.

(Audit Report: 2006-FW-1006)

HUD OIG audited BSM Financial LP

because of an unusually high ratio of

defaults in HUD’s San Antonio, TX,

jurisdiction. The objective was to determine

whether BSM followed HUD loan

origination requirements for the 51 loans

selected for review.

10 HUD’s Single-Family Housing Programs

The Federal Housing Administration’s

(FHA) single-family programs provide

mortgage insurance to mortgage lenders

that, in turn, provide financing to enable

individuals and families to purchase,

rehabilitate, and construct a home.

Audits

During this reporting period, the Office

of Inspector General (OIG) issued

19 external audit reports in the singlefamily housing program area. These reports

disclosed more than $7 million in

questioned costs and more than $33 million

in recommendations that funds be put

to better use. OIG reviewed 19 FHA

single-family mortgage lenders.

Mortgagees, Loan Mortgagees, Loan

Correspondents, and Direct Correspondents, and Direct Correspondents, and Direct

Endorsement Lenders

Endorsement Lenders Endorsement Lenders

The U.S. Department of Housing and

Urban Development (HUD) OIG audited

America’s Mortgage Resource, Inc., of

Metairie, LA, a lender approved to originate

loans under HUD’s single-family mortgage

insurance program. OIG selected America’s

Mortgage because of its high default rate.

The objectives were to determine whether

America’s Mortgage followed HUD

origination requirements and implemented

a quality control plan in accordance with

HUD requirements.

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

50,000,000

40,000,000

35,000,000

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0

Questioned Costs Funds Put to Better Use
HUD’s Single-Family Housing Programs 11

OIG recommended that HUD take

appropriate administrative action against

Major Mortgage for not following HUD

requirements and placing the insurance

fund at unnecessary risk. At a minimum,

the actions taken should include requiring

Major Mortgage to indemnify improperly

submitted loans currently insured and

reimburse HUD for known and future losses

on foreclosed properties. (Audit Report:

2006-KC-1004)

HUD OIG audited Ryland Mortgage

Company’s loan origination activities for its

Tempe, AZ, branch office. OIG selected the

Ryland branch in response to a request from

HUD’s Santa Ana Homeownership Center

Quality Assurance Division. The objectives

were to determine whether Ryland acted in

a prudent manner and complied with HUD

regulations, procedures, and instructions in

its approval of FHA-insured mortgages and

whether it adequately implemented its

quality control plan.

Ryland did not comply with HUD

requirements and regulations in originating

23 of the 24 loans we reviewed. The 23 loans

totaling more than $3 million had multiple

origination deficiencies that should have

precluded their approval. In addition,

Ryland did not adequately implement its

quality control plan. As a result, HUD

remains at a risk of loss on 20 of the loans,

valued at $2.7 million, and incurred other

actual losses of more than $85,000.

OIG recommended that HUD take

appropriate administrative action against

Ryland by seeking recovery for 14 of the

loans totaling more than $85,000 in partial

claims, loan modification, special

forbearance, and inflated sales prices;

seeking indemnification of more than $2.7

million against future losses on 20 loans; and

requiring Ryland to reimburse a borrower

for $4,000 in unallowable fees. (Audit

Report: 2006-LA-1001)

Forty-seven percent of BSM’s defaults

involved one seller, who owned 50 percent

of the lender. OIG reviewed 51 of the

defaulted loans that involved this seller. The

lender approved mortgages on overvalued

properties because the lender allowed an

identity-of-interest seller to add ineligible

and unsupported costs to the home

construction costs and inadequately

reviewed the appraisals. Also, the lender

did not adequately document analyses of

borrowers’ credit. Further, the lender’s

processing had technical deficiencies.

Consequently, HUD and the borrowers

unnecessarily incurred increased risks

through higher insurance exposure and

higher mortgage payments as evidenced by

the borrowers defaulting on their

mortgages.

OIG recommended that HUD require

the lender to reimburse the insurance fund

almost $2 million for foreclosure losses

incurred on 19 loans, buy down 28 loans by

$320,000 for the amounts added to the loans,

and after the buydown, reamortize and

indemnify HUD for the more than $2.7

million remaining balance on these 28 loans.

In addition, OIG recommended that HUD

ensure the lender implements adequate

procedures to originate loans in accordance

with HUD requirements. (Audit Report:

2006-FW-1007)

HUD OIG audited Major Mortgage of

Cheyenne, WY, a lender. OIG selected

Major Mortgage because of its high rate of

late requests for endorsement. The objective

of the audit was to determine whether

Major Mortgage complied with HUD

requirements when submitting late requests

for endorsement.

Of the 1,814 late requests for

endorsement, 51 loans did not comply with

HUD requirements and, therefore, should

not have been endorsed. These loans

increased the risk to the FHA insurance fund

by $5.6 million and caused HUD to incur

related claims and losses.
HUD OIG audited United Mortgage

Corporation, Hauppauge, NY, a lender

approved under HUD’s single-family direct

endorsement program. The objectives of the

audit were to determine whether United

Mortgage complied with HUD regulations

in the origination of FHA loans and

developed and implemented a quality

control plan that complied with HUD

requirements.

United Mortgage did not follow HUD

requirements in the approval of 13 loans

valued at more than $1.7 million, resulting

in an unnecessary risk to the FHA insurance

fund. It also did not follow HUD

requirements when evaluating borrowers

related to an additional seven loans

reviewed. As a result, mortgages

amounting to more than $1 million were

approved for unqualified borrowers,

causing HUD to assume an unnecessary

insurance risk.

OIG recommended that HUD require

United Mortgage to reimburse HUD for the

loss incurred from claims and fees paid on

one loan amounting to approximately

$155,000 and indemnify HUD for more than

$1.6 million against future losses on the 12

loans currently insured with material

underwriting deficiencies. OIG further

recommended that HUD require United

Mortgage to indemnify the seven active

loans valued at approximately $1 million if

HUD determines the loans should not have

been approved. (Audit Report: 2006-NY1001)

HUD OIG reviewed 65 FHA loans

sponsored by the St. Louis, MO, branch of

Matrix Financial Services Corporation to

determine whether Matrix properly

underwrote and closed the loans for

endorsement. OIG selected Matrix because

more than 18 percent of the loans closed in

2003 defaulted within 2 years.

OIG found that Matrix did not properly

underwrite 32 loans with original mortgage

amounts totaling nearly $3.3 million. In

addition, Matrix charged excessive,

unsupported, and/or unallowable closing

fees totaling almost $8,000 on 13 loans.

OIG recommended that HUD require

Matrix to reimburse losses for properties

that have defaulted and indemnify those not

defaulted on all improperly underwritten

loans. Also, HUD should require Matrix to

buy down the principal balance of the 13

loans not properly closed. (Audit Report:

2006-KC-1005)

HUD OIG audited US Bank NA of

Minneapolis, MN, a lender approved to

originate, underwrite, and submit insurance

endorsement requests under HUD’s singlefamily direct endorsement program. OIG

selected US Bank for audit because of its

high late endorsement rate. The objectives

were to determine whether US Bank

complied with HUD’s regulations,

procedures, and instructions in the

submission of insurance endorsement

requests and in the underwriting of FHA

loans.

US Bank did not always comply with

HUD’s requirements regarding late requests

for insurance endorsement. It improperly

submitted 67 (1.52 percent) late requests for

endorsement out of 4,406 loans tested. The

loans were either delinquent or otherwise

did not meet HUD’s then requirement of six

monthly consecutive timely payments after

delinquency but before submission to HUD.

US Bank also incorrectly certified that both

the mortgage and escrow accounts for six

loans and the escrow accounts for taxes,

hazard insurance, and mortgage insurance

premiums for 14 loans were current.

Further, US Bank inappropriately

underwrote 13 loans out of 28 loans reviewed

that went to claim. Deficiencies included

unallowable amounts when determining the

debt for six streamline refinanced loans;

missing, outdated, or inadequate

documentation required to support

borrower income for seven purchase loans;

and understatement of the borrowers’

12 HUD’s Single-Family Housing Programs
expenses for three loans. For the 13 loans

reviewed, US Bank incorrectly certified the

integrity of the data supplied by other

lenders used to determine the quality and

insurance eligibility of one loan and

incorrectly certified that due diligence was

used in underwriting the remaining 12

loans. These improperly submitted and

inappropriately underwritten loans

increased the risk to HUD’s FHA insurance

fund.

OIG recommended that HUD require

US Bank to indemnify HUD for any future

losses on 14 loans with a total mortgage

value of more than $1.5 million, reimburse

HUD nearly $455,000 for the actual losses it

incurred on 14 loans, and indemnify HUD

for any future losses from more than

$129,000 in claims paid on three loans once

the properties are sold. OIG further

recommended that HUD implement

adequate procedures and controls to

address the deficiencies cited in this report.

OIG also recommended that HUD take

appropriate action against US Bank for

violating the requirements in effect at the

time when it submitted 18 loans with a

mortgage value of more than $2 million

without the proper 6-month payment

histories. In addition, OIG recommended

that HUD determine legal sufficiency to

pursue remedies under the Program Fraud

Civil Remedies Act against US Bank and/or

its principals for the incorrect certifications

cited in this audit report. (Audit Report:

2006-CH-1008)

HUD OIG reviewed 45 FHA loans

underwritten by the Overland Park, KS,

branch office of First Magnus Financial

Corporation to determine whether First

Magnus followed HUD regulations in

underwriting the loans.

Of the 45 loans reviewed, 23 contained

material deficiencies that affected the

insurability of the loans. Material

deficiencies included unsupported income

and assets, questionable gift funds,

underreported liabilities, and questionable

employment and credit histories. As a

result, HUD’s insurance fund is at increased

risk in connection with loans totaling more

than $2.2 million.

OIG recommended that HUD take

appropriate administrative action against

First Magnus for not following HUD

requirements, including requiring First

Magnus to indemnify 21 loans with original

mortgage amounts of more than $2 million

and to indemnify HUD for future losses on

two properties not yet sold, for which HUD

paid claims totaling more than $221,000.

(Audit Report: 2006-KC-1002)

HUD OIG audited Huntington National

Bank of Columbus, OH, a lender approved

to originate, underwrite, and submit

insurance endorsement requests under

HUD’s single-family direct endorsement

program. OIG selected Huntington for audit

because of its high late endorsement rate.

The objectives were to determine whether

Huntington complied with HUD’s

regulations, procedures, and instructions in

the submission of insurance endorsement

requests and underwriting of FHA loans.

Huntington generally complied with

HUD’s requirements on late requests for

insurance endorsement; however, it

improperly submitted 20 late requests for

endorsement out of 761 loans tested. The

loans were either delinquent or otherwise

did not meet HUD’s then requirement of six

monthly consecutive timely payments after

delinquency but before submission to HUD.

Huntington also incorrectly certified that all

payments due were made by the borrowers

before or within the month due for 12 loans.

Further, Huntington generally

complied with HUD’s underwriting

requirements. However, it underwrote two

FHA loans that later defaulted due to

overstated income, understated liabilities,

and a lack of valid compensating factors to

approve the two loans. Huntington also

charged excessive and/or unallowable fees

on five loans and incorrectly certified that

HUD’s Single-Family Housing Programs 13
due diligence was used in underwriting 5

of the 32 loans reviewed.

OIG recommended that HUD require

Huntington to indemnify HUD for any

future losses on 14 loans improperly

submitted for endorsement with a total

mortgage value of more than $1.4 million

and take appropriate action against

Huntington for violating the requirements

on two loans with a mortgage value of nearly

$178,000. OIG also recommended that HUD

require Huntington to indemnify HUD for

any future losses on two defaulted loans

with a total mortgage value of more than

$228,000 that were inappropriately

underwritten, require Huntington to

reimburse the borrowers or HUD as

appropriate more than $1,300 in excessive

and/or unallowable fees charged on five

loans, and implement adequate procedures

and controls to address the deficiencies

cited. In addition, OIG recommended that

HUD pursue sanctions under the Program

Fraud Civil Remedies Act. (Audit Report:

2006-CH-1007)

HUD OIG audited Certified Home

Loans of Florida, Inc., in Miami, FL, a lender

approved by HUD to originate and

underwrite loans under HUD’s singlefamily mortgage insurance program. OIG

selected Certified for review because of risk

factors associated with defaulted loans. The

audit objectives were to determine whether

Certified complied with HUD regulations,

procedures, and instructions in the

origination and underwriting of FHAinsured single-family mortgages and

implemented its quality control plan as

required.

Certified did not follow HUD

requirements when underwriting 14 loans

totaling more than $1.8 million. It approved

the loans based on inaccurate employment,

income, and gift information and other

deficient and/or unverified documentation.

In addition, it did not fully implement its

quality control plan and did not conduct the

required number of quality control reviews.

Its quality control plan did not include all

required elements as prescribed by HUD.

OIG recommended that HUD require

Certified to indemnify HUD against future

losses on four loans totaling more than

$660,000 and to reimburse HUD for a loss of

more than $728,000 for claims paid for five

loans. OIG further recommended that HUD

take appropriate measures to ensure that

Certified conducts required quality control

reviews and its written quality control plan

complies with HUD requirements. Finally,

OIG recommended that HUD take

administrative action, as appropriate, up to

and including civil monetary penalties.

(Audit Report: 2006-AT-1003)

HUD OIG audited American Mortgage,

Inc., of Cherry Hill, NJ, a lender approved

to originate FHA single-family mortgage

loans, on the recommendation of HUD

officials because it had a high default rate.

The objectives were to determine whether

American complied with HUD regulations,

procedures, and instructions in the

origination of FHA loans and whether

American’s quality control plan, as

implemented, met HUD requirements.

For 15 of the 23 loans reviewed,

American did not exercise due diligence in

its review of assets and liabilities or resolve

inconsistencies in calculations, signatures,

and Social Security numbers. Further,

American could not locate three case files

and charged ineligible fees of more than

$4,500 on nine loans. In addition, American’s

quality control plan and the corresponding

contractor agreement for quality control

reviews did not contain requirements to

identify patterns of early defaults and

commonalities among loan origination

participants, and the contractor did not

perform required on-site branch reviews.

OIG recommended that HUD consider

administrative action against American,

including indemnification on 15 loans

valued at more than $1.6 million; require that

American refund ineligible fees; and require

14 HUD’s Single-Family Housing Programs
American to develop written internal loan

origination procedures to more closely

monitor its loan origination process. OIG

also recommended that HUD require

American to revise its quality control plan

to include reviews for patterns and

commonalities among the loan origination

participants and ensure the contractor

performs on-site branch reviews. (Audit

Report: 2006-PH-1007)

HUD OIG audited the Plano, TX,

branch office of K Hovnanian American

Mortgage Company, LLC, because of its

high defaults, specifically defaults involving

loans with one specific underwriter and one

specific appraiser. The audit objectives were

to determine whether K Hovnanian

followed HUD origination requirements,

complied with HUD branch requirements

in its Plano office, and implemented a

quality control plan according to HUD

requirements.

K Hovnanian violated HUD

underwriting, branch, and quality control

requirements. As a result, it increased the

risk to the insurance fund for five

improperly underwritten loans with an

original loan amount of more than $1.3

million and overcharged borrowers more

than $31,000.

OIG recommended that HUD require

K Hovnanian to indemnify the five loans,

reimburse losses on the four loans that had

significant underwriting deficiencies, and

reimburse borrowers for unallowable

closing costs. OIG also recommended that

HUD require K Hovnanian to comply with

HUD’s quality control and branch

requirements. (Audit Report: 2006-FW1004)

HUD OIG audited the FHA loan

origination process of American Lending

Group in St. Peters, MO, because if its high

default rate. The objectives of the audit were

to determine whether American Lending

Group properly originated FHA loans,

properly submitted late requests for

endorsement, and implemented adequate

quality control procedures.

American Lending Group did not

properly originate eight loans, improperly

submitted one loan for late insurance

endorsement, and did not implement

adequate quality control procedures.

OIG recommended that HUD require

American Lending Group to indemnify

HUD for current and future losses due to

improperly originated and late endorsed

loans and implement changes to its quality

control procedures. (Audit Report: 2006-

KC-1007)

HUD OIG audited Allied Mortgage

Group of Bala Cynwyd, PA, a lender

approved to originate loans insured under

HUD’s single-family mortgage program,

because its default rate was above the

national average. The audit objective was

to determine whether Allied complied with

HUD regulations, procedures, and

instructions in the origination of loans.

Of the 28 loans reviewed, Allied did not

fully comply with HUD requirements for 10

loans valued at $799,571. It did not exercise

due diligence in the review of assets and

liabilities, ensure all borrowers met the

minimum investment requirement, and

verify rental history. In addition, Allied

charged more than $1,200 for ineligible

commitment fees and overcharges for credit

reports on 11 loans. Further, Allied did not

establish and implement a quality control

plan in accordance with HUD regulations,

and the reviews performed by the contractor

hired by Allied did not address all HUDrequired elements.

OIG recommended that HUD require

Allied to indemnify seven loans totaling

almost $600,000 and reimburse HUD more

than $200,000 on three loans that went into

default, require Allied to develop internal

procedures to more closely monitor its

underwriting procedures, require Allied to

reimburse borrowers the balance of

HUD’s Single-Family Housing Programs 15
approximately $1,000 that it erroneously

charged them, and require Allied to revise

and implement its quality control plan to

comply with HUD requirements. (Audit

Report: 2006-PH-1006)

HUD OIG audited the Allentown, PA,

branch of Homestead Funding Corporation,

a lender approved to originate mortgage

loans under HUD’s single-family direct

endorsement program. OIG selected

Homestead because of its high default rate,

and it was recommended by HUD. The

objective was to determine whether

Homestead complied with HUD’s

regulations, procedures, and instructions in

the origination of loans.

Of the 11 loans OIG selected for review,

Homestead did not fully comply with

requirements for four of the loans valued at

more than $270,000. Homestead did not

exercise due diligence in the review of assets

and accepted faxed documents from

realtors. These deficiencies contributed to

an increased risk for HUD’s insurance fund.

In addition, Homestead did not complete its

quality control reviews in a timely manner.

OIG recommended that HUD require

Homestead to indemnify HUD on two loans

it issued contrary to HUD’s loan origination

procedures and on two loans that went into

default, causing HUD to pay a claim.

Further, OIG recommended that

Homestead develop internal procedures to

more closely monitor its underwriting

procedures and ensure that required quality

control reviews are completed within HUD’s

required timeframe. (Audit Report: 2006-

PH-1004)

HUD OIG audited the York, PA, and

Greenbelt, MD, branch offices of 1st

Preference Mortgage Corporation, a lender

approved to originate single-family

mortgage loans. OIG selected these branch

offices because their average default rates

were above the States’ average default rates.

The audit objective was to determine

whether 1st Preference acted in a prudent

manner and complied with HUD

regulations, procedures, and instructions in

the origination of loans.

Of the loans selected for review, 1st

Preference’s York, PA, and Greenbelt, MD,

branch offices did not originate 38 percent

of them in accordance with HUD’s loan

origination requirements. The branch

offices did not fully comply with HUD

requirements for six loans valued at

$561,506. 1st Preference did not exercise due

diligence in the review of assets and gifts

obtained during the loan closing process.

These deficiencies contributed to an

increased risk to the FHA insurance fund.

In addition, 1st Preference did not complete

quality control reviews or site reviews of

its branch offices in a timely manner or

document the review of loans that went into

early default. As a result, 1st Preference did

not identify or correct problems with

accuracy, validity, and completeness of its

loan origination in a timely manner.

OIG recommended that HUD require 1st

Preference to indemnify HUD for

the loans that defaulted. OIG also

recommended that HUD require 1st

Preference to develop internal procedures to

more closely monitor its origination and

underwriting procedures and strengthen its

internal control procedures to ensure

reviews are completed in a timely manner

and reviews of the branch offices and

defaulted loans are documented. (Audit

Report: 2006-PH-1008)

HUD OIG reviewed 51 FHA loans

underwritten by First Magnus Financial

Corporation’s Denver, CO, branch office.

OIG selected First Magnus for audit because

of its high default rate. The objective was to

determine whether First Magnus followed

HUD requirements in underwriting the

loans.

Of the 51 loans reviewed, 32 required

full underwriting and 19 were streamline

16 HUD’s Single-Family Housing Programs
refinances. Twelve of the fully underwritten

loans contained significant underwriting

deficiencies. OIG also found 21 files had

overinsured mortgages and unallowable

fees. As a result, First Magnus placed HUD’s

insurance fund at risk for more than $1.6

million by not properly underwriting 12

loans, overinsured mortgages in the amount

of approximately $10,000, and charged

unallowable fees totaling $1,611.

OIG recommended that HUD require

First Magnus to indemnify and/or

reimburse HUD for the potential and actual

losses on 11 remaining loans with significant

deficiencies, reimburse the appropriate

parties for the overinsured and unallowable

charges, and develop policies and

procedures to ensure adequate supervision

over its underwriting process. (Audit

Report: 2006-DE-1001)

Contractor Activities Contractor Activities Contractor Activities

In response to a request from the

Denver Homeownership Center’s Real

Estate Owned Division, HUD OIG audited

American Title Services, a contractor closing

sales of HUD homes in Denver, CO. The

objective was to determine whether

American Title complied with contract

terms for closing sales of HUD homes.

American Title did not disburse funds

on time or in correct amounts, improperly

commingled HUD funds with retail funds,

earned interest on closing funds, and did not

reimburse HUD for bank charges.

American Title’s improper handling of

closing funds increased HUD’s and

homebuyers’ risk of not meeting financial

obligations and homebuyers’ risk of not

receiving funds to which they were entitled.

However, American Title’s performance has

improved since HUD cut back its number

of closings in August 2005.

OIG recommended that HUD

require that American Title correct the

problems, improve controls, complete all

disbursements, and pay HUD more than

$4,000 in interest. (Audit Report: 2006-DE1002)

HUD’s Single-Family Housing Programs 17
Investigations Investigations Investigations

During this reporting period, OIG

opened 115 investigation cases and closed

261 cases in the single-family housing

program area. Judicial action taken on

these cases during the period included

$144,355,458 in investigative recoveries, 255

indictments/informations, 111 convictions/

pleas/pretrial diversions, 288 arrests, 18

civil actions, 1 personnel action, and 85

administrative actions.

Loan Origination Fraud Loan Origination Fraud

Gary Konstantin, former branch

manager and loan officer, Brucha Mortgage

Bank, was found guilty in a civil proceeding

in U.S. District Court, Brooklyn, NY, in a

forfeiture hearing seeking an $11.6 million

monetary judgment against him. On

September 29, 2005, Konstantin was found

guilty on 61 counts of conspiracy, wire fraud,

mail fraud, money laundering, and

Chart 2.2: Single-Family Recoveries Chart 2.2: Single-Family Recoveries

Flipping

53%

Loan

Origination

37%

Other

1%

False Statements

1% RESPA

4%

Property Disposition

2%

Title 1

2%

Total Recoveries $144,355,458

Single-family fraud is an investigative

priority for the Office of Investigation. OIG

continues mortgage fraud initiatives

nationwide that will help reduce fraud in

the FHA single-family mortgage program.

Some of the investigations discussed in this

report were conducted jointly with Federal,

State, and local law enforcement agencies.

The results of OIG’s more significant

investigations are described below.

insurance fraud. Coconspirator Donald

Fazio pled guilty to one count of conspiracy

and 11 counts of money laundering and

agreed to a forfeiture and money judgment

of $2,594,169 on September 19, 2005.

Konstantin and Fazio, both mortgage

brokers and branch managers at the now

defunct Brucha Mortgage Bank, conspired

with nonprofit entities in securing

FHA-insured mortgages for unqualified

borrowers by submitting false loan

documentation. As a result of their scheme,

HUD realized losses of $11.6 million.

Neeraj Mody, a loan officer with

Challenge Mortgage, was sentenced in U.S.

District Court, Northern District of Illinois,

Chicago, IL, to 9 months in prison and 2

years supervised release and ordered to pay

$756,150 in restitution following his guilty

plea to mail fraud. Mody and codefendant

Theresa Holt, assistant director at North East

Austin, a nonprofit organization approved

by HUD to acquire HUD-owned properties

at a 30 percent discount and resell the

properties under HUD’S Direct Sales

Program, personally acquired then resold

HUD’s discounted properties and provided

false North East Austin employment

information to qualify for mortgages.

Approximately 100 properties valued at $5.7

million were involved.

Leticia Martinez, a real estate agent at

Portillo Realty, and Teresa Romero, a loan

officer at PacWest Financial, were each

indicted in U.S. District Court, Central

District of California, Riverside, CA, on

three counts of conspiracy, false statements,

and aiding and abetting. Martinez and

Romero, along with other coconspirators,

allegedly defrauded HUD and commercial

lenders by ordering, purchasing, and using

fraudulent employment documents and

Federal income tax returns to originate and

approve FHA-insured mortgage loans for

unqualified buyers. To date, HUD has

realized losses of approximating $120,000

involving 10 properties.

18 HUD’s Single-Family Housing Programs
William Mendez, a former managing

realtor for William E. Mendez Team, Inc.,

RE/MAX 100, Inc., pled guilty in U.S.

District Court, Denver, CO, to one count of

wire fraud and one count of money

laundering. Jose Alfredo Ramirez, a realtor

with William E. Mendez Team, pled guilty

to one count of wire fraud. Ramirez was

previously indicted on September 29, 2005.

Nicholas Lopez, a fraudulent document

vendor at William E. Mendez Team, was

sentenced to 5 years probation and ordered

to pay HUD $40,984 in restitution. Lopez

was previously indicted on April 6, 2005.

Benedicta Gomez, owner of 1Service, an

income tax and bookkeeping company, was

arrested after her September 13, 2005,

indictment charging her with five counts of

wire fraud and aiding and abetting and

one count of criminal forfeiture. Mendez

and the above coconspirators assisted

unqualified homebuyers in obtaining FHAinsured mortgages by providing false

Social Security numbers (SSN), income

information, and Federal income tax returns.

HUD realized losses approximating $2.35

million on more than 300 FHA-insured

properties.

George Rivas, a loan officer with Guild

Mortgage Company, pled guilty in

U.S. District Court, Central District of

California, Los Angeles, CA, to two counts

of mail fraud. Rivas, along with

coconspirators, created straw-buyers,

provided downpayment funds, and

prepared and used fraudulent income,

identity, and other documents to originate

and approve FHA-insured mortgage loans

for unqualified buyers. To date, HUD has

realized losses estimated at $1.8 million

involving 46 FHA-insured properties.

Manuel Molina, also known as Manny

Molina, an unlicensed real estate agent and

loan officer, was sentenced in U.S District

Court, Central District of California, Los

Angeles, CA, to 6 months incarceration and

36 months probation and ordered to pay

HUD $380,823 in restitution. On October 4,

2004, Molina pled guilty to two counts of

wire fraud and one count of aiding and

abetting. On November 7, 2005, Nelly

Rubiano, a former Notary Public, was

sentenced to 3 years probation and ordered

to pay total restitution of $655,920 ($406,692

to HUD and $249,228 to Dynamic

Investments, Inc.) pursuant to her guilty

plea to wire fraud and aiding and abetting.

Molina, Rubiano, and others caused the

completion and submission of FHA-insured

mortgage applications containing false

employment, income, and credit

information for unqualified buyers. The

defendants generated approximately $1.6

million in fraudulent FHA-insured

mortgages in Los Angeles County, and HUD

losses are estimated at $406,174.

Francine Sweet, a loan processor with

American International Mortgage Bankers

(AIMB), and Matthew Francis, a loan officer

with AIMB, were sentenced in U.S. District

Court, Eastern District of New York, Lake

Success, NY, following their previous guilty

pleas to false statements and conspiracy.

Sweet was sentenced to 1 year and 1 day

imprisonment and 3 years supervised

release and ordered to pay $878,760 in

restitution. Sweet, Francis, and AIMB

facilitated the approval of FHA-insured

mortgages for unqualified borrowers in

metropolitan New York and Nassau and

Suffolk Counties. More than 90 percent of

FHA-insured mortgages originating from

AIMB contained one or more altered

documents. HUD’s losses are estimated at

$239,235 as a result of foreclosures. .

Devon Bowie, president of Neighborhood

Mortgage Bankers, and Barry Fauntleroy,

president of EON, a real estate investment

company, were sentenced in U.S. District

Court, District of New Jersey, Newark, NJ,

following their earlier guilty pleas to one

count of conspiracy to commit false

statements. Bowie was sentenced to 2 years

probation and ordered to pay HUD $500,000

in restitution within 90 days of sentencing.

Fauntleroy was sentenced to 21 months

HUD’s Single-Family Housing Programs 19
incarceration and 3 years probation and

ordered to pay HUD $524,000 in restitution.

In addition to Bowie and Fauntleroy,

coconspirators Stacie Morrero, an

underwriter at Neighborhood Mortgage

Bankers, and Sean Mason, a closing attorney

at EON, each pled guilty to a one-count

information charging them with falsification

of documents submitted to HUD. Peter Port,

owner of Port Abstract, was sentenced to 5

months incarceration and one year

probation, fined $10,000, and ordered to pay

HUD $500,000 in restitution. Keith Miles, a

real estate contractor and owner of MidSouth Atlantic Asset Holding Company, was

sentenced to 2 years probation and ordered

to pay HUD $26,000 in restitution. In

addition, Norm Murphy, president of

Garden State Searches, was arrested and

pled guilty in State court to engaging in the

unauthorized practice of law for falsifying

a real estate deed. Bowie, Fauntleroy, and

the above coconspirators assisted

unqualified borrowers with obtaining FHAinsured mortgages by submitting false loan

documentation and appraisals, purchased

properties using borrower funds, failed

to complete promised renovations,

and overcharged borrowers excessive

origination and discount fees. As a result,

HUD realized losses in excess of $1.2 million

on 33 FHA-insured loans.

Idalmis Preval Zayas, a real estate

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

Eastern District of Virginia, Norfolk, VA, to

false statements. Zayas created false income

tax returns and credit letters for unqualified

buyers securing FHA-insured mortgages on

properties used in the transportation and

housing of illegal aliens. To date, five

additional defendants pled guilty to charges

of using false information to purchase

homes with FHA-insured mortgages and

transporting and harboring illegal aliens for

personal gain.

Carlos Gatmitan, a real estate broker

and owner of Investors Plus, a mortgage

brokerage entity, was indicted in U.S.

District Court, Central District of California,

Los Angeles, CA, on one count each of

conspiracy, wire fraud, mail fraud, and

aiding and abetting. Gatmitan and an

unnamed coconspirator allegedly used the

same loan applicant for three distinct FHAinsured mortgages from three different

lenders to facilitate closing all mortgage

loans on the same day, thus hiding from

lenders the simultaneous approval of the

three loans on the same day for the same

applicant. To date, HUD has realized losses

estimated at $720,000.

Michael Sedor, an attorney/closing

agent with Penn State Abstract Agency, and

Louis Fierro, a loan officer with FT Mortgage

Company, MNC Mortgage, and First

Horizon Home Loan Corporation, were

sentenced in U.S. District Court, Middle

District of Pennsylvania, Dover, PA,

following their May 2003 guilty pleas to

conspiracy to defraud the U.S. Government.

Sedor was sentenced to 7 months

incarceration, 7 months home confinement,

and 2 years supervised release. Fierro was

sentenced to 15 months incarceration,

followed by 2 years of supervised release.

Sedor, Fierro, and coconspirators created

fraudulent gift letters and other documents,

provided downpayment funds, and paid

creditors for unqualified buyers, obtaining

more than $16.6 million in FHA-insured

mortgages on more than 150 properties. To

date, HUD losses are estimated at $192,000.

Patrick Singletary, Robert Singletary,

Peter Russo, and Clifford Shaw were

charged in a superseding indictment in U.S.

District Court, Middle District of Florida,

Jacksonville, FL, with conspiracy, false

statements to HUD, wire fraud, and bank

fraud violations. In addition, a forfeiture

order for $17 million in assets, including six

residential properties, three businesses, and

ten vehicles was issued. The defendants

allegedly conspired in a property-flipping

scheme involving inflated appraisals and

straw-purchasers channeled through

Tropical Mortgage, Sunshine Mortgage,

Universal Title, and CAL and Eagle

Investments, entities they owned and

20 HUD’s Single-Family Housing Programs
operated. To date, HUD has realized losses

of $7.3 million.

Lorena Marquez, an escrow officer at

South Coast Title Company, was indicted in

U.S. District Court, Central District of

California, Los Angeles, CA, on one count

of mail fraud. On November 22, 2005, Mario

Izquierdo, an assistant loan officer with

Capital Mortgage, was indicted on four

counts of wire fraud. Marquez and

Izquierdo allegedly supplied downpayment

funds and/or purchased false identity

documentation to secure FHA-insured

mortgages for unqualified borrowers. To

date, $1,483,167 in FHA-insured loans has

resulted in HUD losses of $441,556.

Howard Thaler, a disbarred attorney

working as a mortgage broker and

speculator, was convicted in U.S. District

Court, Southern District of New York,

Yonkers, NY, on two counts of making false

statements, two counts of making false

statements to HUD, four counts of mail

fraud, one count of wire fraud, and one

count of conspiracy. Thaler was sentenced

to 7-years incarceration and 3 years

supervised release, and ordered to pay

$522,496 in restitution. Thaler was involved

in fraudulent real estate transactions, to

include preparing false documents to assist

nonqualified homebuyers in securing FHAinsured mortgages and selling property

owned by an estate and retaining the sale

proceeds.

Matthew Nagy pled guilty in U.S.

District Court, Western District of Texas,

Austin, TX, to one count of wire fraud.

Nagy purchased residential property using

false documents and misrepresented his

intent to occupy the property as his primary

residence. Nagy and 19 codefendants were

previously indicted for conspiracy, mail

fraud, wire fraud, bank fraud, money

laundering, and aiding and abetting for

allegedly defrauding federally insured

financial institutions and mortgage lenders

of more than $15 million.

Chris Liano, a certified HUD appraiser

and owner of CLA, Inc., and Robert Dosch,

a certified HUD appraiser employed at CLA,

were each sentenced in U.S. District Court,

Eastern District of New York, Long Island,

NY. Liano was sentenced to 3 years

probation and ordered to pay HUD

$63,037,314 in restitution following his April

6, 2001, guilty plea to false statements to

institutions insured by the Federal Deposit

Insurance Corporation (FDIC). In addition,

Liano forfeited $125,000. Dosch was

sentenced to 3 years probation and ordered

to pay HUD $8,427,610 in restitution

following his November 13, 2000, guilty plea

to false statements. Dosch also forfeited

$75,000. Liano and Dosch overvalued

appraisals on more than 300 FHA-insured

properties originated and issued from the

now defunct Mortgage Lending of America,

Ryan’s Express Equities, and Smithhaven

Mortgage, mortgage companies formerly

located in Long Island, NY. As a result, 448

FHA-insured properties defaulted, and

HUD realized losses of more than $94.5

million.

Morgan Haines and Theodore

Antonucci, Jr., both investors, pled guilty in

U.S. District Court, Western District of New

York, Rochester, NY. Haines pled guilty to

one count of false statements to HUD, and

Antonucci pled guilty to one count of

conspiracy to commit bank fraud. In

addition, on December 12, 2005,

coconspirator William O’Keefe was

sentenced to 2 years incarceration and 5

years supervised release and ordered to pay

the U.S. Department of Justice (DOJ)

$281,616 in restitution. Haines, Antonucci,

and O’Keefe purchased homes in the

Rochester, NY, area, flipped the properties

to each other at inflated values, provided

false documentation to secure FHA or

conventional financing on the properties,

and defaulted on mortgage loans in excess

of $1 million shortly afterward. To date,

HUD has paid claims on two FHA-insured

properties and realized losses of $186,475.

HUD’s Single-Family Housing Programs 21
Humberto Maravi, a loan officer with

Ark Mortgage, was sentenced in U.S.

District Court, District of New Jersey,

Newark, NJ, to 3 years probation and

ordered to pay HUD $561,775 in restitution

following his previous guilty plea to

conspiracy and false statements. Maravi

recruited and assisted nonqualified

borrowers in obtaining FHA-insured

mortgages by completing fraudulent

mortgage applications and submitting

fraudulent employment, financial, and other

loan documentation. HUD realized losses

of more than $1.8 million when 37 properties

defaulted.

Kristin Bilynsky, a former real estate

agent, was sentenced in U.S. District Court,

Eastern District of Pennsylvania,

Philadelphia, PA, to 5 years probation and

fined $13,000. Bilynsky pled guilty on July

15, 2004, to making false statements to HUD

and aiding and abetting. Bilynsky provided

false employment documentation, enabling

her sister to obtain an FHA-insured

mortgage.

Michael Fedynich, owner of Westgate

Realty, agreed to an $802,035 civil judgment

with the DOJ under the False Claims Act.

Fedynich previously pled guilty in U.S.

District Court, Northern District of Illinois,

Chicago, IL, to providing downpayment

funds and false closing certifications in the

origination and sale of 10 FHA-insured

properties resulting in HUD losses of

$516,429.

Chad J. Nicks, Dale Nelson, and Tasha

Barnes, also known as Tasha Thompson,

each pled guilty in U.S. District Court,

Northern District of Illinois, Rockford, IL,

to one count of false statements to HUD.

Nicks, Nelson, and Barnes were previously

indicted in June 2005. Nicks, who owned

and operated Planet Wireless, a cellular

telephone store in Freeport, IL, prepared

false verification of credit letters for potential

FHA borrowers. Nelson, who owned and

operated AMD Sales and Services, a

computer sales and service business in

Freeport, IL, prepared false verification of

employment and credit letters for potential

FHA borrowers. Barnes, who provided false

employment, landlord, and gift letters,

purchased and resold three properties with

FHA-insured mortgages to unqualified

buyers. Nicks, Nelson, and Barnes admitted

to causing more than $100,000 in HUD losses

as a result of foreclosures.

In U.S. District Court, Eastern District

of Michigan, Detroit, MI, a $41 million

settlement agreement under the False

Claims Act and the Program Fraud Civil

Remedies Act (PFCRA) was reached

between ABN AMRO Mortgage Group, Inc.,

DOJ Civil Division, and HUD FHA. The

settlement terms include a $16 million plus

lump sum payment, and ABN AMRO

Mortgage Group, Inc., waiving more than

$24 million in FHA claims, resulting from

783 defaulted FHA-insured mortgages

containing false FHA underwriting

certifications. The settlement further

eliminates potential future litigation on

approximately 28,000 FHA-insured loans

also containing false FHA underwriting

certifications.

Michael Dronet, a developer doing

business as Homebuyer’s, was sentenced in

U.S. District Court, Baltimore, MD, to 1 year

and 1 day in prison and 3 years supervised

release and ordered to pay HUD $756,268 in

restitution following his previous guilty plea

to conspiracy to make false statements. In

or about 1998, Dronet purchased low-priced

homes, performed minor repairs, and resold

the properties at inflated prices. Dronet

introduced potential buyers to codefendant

Bart Arconti, a former loan officer with

Capital Mortgage Bankers, who prepared

false documents for nonqualified borrowers

who obtained FHA-insured mortgages.

HUD realized losses greater than $750,000

when 18 FHA-insured loans defaulted.

Sharon Blake pled guilty in U.S. District

Court, Middle District of Pennsylvania,

22 HUD’s Single-Family Housing Programs
Harrisburg, PA, to processing and

originating FHA-insured loans containing

fraudulent information. Blake, a former loan

processor with Sunset Mortgage Company,

was previously convicted for her

participation in an FHA mortgage-flipping

scheme. From 1998 to 2001, Blake and an

unnamed coconspirator originated 85 FHAinsured home loans containing fraudulent

information. Forty of the loans, valued at

more than $1.2 million, contained fictitious

information, resulting in HUD losses of

$740,559. Blake also conspired with

property speculators Earl Ginter, Jr., David

Walsh, and Ronald Fruth to provide

borrowers with downpayment funds and

fabricated gift fund letters. Ginter, Walsh,

and Fruth were previously convicted.

Palmida Casanova, also known as

Palmira Sosa, Ruth Lizarraga, and Palmira

Martinez, were indicted in U.S. District

Court, Central District of Utah, Salt Lake

City, UT, on five counts of FHA violations,

four counts of misuse of a SSN, two counts

of possession of false identification, and five

counts of aiding and abetting. Cassanova

and coconspirators allegedly recruited and

assisted unqualified illegal alien

homebuyers in obtaining FHA-insured

mortgages without valid SSNs, legal

status, or accurate employment history. To

date, HUD has foreclosed 87 FHAinsured properties and realized losses

approximating $3,224,417.

Wilfred Changasie pled guilty in U.S.

District Court, District of Massachusetts,

Springfield, MA, to three counts of wire

fraud and conspiracy to launder money. On

January 13, 2006, Paul Starnes, David

McCoy, and Marc Brown, real estate brokers,

pled guilty to two counts of wire fraud and

one count of conspiracy to commit money

laundering and are subject to forfeitures up

to $15 million. Changasie, Starnes, McCoy,

and Brown are 4 of 13 defendants indicted

on September 9, 2005, for wire fraud and

conspiracy to launder money in a propertyflipping scheme; the remaining nine

defendants await trial. The defendants

acquired more than 70 single-family

properties in the Springfield area, including

several through HUD’s Real Estate Owned

(REO) program, inflated the values as much

as 200 percent, and falsified documents to

facilitate property flips. Approximately $5.9

million in FHA-insured mortgages is at risk.

Jeff Smith, a realtor with Green Castle

Realty, was sentenced in U.S. District Court,

District of New Jersey, Newark, NJ, to 5

months home imprisonment, 3 years

probation, and ordered to pay HUD $115,593

in restitution. On January 18, 2006,

Christopher Santarsiero was sentenced to 6

months home imprisonment and 5 years

Copyright, 2006. The Republican - Springfield, MA. Reprinted with permission.

HUD’s Single-Family Housing Programs 23
probation and also ordered to pay HUD

$115,593 in restitution. Both Smith and

Santarsiero previously pled guilty to one

count of conspiracy to commit false

statements. Smith and Santarsiero

conspired with loan officer David

Cobianchi, U.S. Mortgage, to create and

submit fraudulent documents allowing

unqualified borrowers to obtain FHAinsured mortgages. As a result of their

scheme, about 20 FHA-insured mortgages

defaulted, resulting in HUD losses

approximating $320,000. Cobianchi pled

guilty in May 2005 and awaits sentencing.

Sean Teelucksingh, a former loan officer

with Maxwell Mortgage, who pled guilty on

April 6, 2005, to one count of conspiracy to

commit wire fraud and false statements to

HUD, was sentenced in U.S. District Court,

Middle District of Florida, Tampa, FL, to 18

months incarceration and 3 years

supervised release and was ordered to pay

$199,900 in restitution ($65,505 jointly and

severally), in addition to a $100,000

monetary judgment. Teelucksingh was

further ordered to attend substance abuse,

anger management, interpersonal

relationship, and respect for authority

counseling and prohibited from incurring

new credit charges, opening additional lines

of credit, acquiring/obligating himself for

major purchases without probation officer

approval, or engaging in any employment

that provides him access to personal and/or

financial information of others.

Teelucksingh used false identities, false

income information, and straw-buyers to

obtain conventional and FHA-insured loans

for his personal benefit.

Brothers Paul and William Peterson,

doing business as Peterson Land and

Development, were each found guilty of one

count of conspiracy and one count of false

statements in U.S. District Court, Central

District of California, Los Angeles, CA. The

Petersons knowingly conspired and made

false, fictitious, and fraudulent statements

to HUD when purchasing properties with

FHA-insured mortgages. HUD realized

losses approximating $1,123,030.

Ifiok Equere, loan broker and real estate

investor operating as Omega and Paradigm

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

Eastern District of Missouri, St. Louis, MO,

to false statements to HUD and felony

possession of a firearm. Equere, previously

indicted on October 13, 2005, admitted using

false documents to flip properties and broker

FHA-insured mortgages, causing HUD

losses of $105,000. Equere, who has a prior

felony conviction for conspiracy to import

heroin, also admitted to illegally possessing

a firearm.

Bryon Fitchpatrick, Shatanya Douglas,

also known as Shatanya Fitchpatrick,

Kathleen Fitchpatrick, Manjur Alam, Phillip

Fish, Deverell Jones, and Demond Reed were

charged in a 13-count superseding

indictment in U.S. District Court, District of

Kansas, Wichita, KS, alleging conspiracy to

defraud HUD, wire fraud, and aiding and

abetting. Bryon Fitchpatrick and Shatanya

Fitchpatrick, husband and wife real estate

investors and owners of ABS Rentals and

Investments, allegedly used straw-buyers

Kathleen Fitchpatrick, Jones, and Reed to

purchase HUD-owned properties as

owners/occupants. Alam, a realtor with

ReMax Preferred Properties, and Fish, a

realtor with Prudential Dunning, allegedly

knew HUD-owned properties were

purchased for investment purposes but

processed the property sales as owner/

occupant, thus preventing true owner/

occupants and nonprofit entities any

opportunity to acquire the properties. In

addition, Alam allegedly knew Byron

Fitchpatrick stored illegal drugs in and used

drug proceeds to purchase HUD-owned

properties. Byron Fitchpatrick is also

charged with unlawful possessing of a

firearm in furtherance of drug trafficking

and unlawful possession of illegal drugs

with the intent to distribute.

Kenneth Jenkins and coconspirators

Sabena Ingalls, Walter Jenkins, Ronald

Rogers, Rita Jackson-Paulk, and Thomas

24 HUD’s Single-Family Housing Programs
Harper were ordered in a U.S. District Court,

Camden, NJ, restitution hearing, to pay

HUD $134,774, National City Mortgage

$142,155, and $10,240 to five individual

borrowers who suffered financial hardship.

The court further ordered the restitution to

commence upon release from incarceration.

Kenneth Jenkins and the above

coconspirators were indicted, convicted, and

sentenced on numerous counts involving

wire fraud, conspiracy, possession and/or

distribution of controlled substances, and

money laundering. Kenneth Jenkins, a drug

wholesaler, organized and operated a $1

million scheme using crack cocaine profits

to buy abandoned and dilapidated

residential properties in Camden, perform

cosmetic repairs, and flip the properties at

inflated values to unqualified buyers,

securing fraudulent FHA-insured loans.

Gordon Nelson, a real estate developer

with Jae Horn-Gerber, and Linda Martz

were sentenced in U.S. District Court,

Northern District of Illinois, Chicago, IL, for

their previous guilty pleas to a real-estate

gift fund scheme. Nelson was sentenced to

1 year home confinement and 3 years

probation; Horn-Gerber was sentenced to 2

years probation and ordered to perform 120

hours of community service; Martz was

sentenced to 1 year probation and ordered

to perform 100 hours of community service.

The defendants were ordered to pay HUD

$650,000 in restitution, jointly and severally

with other co-defendants. Nelson, HornGerber, Martz, and other codefendants

provided unqualified buyers downpayment

funds to obtain FHA-insured mortgages.

HUD losses exceed $650,000 and involve

more than 40 FHA-insured properties.

Laura Barlow, a former underwriter

with Main Street Mortgage Service and Ark

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

District of New Jersey, Trenton, NJ, to a onecount Information charging her with false

statements and conspiracy. On February 24,

2006, Barlow was sentenced to 3 years

probation, ordered to refrain from any

employment as an underwriter/loan

originator, and instructed to pay HUD

$76,123 in restitution. Coconspirator Axel

Bonilla, a former loan officer at Main Street

Mortgage and Ark Mortgage, pled guilty to

two counts of mail fraud on February 10,

2006. Bonilla assisted unqualified borrowers

in obtaining FHA-insured mortgages by

providing false documents and paying

Barlow $500 to $1,500 for each fraudulent

FHA-insured loan she approved. Bonilla

further embezzled and converted more than

$1.2 million in investor funds by creating

false documents, reporting fictitious

investment earnings, and using investor

funds to purchase residential properties. To

date, HUD has realized losses of $76,123

when six FHA-insured mortgages

defaulted.

Kings Mortgage Services, Inc., entered

into a settlement agreement with the United

States Attorney’s Office, Eastern District of

California, Fresno, CA, and HUD. Kings

Mortgage Services’ former agent, Carol

Mercer, was convicted on January 13, 2003,

of making a false statement to HUD for

preparing or causing to be prepared false

documentation for four FHA-insured

mortgages. Kings Mortgage Services, Inc.,

agreed to pay HUD $147,936.

Patricia Mays pled guilty in U.S. District

Court, Northern District of Illinois, Chicago,

IL, to multiple counts of mail fraud and wire

fraud. Mays admitted she participated in a

real estate fraud scheme and submitted false

loan documents for unqualified borrowers

obtaining FHA-insured mortgages on

properties located in south Chicago. HUD

realized more than $3 million in losses

involving more than 30 properties.

Violet Duarte, an office assistant with

Platinum Capital Mortgage Company, was

sentenced in U.S. District Court, Central

District of California, Los Angeles, CA, to 3

years probation and ordered to pay HUD

$1,013,966 in restitution following her May

26, 2004, guilty plea on two counts of

wire fraud. Duarte purchased and

used fraudulent documents to assist

HUD’s Single-Family Housing Programs 25
nonqualifying borrowers in securing FHAinsured mortgages. As a result, HUD

realized losses of more than $1 million when

13 FHA-insured properties foreclosed.

Katrina Soukkaseum, a manager with

Freedom Financial Mortgage Company

(FFMC), was sentenced in U.S. District

Court, Eastern District of Arkansas, Little

Rock, AR, to 3 years probation and ordered

to pay five financial institutions $15,735 in

restitution following her May 19, 2005,

guilty plea to one count of conspiracy. From

January 2000 to March 2002, Soukkaseum

and coconspirators employed with FFMC

and Absolute Abstract and Title (AAT) failed

to disclose inflated fees, provided false and

misleading information, and falsified loan

origination and title history documents

relating to at least 84 loans valued at more

than $3.5 million. In addition, Soukkaseum

and codefendants conspired to commit Real

Estate Settlement and Procedures Act

(RESPA) violations by charging borrowers

tremendous document preparation fees

payable to Jefferson Doc Prep (JDP);

accepting higher yield spread premiums

from funding lenders; and failing to disclose

the relationship among FFMC, AAT, and

JDP.

Mark Young, former owner and branch

manager of the now defunct Nevada First

Residential Mortgage Company (NFRMC),

was sentenced in U.S. District Court, District

of Nevada, Las Vegas, NV, to 78 months

incarceration and 3 years supervised release

and ordered to pay HUD $457,740 in

restitution. On September 1, 2005, Young

was found guilty of 32 counts of submitting

false information to HUD and one count of

conspiracy. From May 2000 to June 2002,

Young conspired with NFRMC employees

and employees of General Realty to

manufacture and submit false employment

and income documentation for

nonqualifying borrowers, mostly illegal

immigrants from Mexico, and directed loan

officers and processors to originate 233

fraudulent FHA-insured loans valued at

more than $25 million. HUD realized losses

greater than $1.9 million when 58 FHAinsured loans defaulted.

Nancy Rios, a loan officer with Colorado

Bank and Trust, pled guilty in Colorado State

District Court, Jefferson County, Denver,

CO, to one count of theft of $15,000 or more.

Rios fraudulently originated 30 FHAinsured mortgages by assisting with the

creation of fraudulent documentation for

nonqualified borrowers. As a result, HUD

realized losses of $194,617.

Donald W. Gupton, president of Donald

W. Gupton, Inc., doing business as Dynasty

Homes of Henderson, Superior Housing

Center, Creative Real Estate, Manufacturing

Housing Sales Center, CRE Properties LLC,

and M&G Properties, Inc. (The Companies),

and Richard Meador, a sales manager for

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

Eastern District of North Carolina, Raleigh,

NC. Gupton pled guilty to one count of

conspiracy and one count of money

laundering; Meador pled guilty to one count

of conspiracy to commit money laundering.

Gupton further agreed to forfeit his or The

Companies’ real property, a Harley

Davidson motorcycle, a Lexus automobile,

and more than $11 million in cash or other

assets. The Companies were indicted on one

count of conspiracy and one count of money

laundering on March 8, 2006. In addition to

Gupton, Meador, and The Companies,

Donald Scott Carroll, a former salesperson

at Creative Real Estate and Manufacturing

Housing Sales Center, was charged with

false statements, mail fraud, wire fraud, and

bank fraud in an information filed on

December 22, 2005. Between 1999 and 2002,

Gupton, Meador, and others, using The

Companies, bought and sold more than 150

manufactured and mobile homes, some

including land, and assisted unqualified

borrowers in obtaining FHA-insured

mortgages valued at more than $18 million

by using fictitious trade-ins, providing cash

and fabricated gift letters, and falsely

inflating values and/or certifying land

26 HUD’s Single-Family Housing Programs
ownership. To date, HUD realized losses of

$5,818,681, and Gupton agreed to pay HUD

$4,668,586 in restitution.

Steven Winter, a realtor with Kent

Amlin Realty, pled guilty in U.S. District

Court, Southern District of Ohio, Columbus,

OH, following the filing of an information

charging him with four counts of filing false

Federal income tax returns, and six counts

of false statements. Winter admitted to

falsifying credit, employment, and rental

history documents to qualify 70 borrowers

for FHA-insured mortgages on properties

he was personally selling and failing to

report the property sales proceeds to the IRS.

HUD realized losses of $170,000 as a result

of foreclosure action on seven properties.

Mario Mendoza, a real estate broker

with Weichart Realtors; Kenneth DiPrenda,

a former loan officer with AMS Mortgage;

and Myriam Vaca, a check casher for

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

New Jersey, Newark, NJ, to an information

charging them with conspiracy to submit

false statements to HUD. In addition, Linda

Serrano, a closing attorney, pled guilty to

making false statements to HUD. Mendoza,

DiPrenda, Vaca, and Serrano recruited and

assisted unqualified borrowers with

obtaining FHA-insured mortgages by

submitting fraudulent gift letters and

employment, identity, and other loan

documentation. HUD realized losses in

excess of $349,000 when 12 FHA-insured

properties defaulted. Mendoza was arrested

on December 2, 2005.

Stefan Crosby pled guilty in U.S.

District Court, District of Nevada, Las

Vegas, NV, to one count of false statements

to HUD and one count of conspiracy.

Crosby was indicted on September 13, 2005,

for conspiring with Lionel Crosby, his

brother, and providing fraudulent

employment, income, identification, and

other documentation to unqualified strawbuyers obtaining FHA-insured loans. In

addition, both Stefan and Crosby applied for

FHA-insured loans using bogus documents.

As a result, HUD realized losses of $302,365

when 11 FHA-insured loans defaulted.

Identity Fraud/False Social Identity Fraud/False Social Identity Fraud/False Social

Security Numbers

Security Numbers Security Numbers

Steven Anthony Watt, also known as

Jayru Watt, was indicted and pled guilty in

U.S. District Court, Northern District of

Ohio, Cleveland, OH, to four counts of

conspiracy and false oaths in bankruptcy.

Watt was sentenced to 4 months

incarceration and 2 years probation for

acquiring and using a SSN under a fictitious

name to obtain credit, secure an FHAinsured mortgage, and file bankruptcy.

Jesus Bernal-Hernandez pled guilty in

U.S. District Court, District of Utah, Salt

Lake City, UT, to one count of false

statements and one count of false

bankruptcy documents. Bernal-Hernandez

was indicted on April 27, 2005, and arrested

on August 15, 2005, for assuming another’s

identity and using false identity documents

to secure an FHA-insured mortgage and file

bankruptcy. HUD’s loss is estimated at

$123,026.

Florentino Ipina was sentenced in U.S.

District Court, Northern District of Texas,

Dallas, TX, to 1 year and 1 day incarceration

and 2 years supervised release and ordered

to pay HUD $17,877 in restitution. Ipina,

an undocumented alien, pled guilty in July

2005 to one count of misuse of an SSN. Ipina

used a false SSN to obtain and later default

on an FHA-insured loan, causing a $17,877

loss to HUD. Ipina will be deported upon

completion of his prison term.

Jorge Acevedo-Velzquez was indicted in

U.S. District Court, Middle District of

Georgia, Macon, GA, for false statements

and use of false identification. AcevedoVelzquez allegedly provided false

identification documents to obtain and later

HUD’s Single-Family Housing Programs 27
default on an FHA-insured mortgage,

causing a $47,053 loss to HUD.

Enrique O. Montanez, an undocumented

alien homebuyer, was sentenced in 3rd

District Court, County of Salt Lake, Salt

Lake City, UT, to 3 years probation and

ordered to pay HUD $50,817 restitution and

report to Immigration and Customs

Enforcement (ICE) for deportation.

Montanez pled guilty to one count of forgery

and one count of communications fraud on

August 8, 2005, for using a false SSN to

obtain and later default on an FHA-insured

mortgage.

Maria Brito, Mario Morales Alvarez, and

Adriana Osorio Mendoza, undocumented

alien homebuyers, were arrested pursuant

their November 2005 indictment in 17th

Judicial District, Adams County, Brighton,

CO, for offering a false instrument for

recording, criminal impersonation to gain a

benefit, and forged instrument possession.

Brito, Alvarez, and Mendoza allegedly

purchased properties and obtained FHAinsured mortgages using fraudulent

immigration cards and SSNs. To date, HUD

has not sustained a loss.

Michael Hatton was indicted in U.S.

District Court, Eastern District of Virginia,

Norfolk, VA, for false statements and using

a false SSN. Hatton allegedly used a false

SSN and concealed prior bankruptcies when

applying for an FHA-insured mortgage on

property in Portsmouth, VA.

Odie Webster, a former realtor with

Metro Brokers, pled guilty in U.S. District

Court, District of Colorado, Denver, CO, to

two counts of false statements and

possession of false papers. Webster was

previously indicted on April 20, 2005, and

arrested on April 27, 2005. Webster and

coconspirators assisted unqualified

homebuyers in obtaining FHA-insured

mortgages using false SSNs and income

information. Daryl Collins, indicted on

April 20, 2005, for Social Security fraud, was

sentenced to 10 months incarceration and

ordered to pay HUD $47,711 in restitution.

Collins, one of several subject homebuyers

who participated in a real estate scheme,

used a false SSN and false income

information to obtain an FHA-insured

mortgage. Sheila Lockett and Tracey

Lockhart, also known as Tracey Richardson,

were sentenced for using false SSNs and

income information to obtain FHA-insured

mortgages. Lockett was sentenced to 2 years

probation following her October 3, 2005,

guilty plea to making false statements.

Lockhart was sentenced to 15 months

incarceration and ordered to pay HUD

$57,244 in restitution following her

November 1, 2005, guilty plea to making

false statements and aiding and abetting.

Sonia Ramirez and Albertico Galindo,

previously indicted for false statements and

possession of false paper, were each

sentenced in U.S. District Court, District of

Colorado, Denver, CO, to 3 years probation.

The court further ordered Ramirez to pay

HUD $10,192 in restitution. Ramirez and

Galindo, two of several subject homebuyers

who participated in a real estate scheme,

used false SSNs and income information to

obtain an FHA-insured mortgage. To date,

HUD has realized losses of $2,310,030

involving approximately 90 homes with an

estimated FHA-insured loan value of $13.5

million.

Tonya Hill, a mortgage broker and real

estate investor with Sunset Mortgage, was

sentenced in U.S District Court, Eastern

District of Missouri, St. Louis, MO, to 6

months home confinement and ordered to

pay $401,914 in restitution to HUD and other

lenders. Hill pled guilty to bank fraud,

bankruptcy fraud, false statements to HUD,

and misuse of an SSN on November 1, 2005.

Hill flipped properties using false

documents to secure FHA-insured and

conventional mortgages. Hill also

purchased her personal residence using a

false SSN to hide her assets from U.S.

28 HUD’s Single-Family Housing Programs
Bankruptcy Court. As a result, HUD

realized a $30,163 loss.

In Kansas City, KS, and Kansas City,

MO, 33 undocumented aliens were

arrested on State of Kansas felony charges

issued by the Johnson County, KS, District

Attorney’s Office involving identify theft

and false statements to FHA for their roles

in a mortgage fraud scheme. Between

February 2002 and September 2004, an

unidentified loan officer and two real estate

agents allegedly originated approximately

$5 million in FHA-insured mortgage loans

for illegal aliens using false SSNs.

Maria Carmen Garcia, a loan officer at

Summit Mortgage, was sentenced in U.S.

District Court, District of Arizona, Phoenix,

AZ, to 5 years probation and ordered to pay

HUD $105,201 in restitution, jointly and

severally with codefendant Leonel Estrella.

Garcia pled guilty to one count of false

statements to HUD on July 25, 2005. On

February 27, 2006, Leonel Estrella, a real

estate agent, was sentenced to 5 years

probation and ordered to pay HUD $105,201

in restitution, jointly and severally with

codefendant Maria Carmen Garcia, and

$12,363 to Washington Mutual Bank FA.

From May 2000 through August 2002,

Garcia used false documents and SSNs

prepared by her brother, Leonel Estrella, to

qualify mutual clients for FHA-insured and

conventional home loans. HUD realized

losses of $140,310 when five FHA-insured

loans defaulted.

Edward Futch, also known as Edward

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

Eastern District of Virginia, Norfolk, VA, to

an information charging him with one count

of making false statements to HUD.

Futch admitted he purchased property and

secured an FHA-insured mortgage using a

false SSN, fraudulent identity, and other

false documents.

Bankruptcy Fraud Bankruptcy Fraud

Milton G. Goddard, doing business as

West Coast Land Group (WCLG), was

sentenced in U.S. District Court, Eastern

District of Michigan, Detroit, MI, to 18

months incarceration and 2 years supervised

release and ordered to pay $31,000 in

restitution to numerous victims. Goddard

previously pled guilty to one count of wire

fraud for his role in a bankruptcy scheme.

Goddard and codefendants accepted

mortgage payments from distressed

homeowners attempting to avoid

foreclosure and deposited their funds into a

WCLG bank account but failed to pay

mortgage loans as promised. To date, 120

FHA-insured mortgages were identified.

Donald Kingston, owner of DBK

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

District of Utah, Salt Lake City, UT, to one

count of bankruptcy fraud. Kingston

perpetrated an equity-skimming scheme

throughout the State of Utah by obtaining

quit-claim deeds from property owners in

financial distress, failed to pay mortgage

payments while collecting rents, and filed

bankruptcy to stall foreclosure proceedings.

To date, HUD losses exceed $150,000

involving six properties.

Barbara Kessinger, also known as Sheila

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

Northern District of Illinois, Chicago, IL, to

one count of bankruptcy fraud. Kessinger

acquired one FHA-insured and two U.S.

Department of Veterans Affairs (VA) loanguaranteed properties using a bogus name

and SSN, failed to make mortgage

payments, and filed multiple sham

bankruptcies to hinder foreclosure

proceedings. As a result of her actions, HUD

and VA realized losses of $74,000 and

$36,000, respectively.

Mark Neusch and Michael Davis, real

estate investors and managing members of

M&M Properties LLC and Reliable

Properties LLC, were each indicted in the

U.S. District Court, District of Utah, Salt

Lake City, UT, on one count of equity

HUD’s Single-Family Housing Programs 29
skimming and three counts of bankruptcy

fraud. Neusch and Davis obtained quitclaim deeds through misrepresentations to

property owners, failed to make mortgage

payments while collecting rents, and filed

bankruptcy to forestall foreclosure

proceedings. HUD realized losses of

$470,000 when 17 FHA-insured properties

foreclosed.

Other Fraud/Crimes Other Fraud/Crimes Other Fraud/Crimes

Kathleen Johnson, a HUD-approved

real estate broker at RE/MAX Realty, was

sentenced in U.S. District Court, Rochester,

NY, to 5 years probation and 6 months home

confinement and ordered to pay HUD

$22,800 in restitution. In April 2005, Johnson

pled guilty to one count of mail fraud for

collecting earnest deposits from potential

buyers, failing to deposit their funds in an

earnest deposit account, and keeping

approximately $26,000 for personal use. In

addition, Johnson prepared and mailed

false prequalification letters from

mortgage companies and banks to First

Preston Management Company, certifying

prospective buyers for financing.

Donald Lee Liverman, a developer

doing business as 1st Homes, pled guilty in

U.S. District Court, Eastern District of

Virginia, Richmond, VA, to one count of

Federal tax evasion. Liverman, previously

indicted on numerous charges including

FHA fraud, purchased distressed

properties; flipped the properties to firsttime homebuyers; failed to disclose

significant structural problems, termites,

and/or water damage; and hid the property

defects by generating fake repair completion

letters from contractors. HUD losses are yet

to be determined.

Norvel Brown, president of Mississippi

Valley Title, was indicted in U.S. District

Court, Eastern District of Missouri,

Herculaneum, MO, on two counts of wire

fraud. From 2000 to 2005, Brown, a HUD

single-family property disposition closing

agent, allegedly diverted and retained

closing funds in lieu of wiring closing

proceeds to HUD. As a result of his scheme,

HUD losses are estimated at $2.8 million.

Todd Stall and Daniel Curtin, former

partners in the law firm of Hankin, Hanig,

Stall, Caplicki, Redl, and Curtin, each pled

guilty in U.S. District Court, Southern

District of New York, Poughkeepsie, NY, to

one count of violating RESPA. From January

2001 through December 2004, Stall and

Curtin provided no professional services but

accepted $106,300 from Crystal Clear

Abstract Title when they sold title insurance

and supplied settlement services.

In Rochester, NY, Rita Zambito, a real

estate agent/broker for Realty USA, and

Kevin Parker, a private investor, entered into

PFCRA settlements agreeing to pay HUD

$9,000 and $5,500, respectively. Parker

purchased two HUD REO properties as an

owner/occupant through Zambito and sold

or rented the properties immediately after

the properties closed.

Edward Carrillo, owner of Sahara

Investments, pled guilty in Superior Court,

Maricopa County, Phoenix, AZ, to two

counts of fraudulent schemes. Carrillo was

previously indicted on nine counts of

fraudulent schemes, six counts of theft, and

one count of unlicensed real estate activity.

Carrillo accepted $989,800 in investor funds

to teach HUD’s preforeclosure business

procedures and purchase investment

properties. Carrillo failed to acquire

investment properties as promised or return

investor funds.

In Newark, NJ, Denise Jones, a

Northern New Jersey State Prison payroll

clerk, entered into a false claims civil

settlement agreement, consenting to pay the

U.S. Government $61,200. Jones purchased

two HUD Officer Next Door (OND)

properties within 6 months and falsely

30 HUD’s Single-Family Housing Programs
certified each OND property as her sole

residence.

Carl A. Clayton was sentenced in U.S.

District Court, Baltimore, MD, to 2 years

supervised probation and ordered to pay

restitution of $18,000 following his

September 2005 guilty plea to making false

occupancy statements to HUD. In May

2000, Clayton purchased property from

HUD through HUD’s OND program, failed

to occupy the property for the required 3-

year period, and rented the property to a

tenant approximately 30 days after closing.

After purchasing and renting the OND

property, Clayton entered into a law

enforcement officer’s lease with the Housing

Authority of Baltimore City and resided in

a HUD-assisted building paying $150 in

monthly rent. Clayton later relocated to

New York, NY, where he resided for the

remainder of the OND-required 3-year

occupancy period.

John Henry Davis, correctional officer,

Ironwood State Prison, Blythe, CA, was

indicted in U.S District Court, Los Angeles,

CA, on one count of false statements. Davis

allegedly purchased a house through HUD’s

OND/Teacher Next Door (TND) program,

rented the property for 34 months, and

falsely certified he resided at the property

and the property was his sole residence. As

a result, HUD losses approximate $60,000.

Realtor Rohan A. Johnson, also known

as Ato Ra Ajah El, and real estate consultant

Donovan Gilpin, doing business as Pre

Amble Properties, were indicted in U.S.

District Court, Central Islip, NY, on one

count of conspiring to defraud HUD and VA

in a multimillion dollar HUD- and VAowned property fraud scheme. Johnson and

Gilpin allegedly filed fraudulent deeds on

one VA- and 14 HUD-owned properties,

preventing banks from deeding foreclosed

properties to HUD or HUD and VA from

selling the properties to legitimate buyers.

Johnson and Gilpin were arrested on

December 9, 2005.

Murray Beitman was sentenced in

Cumberland County Common Plea Court,

Carlisle, PA, to 2 years incarceration and

ordered to pay $30,685 in restitution to the

victim for his role in a counterfeit

Government National Mortgage Association

(GNMA) mortgage-backed certificate

scheme. Beitman swindled the savings of

an elderly woman when he sold her a

counterfeit GNMA certificate, claiming it to

be worth $1.2 million on maturity in 30

years.

Jamal Zafar, a real estate investor, pled

guilty in Nassau County Criminal Court,

Mineola, NY, to one count of attempted

criminal possession of a forged instrument.

Zafar swindled two victims into investing

$165,000 for the purchase of property with

Section 8 subsidies, promising the victims

Section 8 rent monies and proceeds from the

future property sale. With the victims’

money, Zafar purchased the property,

collected Section 8 rents, sold the property

to another buyer, and realized $100,000 in

sale proceeds. Zafar, released on his own

recognizance on the condition he returns

$55,000 to the victims and $5,000 to the court,

faces an 18-month to 3-year jail sentence if

he fails to comply.

James Anthony Street, a police officer

with United States Postal Inspection Service

(USPIS), was indicted in U.S. District Court,

Los Angeles, CA, on two counts of making

false statements to HUD. Street, a

participant in HUD’S OND program,

allegedly owned property in Bloomington,

CA, at the same time he submitted written

certifications claiming his OND property in

Long Beach, CA, was his sole property and

residence. Street, who purchased the OND

property for $48,500, recently sold the

property for $335,000.

Steven Marquez, a loan officer at

Primera Mortgage Company, was indicted

on two counts of theft in Cook County

Circuit Court, Chicago, IL. Marquez

allegedly deceived property owners and

HUD’s Single-Family Housing Programs 31
  

acquired rights to their property, sold the

property, and collected the sale proceeds.

The property owners, believing they were

refinancing their $250,000 FHA-insured

mortgage, mistakenly signed “power of

attorney” papers assigning their

homeownership rights to Marquez. The

FHA-insured mortgage is in foreclosure.

In Newark, NJ, Toni Cruz, a New Jersey

transit police officer, entered into a false

claims civil settlement agreement for

$62,000 with DOJ. Cruz, who owned a

principal residence, purchased a property

through HUD’s OND program and falsely

certified the OND property was her sole

residence.

Dwayne Jones was indicted in U.S.

District Court, Eastern District of New York,

Brooklyn, NY, on one count of wire fraud

and one count of conspiracy to defraud HUD

and Countrywide Home Loans. Jones

allegedly submitted false documents to

HUD and Countrywide Home Loans when

he flipped his FHA-insured property to his

cousin, Rohan Vickers, who obtained an

FHA-insured mortgage on the property

from First Funding Mortgage Bankers. Jones

received proceeds in excess of $51,000, as

well as a short payoff on his original FHAinsured mortgage serviced by Countrywide

Home Loans. Countrywide Home Loans,

unaware the property for which it approved

a short payoff was later flipped to strawbuyer Vickers for $75,000 more than the

approved purchase price, submitted an

insurance claim to HUD in excess of $85,000.

Jones was arrested on March 16, 2006, and

Vickers was arrested on March 21, 2006.

32 HUD’s Single-Family Housing Programs
Chapter 3 Chapter 3

HUD’s Public and Indian HUD’s Public and Indian HUD’s Public and Indian

Housing Programs Housing Programs Housing Programs
34 HUD’s Public and Indian Housing Programs

The U.S. Department of Housing and

Urban Development (HUD) provides grants

and subsidies to more than 4,100

public housing authorities (PHA)

nationwide. More than 3,100 PHAs

manage public housing units, and almost

1,000 with no public housing, manage units

under Section 8 programs. Many PHAs

administer both public housing and Section

8 programs. HUD also provides assistance

directly to PHAs’ resident organizations to

encourage increased resident management

of public housing developments and to

promote the formation and development of

resident management entities and resident

skills programs. Programs administered by

PHAs are designed to enable low-income

families, the elderly, and persons with

disabilities to obtain and reside in housing

that is safe, decent, sanitary, and in good

repair.

Audits

During this reporting period, the Office

of Inspector General (OIG) issued 31 reports:

one internal audit and 30 external audits in

the Public and Indian Housing (PIH)

program area. These reports disclosed more

than $23 million in questioned costs and

about $100 million in recommendations that

funds be put to better use. During this

reporting period, OIG reviewed the Section

8 Housing Choice Voucher program

activities, and public housing activities,

Section 8 Housing Choice Section 8 Housing Choice

Voucher Program Activities Voucher Program Activities Voucher Program Activities

HUD OIG audited the Miami Dade

Housing Agency’s, Miami, FL, Section 8

Housing Choice Voucher program as part

of OIG’s strategic plan. The objective was

to determine whether Section 8-assisted

units met housing quality standards in

accordance with HUD requirements.

Of the 120 Section 8 units inspected, 117

did not meet minimum housing quality

standards. Thirty-eight units had significant

housing quality violations. Projecting the

results of the statistical sample to the

population indicates at least 12,387 of the

Agency’s 13,200 units did not meet

minimum housing quality standards.

Further, 3,265 units had significant housing

quality standards violations. As a result,

tenants lived in units that were not decent,

safe, and sanitary, and HUD made housing

assistance payments for units that did not

meet standards.

OIG recommended that HUD require

the Agency to inspect all of the 117 Section 8

housing choice voucher-assisted units to

verify that corrective actions were taken by

the landlord, and if not, to abate the rents or

terminate the tenants’ vouchers. The Agency

should also develop and implement an

internal control plan to ensure units meet

housing quality standards and inspections

meet HUD requirements to prevent an

estimated $25.9 million from being spent on

units with significant violations. Further,

HUD should reduce or offset $7,300 of the

Agency’s administrative fees for the 38 units

with significant housing quality standards

violations. (Audit Report: 2006-AT-1001)

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

100,000,000

90,000,000

80,000,000

70,000,000

60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0 Questioned Costs Funds Put to Better Use

including PHA activities with related

nonprofit entities, and PHA pension plan

forfeiture policy. In addition, OIG

conducted a corrective action verification

review.
HUD’s Public and Indian Housing Programs 35

HUD OIG audited the Housing

Authority of the City of Prichard’s, Prichard,

AL, Housing Choice Voucher program as

part of its strategic plan. The objectives of

the audit were to determine whether the

Authority only paid housing assistance

payments for units that were decent, safe,

and sanitary; properly determined tenant

eligibility and subsidy amounts; and made

housing assistance payments only to eligible

landlords.

The Authority failed to ensure that its

units receiving housing assistance

payments met housing quality standards.

Of the 65 units reviewed, 97 percent, or 63,

did not meet housing quality standards. Of

the 63 units, 45 were in material

noncompliance with housing quality

standards. In addition, the Authority paid

more than $63,000 for ineligible units,

including more than $8,000 for failed units

requiring housing assistance payment

abatements and approximately $55,000 for

units that lacked annual inspections. It also

earned more than $6,000 in administrative

fees for ineligible units. OIG estimates that

HUD paid more than $14 million in housing

assistance payments on units that may not

have met housing quality standards. In

addition, the Authority’s internal controls

over processing tenant files were not

complete. Finally, the Authority violated

Federal and local conflict-of-interest

provisions by allowing an Authority

employee and board member to rent to a

housing choice voucher holder, resulting in

more than $22,000 paid to this ineligible

landlord.

OIG recommended that HUD terminate

the Authority’s Section 8 Housing Choice

Voucher program and transfer it to another

Alabama housing authority, require the

Authority to immediately abate the Section 8

housing assistance payments or terminate

tenant vouchers on the 63 units that do not

meet housing quality standards if

deficiencies are not corrected, and repay

more than $69,000 for housing assistance

payments it paid and administrative fees it

earned for ineligible units. Also, since the

Authority had inadequate internal controls

over processing tenant files, HUD should

reduce the Authority’s administrative fees

by 10 percent for fiscal years (FY) 2003 and

2004, approximately $233,000. Finally, HUD

should require the Authority to repay

ineligible costs of more than $22,000 for the

conflict-of-interest violation. (Audit Report:

2006-AT-1004)

HUD OIG audited the Housing

Authority of the City of Winston-Salem’s,

Salem, NC, Housing Choice Voucher

program as part of the OIG strategic plan.

The objective was to determine whether

units met housing quality standards.

Of the 67 units OIG inspected, 51 did

not meet minimum housing quality

standards. Of the 51 units, 26 were in

material noncompliance with housing

quality standards. As a result, HUD made

housing assistance payments for units that

did not meet standards. OIG estimates that

over the next year, HUD will pay housing

assistance payments of more than $6.4

million for units in material noncompliance

with housing quality standards.

OIG recommended that HUD require

the Authority to inspect the 51 units that did

not meet minimum housing quality

standards to verify that the landlords took

appropriate corrective actions. If

appropriate actions were not taken, HUD

should abate the rents or terminate the

tenants’ vouchers. OIG also recommended

that HUD require the Authority to

implement an internal control plan to ensure

its Section 8 units meet housing quality

standards and inspections meet HUD

requirements to prevent an estimated $6.4

million from being spent on units that are

in material noncompliance with standards.

(Audit Report: 2006-AT-1005)
HUD OIG audited the Municipality of

San Juan Housing Authority’s, San Juan, PR,

Section 8 Housing Choice Voucher program

to determine whether units met housing

quality standards in accordance with HUD

requirements.

Of the 67 units OIG inspected, 63 did

not meet minimum housing quality

standards. Of the 63 units, 25 were in

material noncompliance with housing

quality standards. As a result, tenants lived

in units that were not decent, safe, and

sanitary, and HUD made housing assistance

payments for units that did not meet

standards. OIG estimates HUD will pay

housing assistance payments more than $5.8

million for units in material noncompliance

with housing quality standards over the

next year.

OIG recommended that HUD require

the Authority to inspect all units that did

not meet minimum housing quality

standards to verify that the landlords took

appropriate corrective actions to make the

units decent, safe, and sanitary. If

appropriate actions were not taken, the

Authority should abate the rents or

terminate the tenants’ vouchers. HUD

should also require the Authority to

implement an internal control plan and

incorporate it into the Authority’s Section 8

administrative plan to ensure units meet

housing quality standards and inspections

meet HUD requirements. (Audit Report:

2006-AT-1006)

As part of its FY 2005 annual audit plan,

HUD OIG reviewed the Section 8 Housing

Choice Voucher program of the Hartford

Housing Authority in Hartford, CT. The

objective was to determine whether the

Authority properly administered the

program in accordance with its annual

contributions contracts and HUD

requirements.

The Authority 1) inaccurately reported

leasing and cost data to HUD and

incorrectly received more than $841,000 in

funding; 2) improperly charged more than

$714,000 in administrative costs to the

program; 3) approved unreasonable rents,

resulting in ineligible and prospective

ineligible costs totaling more than $595,000;

4) paid housing assistance payments for

substandard housing; and 5) did not account

for and failed to collect its portable voucher

receivables. As a result, OIG identified

questioned costs and opportunities for funds

to be put to better use totaling more than

$2.6 million.

OIG recommended that HUD require

the Authority to 1) implement procedures

to properly track and report housing

assistance payments and administrative fees

and repay HUD more than $841,000; 2)

repay the program more than $714,000 and

properly allocate administrative costs; 3)

repay the program more than $159,000 for

unreasonable rents and inspection costs; 4)

develop and implement an effective quality

control process to ensure reliable

inspections, correction of substandard

housing, and abatement of payments for

housing that does not meet HUD standards;

and 5) establish procedures to reconcile all

portability receivables, reimburse

authorities for any overpayments, and

follow up on past-due accounts. (Audit

Report: 2006-BO-1005)

HUD OIG audited the Mount Vernon

Urban Renewal Agency’s, Mt. Vernon, NY,

administration of its Section 8 Housing

Choice Voucher program. The objectives

were to determine whether the Agency (1)

correctly billed HUD for housing choice

vouchers used; (2) complied with HUD

program requirements for tenant admission,

rental subsidy calculations, and housing

quality standards; and (3) implemented

financial management controls to ensure

that Housing Choice Voucher program

funds were adequately safeguarded.

The Agency over-requisitioned housing

assistance payments and administrative fees

36 HUD’s Public and Indian Housing Programs
from HUD, resulting in more than $1.7

million in overpayments. The Agency also

did not properly use or maintain its waiting

list, conduct recertifications in a timely

manner, or document that all units met

housing quality standards. Further, the

Agency made duplicate and ineligible

housing assistance payments, inadequately

supported expenditures, and used Housing

Choice Voucher program funds for other

programs.

OIG recommended that HUD recoup

through offset against future payments the

overpaid housing assistance payments and

administrative fees received, instruct the

auditee to implement controls and

procedures to properly maintain its waiting

list, and ensure the auditee develops and

implements financial controls to adequately

support expenditures and use Housing

Choice Voucher program funds only for that

program. (Audit Report: 2006-NY-1004)

HUD OIG audited the Section 8

Housing Choice Voucher program of the Ft.

Worth Housing Authority in Ft. Worth, TX,

to determine whether the Authority

properly applied the subsidy size standards

in its administrative plan.

The Authority had sound policies

regarding assignments of tenant subsidy

size; however, it did not follow its policy

when it neglected to change voucher sizes

for as many as 382 tenants. This resulted in

more than $180,000 in ineligible and

unsupported payments and potential

overpayments of approximately $521,000

over the next 3.7 years. Further, the

Authority enacted policy changes without

approval from its board of commissioners.

OIG recommended that HUD require

the Authority to (1) repay ineligible housing

assistance overpayments of more than

$5,000, (2) repay or support questioned costs

of more than $175,000, (3) develop and

implement procedures to ensure it assigns

the correct subsidy size for all tenants to

better use approximately $521,000 in Section

8 funding, and (4) institute controls to ensure

that the board of commissioners approves

any program changes before they are

implemented. (Audit Report: 2006-FW1001)

HUD OIG reviewed the Columbia

Housing Authority’s, Columbia, MO,

Housing Choice Voucher program to

identify savings the Authority will realize

by ensuring tenants are in appropriate-size

units.

The Authority unnecessarily paid more

than $216,000 in program funds for 99

tenants with units larger than necessary. By

enhancing its procedures to ensure that

program tenants receive the proper voucher

size and subsidy payments, the Authority

could avoid future losses of approximately

$300,000 and be able to provide vouchers to

additional tenants.

OIG recommended that HUD require

the Authority to correct vouchers for units

larger than allowed by the Authority’s

administrative plan, repay more than

$216,000 for excess housing assistance

payments, and develop and implement

procedures to ensure that tenants receive

correct-size vouchers. (Audit Report: 2006-

KC-1001)

HUD OIG audited the Housing Choice

Voucher program of Northeast Washington

Housing Solutions in Spokane, WA, to

determine whether it complied with HUD

requirements.

The Authority made housing assistance

payments of almost $450,000 through the

use of vouchers for 154 families whose

eligibility was unknown. HUD paid the

Authority more than $58,000 to administer

these vouchers. In addition, the Authority

did not correctly report its fiscal year 2005

Section 8 Management Assessment Program

score and did not have an adequate plan

for allocating indirect salary costs.

HUD’s Public and Indian Housing Programs 37
OIG recommended that HUD require

the Authority to determine the eligibility of

the 154 families and return any ineligible

housing assistance payments, recoup the

appropriate amount of administrative fees,

perform an on-site verification of the

Authority’s 2006 Section 8 Management

Assistance Program score, and require the

Authority to submit a plan for allocating

indirect salaries. (Audit Report: 2006-SE1002)

At the request of the executive director

of the Housing Authority of the City

of Los Angeles, Los Angeles, CA, HUD

OIG conducted a review of the

Authority’s Section 8 rent reasonableness

determinations for the Housing Choice

Voucher program.

The Authority did not adequately

document rent reasonableness

determinations to ensure Section 8 rents

were reasonable before entering into

housing assistance payment contracts.

OIG recommended that the Authority

support or reimburse HUD more than

$186,000 in unsupported Section 8 housing

assistance payments and follow the

established policies and procedures for rent

reasonableness determinations. (Audit

Report: 2006-LA-1002)

HUD OIG reviewed the Section 8

Housing Choice Voucher program of the

Housing Authority of Kansas City, Kansas

City, MO, to determine whether the

Authority paid excess subsidies for tenant

units that were larger than necessary.

The Authority unnecessarily paid

nearly $31,000 in program funds for 50

tenants in units that were larger than

necessary or allowed by the Authority’s

administrative plan. The Authority could

avoid future losses of more than $73,000 by

enhancing its controls, thereby allowing it

to provide vouchers to additional tenants.

OIG recommended that HUD require

the Authority to immediately correct

tenants’ vouchers, repay the unnecessary

costs incurred, and develop and implement

procedures that improve controls over

assigning voucher sizes. (Audit Report:

2006-KC-1006)

HUD OIG reviewed the Section 8

Housing Choice Voucher program of the St.

Joseph Housing Authority in St. Joseph,

MO, to determine whether the Authority

paid excess subsidies for units that are larger

than the needs of the tenant.

The Authority overhoused 16 tenants

when it subsidized an additional bedroom

for medical purposes without proper

justification, resulting in overpayments of

more than $20,000 from 2002 through

January 2006. By correcting its weak

controls, the Authority can avoid future

overpayments totaling more than $54,000.

OIG recommended that HUD (1) ensure

that the Authority immediately correct

overhoused tenants’ vouchers and repay

the overpayments and (2) verify that the

Authority implements procedures to ensure

that each tenant receives the proper voucher

size to avoid additional overpayments.

(Audit Report: 2006-KC-1008)

HUD OIG audited Inglewood Housing

Authority’s, Inglewood, CA, administration

of its Section 8 Housing Choice Voucher

program to determine whether the

Authority administered its program

in compliance with pertinent HUD

requirements and its annual contributions

contract and operated its program in an

effective and efficient manner.

The Authority did not comply with

program requirements relating to portability

procedures and responsibilities, tenant

certification, housing quality standards

requirements, housing assistance payment

register maintenance, and salary allocation

and procurement procedures. In addition,

38 HUD’s Public and Indian Housing Programs
the Authority’s organizational structure and

management responsibilities were not

clearly defined, and its financial reporting

function was ineffective and inefficient.

Finally, the Authority did not request

additional funds from HUD when needed

to alleviate its cash deficit problems.

OIG recommended that HUD require

the City of Inglewood’s mayor and board of

commissioners to replace the current

executive director and housing manager,

establish a separate housing authority

commission, and require the City of

Inglewood to designate sufficient finance

department personnel dedicated to work

solely on Authority-related financial

reporting activities. (Audit Report: 2006-

LA-1004)

HUD OIG audited the Franklin

Redevelopment and Housing Authority’s,

Franklin, VA, Section 8 Housing Choice

Voucher program to determine whether the

Authority adequately administered its

Section 8 program according to HUD

requirements.

The Authority often made incorrect

housing assistance payments and did not

perform required quality control reviews of

its Section 8 tenant files. Additionally, it did

not verify rent reasonableness and allowed

an apparent conflict-of-interest situation to

exist.

OIG recommended that HUD require

the Authority to repay more than $9,000 in

housing assistance overpayments and

reimburse tenants more than $1,500 in

housing assistance underpayments. OIG

also recommended that the Authority

strengthen its internal controls to ensure it

adequately administers its Section 8

program and prevent future apparent

conflict-of-interest situations. (Audit

Report: 2006-PH-1003)

HUD OIG audited the Housing

Authority of the City of Los Angeles, Los

Angeles, CA, in response to a request from

its executive director regarding his concern

over the management of the Authority’s

waiting list. The objective was to determine

whether the Authority complied with

applicable laws and regulations when

placing registrants on the waiting list and

selecting applicants in the proper order to

receive housing vouchers.

The Authority did not adequately

administer and maintain its waiting list in

accordance with program requirements and,

thus, may not have selected applicants in

the proper order.

OIG recommended that HUD require

the Authority to engage a dedicated team to

analyze, purge, and update its waiting list

to ensure that it is accurate and complete;

evaluate and implement any needed

changes to its administrative plan; and

provide training to employees on the revised

waiting list procedures and policies. (Audit

Report: 2006-LA-1008)

HUD OIG audited the Section 8

Housing Choice Voucher program of the

Housing Authority of the City of Annapolis,

Annapolis, MD, as part of its FY 2006 annual

audit plan. The objective was to determine

whether the Authority adequately

administered the program according to

HUD requirements.

The Authority generally administered

the program according to HUD

requirements but did not adequately

administer its waiting list. It did not follow

controls in its Section 8 administrative plan

requiring it to update and purge its waiting

list annually or maintain its Section 8

applications in a permanent file in the order

in which the applicants applied for

assistance. These controls were needed to

ensure that families received assistance as

quickly and efficiently as possible and to

provide assurance that the Authority

provided fair and consistent treatment of

families.

HUD’s Public and Indian Housing Programs 39
OIG recommended that HUD require

the Authority to provide adequate

management oversight to ensure its Section

8 waiting list is updated and purged

annually and its Section 8 applications are

maintained in a permanent file in order of

date and time of the application. (Audit

Report: 2006-PH-1009)

Public Housing Authority Public Housing Authority

Management of Assets Management of Assets Management of Assets

HUD OIG audited Baytown Housing

Authority in Baytown, TX, due to concerns

expressed by the Houston Office of Public

Housing. The objectives were to determine

whether the Authority used resources

subject to the annual contributions contract

only for expenses of that program.

The Authority inappropriately used

public housing funds to support its

nonprofit and related entities. For some of

the transfers, the Authority’s executive

director altered transfer documentation. As

of March 31, 2005, the Authority owed the

low-rent and Section 8 programs more than

$792,300, and it could not support

approximately $134,800 in transfers and

encumbrances. Further, the Authority could

not demonstrate that it equitably distributed

salary costs between its HUD and non-HUD

activities because it did not support salary

payments with required activity reports or

equivalent documentation. As a result, the

Authority cannot support $1.1 million in

salary costs allocated to its HUD programs.

OIG recommended that HUD require

the Authority to repay its HUD programs

at least $792,300; provide support for or

repay $1.2 million in unsupported transfers,

encumbrances, and salary costs; and

implement procedures and controls to

correct the weaknesses identified. Proper

procedures and controls should help ensure

that the Authority will properly use and

support the $5.9 million in HUD funding it

will receive next year. (Audit Report: 2006-

FW-1002)

HUD OIG reviewed the Housing

Choice Voucher and Public Housing

Operating Fund programs at the Worcester

Housing Authority in Worcester, MA, as

part of its FY 2005 annual audit plan. The

objectives were to determine whether the

Copyright, 2006. Baytown Sun - Baytown, TX. Reprinted with permission.

40 HUD’s Public and Indian Housing Programs
Authority improperly used Federal funds

for expenses of its State program and

properly allocated salary and other expenses

to its Housing Choice Voucher and Public

Housing Operating Fund programs.

The Authority did not use its Federal

funds in compliance with its annual

contributions contracts. It used its public

housing operating funds to pay

expenditures for State-subsidized housing

programs and other Federal programs. As

a result, the Authority did not have more

than $1.9 million available for its Public

Housing Operating Fund program.

Additionally, the Authority could not

support the salary and benefits expenses

charged to its Housing Choice Voucher and

Public Housing Operating Fund programs.

OIG recommended that HUD require

the Authority to monthly reimburse its

revolving fund the amounts owed by its

programs and cease the practice of using

public housing operating funds to pay for

nonprogram costs. In addition, the

Authority should conduct a time study to

determine the appropriate allocation of

salary and benefits for its Federal programs

and develop and implement a HUDapproved cost allocation plan for salaries

and employee benefits. The FY 2006

accounting records should be adjusted

accordingly. (Audit Report: 2006-BO-1002)

HUD OIG audited the Alexandria

Redevelopment and Housing Authority in

Alexandria, VA, to determine whether it

improperly used Section 8 funds to support

its other programs.

Contrary to its consolidated annual

contributions contracts, the Authority did

not track its Section 8 administrative and

housing assistance funds during the year or

monitor and periodically settle the Section

8 programs’ due-to/due-from account to and

prevent it from using Section 8 funds to

support its other programs. As a result, it

improperly used more than $462,000 in

Section 8 funds.

OIG recommended that the Authority

repay its Section 8 programs the more than

$462,000, which it improperly used to

support its other programs. The Authority

took action to repay that amount during the

audit. OIG further recommended that HUD

require the Authority to create and

implement internal controls to track its

Section 8 administrative and housing

assistance funds during the year, reconcile

and settle its Section 8 due-to/due-from

account monthly, and stop improperly using

Section 8 funds to support its other

programs, thereby ensuring $462,000 will be

used for the appropriate program over the

next year. (Audit Report: 2006-PH-1001)

HUD OIG audited the Housing

Authority of the County of Butler, Butler,

PA, as part of its FY 2005 audit plan. The

audit objective was to determine whether

the Authority properly used HUD funds to

develop and support its affiliated nonfederal

entities.

The Authority improperly used HUD

assets as collateral to obtain two lines of

credit totaling $1.1 million. As of August

2005, it owed more than $888,000 on the lines

of credit, placing significant HUD assets at

risk. It also did not properly record these

loans in its financial records. In addition,

the Authority failed to properly allocate all

applicable salary costs and improperly paid

salaries estimated at more than $205,000

from Federal funds for work its employees

performed for its nonfederal entities.

OIG recommended that HUD require

the Authority to modify its financial

instruments to release the funds as collateral

and allow the more than $888,000 to remain

available for HUD-intended purposes. OIG

also recommended that HUD require the

Authority to properly record its lines of

credit in its financial records. Finally, OIG

HUD’s Public and Indian Housing Programs 41
recommended that HUD require the

Authority to recover approximately

$205,000 from nonfederal entities for

improperly allocated employee expenses

and develop a reasonable method for

allocating future salaries and expenses.

(Audit Report: 2006-PH-1005)

HUD OIG reviewed the Palacios

Housing Authority’s, Palacios, TX, low-rent

and Section 8 Housing Choice Voucher

programs to determine whether the

Authority operated the programs in

accordance with HUD requirements.

Copyright, Pittsburgh Post-Gazette, 2006, all rights reserved. Reprinted with permission.

42 HUD’s Public and Indian Housing Programs
The Authority could not provide

support for funds transferred between its

Section 8 and low-rent housing programs.

The Authority also made minor errors in its

tenant files and did not always ensure units

were decent, safe, and sanitary. OIG

determined the Authority’s lack of

compliance did not materially affect its

housing programs and it can easily correct

the deficiencies identified.

OIG recommended that HUD require

the Authority to implement a budget-based

approach in its operations, including using

an approved documented cost allocation

plan, which will result in the Authority

maintaining support for an estimated

$44,600 in future fund transfers. Further,

HUD should require the Authority to

implement a quality control plan to review

all new tenant rent calculations, obtain

additional inspection training, and include

an exterior conditions assessment when it

conducts unit inspections. (Audit Report:

2006-FW-1003)

HUD OIG audited the operations of the

Suffolk Redevelopment and Housing

Authority in Suffolk, VA, as part of its FY

2005 annual audit plan. The audit objective

was to determine whether the Authority

carried out its operations in accordance with

applicable HUD requirements.

For the most part, the Authority carried

out its operations in accordance with

applicable HUD criteria. It properly

inspected its Section 8 units, followed proper

contracting procedures, and properly

supported its drawdown of HUD funds.

However, it did not always properly

calculate Section 8 tenant income and utility

allowances, resulting in net overpayments

of more than $5,000. Additionally, for one

of its public housing developments, the

Authority sometimes did not perform

required annual inspections or properly

recertify the tenants.

OIG recommended that HUD reduce

the Authority’s housing assistance payments

by the amount of the net overpayments on

its next Section 8 year-end settlement

statement. Additionally, OIG recommended

that HUD require the Authority to follow its

Section 8 administrative plan and to prepare

periodic reports showing the results of file

reviews and any actions taken. OIG further

recommended that HUD require the

Authority to perform the necessary reviews

to ensure recertifications and inspections are

done when required. (Audit Report: 2006-

PH-1002)

Public Housing Authority Activity with

Nonprofit Entities

HUD OIG audited the Housing

Authority of the City of Prichard’s, Prichard,

AL, administration of its nonprofit activities

and homeownership programs at the

request of HUD. HUD expressed concerns

regarding the nonprofit’s ventures into areas

other than housing, such as the purchase of

a shopping center and the Authority’s use

of the proceeds from the sale of its public

housing units. The objectives were to

determine the validity of these two concerns.

Although the Authority only used lowincome housing funds to pay for authorized

nonprofit-entity activities, its programs to

make affordable homes available to low- and

moderate-income persons were inadequate.

As of June 1, 2005, the Authority had a

waiting list of more than 250 potential

homebuyers, while 139 homes were

available for sale. Although the Authority

was not selling the homes in its inventory, it

planned to seek approval to use

approximately $3.8 million in HUD grant

funds to build additional homes. In

addition, it did not include sales proceeds

and estimated proceeds of more than $11.6

million from its homeownership programs

in its 5-year public housing authority plan.

The funds have remained idle since 2002.

Finally, the Authority inappropriately

HUD’s Public and Indian Housing Programs 43
advanced more than $806,000 in public

housing funds to pay for other programs’

expenses.

OIG recommended that HUD require

the Authority to aggressively market its

Section 5(h) and Housing Opportunities for

People Everywhere (HOPE 1) homes as

affordable housing to ensure that HUD

funds provided for the construction of these

homes are used as intended and the homes

are not allowed to deteriorate. OIG also

recommended that HUD require the

Authority to demonstrate it has the

capability to sell its remaining units before

requesting more than $3.8 in HUD grant

funds to build additional homes. Further,

OIG recommended that HUD require the

Authority to include in its 5-year plan more

than $11.6 million in proceeds and its plans

for using the funds. (Audit Report: 2006-

AT-1002)

HUD OIG audited the Housing

Authority of the City of Newark in Newark,

NJ. The objectives were to determine

whether the Authority’s (1) Housing Finance

Corporation conducted its operations in

accordance with HUD regulations, (2)

payments made to the City of Newark in

addition to the payments in lieu of taxes for

municipal services were allowable, (3) costs

for legal settlements were properly

authorized, and (4) self-insurance program

was cost effective.

The Authority (1) may not be

conducting its bond financing activities in

accordance with HUD requirements; (2)

could not substantiate that the $6.9 million

paid to the City of Newark was for

necessary, reasonable, and additional

services provided to the Authority; (3)

settled general liability claims without

obtaining prior written HUD approval; and

(4) could not assure that more than $1.2

million in legal settlements paid under the

self-insurance program were processed in

a cost-effective manner.

OIG recommended that HUD obtain a

legal opinion as to the disposition of $3.7

million in funds being retained by the

Authority and its Housing Finance

Corporation, review the documentation

provided to determine whether city services

were provided in accordance with the

cooperation agreement and seek

reimbursement for any amounts not

supported, and require the Authority to seek

HUD approval for general liability

settlements and ensure that contract services

are provided as required. (Audit Report:

2006-NY-1003)

HUD OIG audited the Fairfield

Metropolitan Housing Authority’s,

Lancaster, OH, activities with its related

nonprofit organization. The Authority was

selected for audit because it was identified

as having high-risk indicators of nonprofit

development activity. The objective was to

determine whether the Authority

improperly diverted or pledged resources

for the benefit of non-HUD developments.

The Authority improperly transferred

more than $520,000 of its HOPE 1 and 5(h)

Homeownership Plan sales proceeds to its

nonprofit, the Lancaster Community

Housing Corporation. The Authority

received more than $337,000 from 10 HOPE

1 properties sold in 1995 and $78,000 from

two 5(h) Homeownership Plan properties

sold in 1996. The sales proceeds were pooled

and invested in certificates of deposit,

accumulating interest until 2004, when the

Authority transferred the proceeds to the

Corporation. The transfer occurred without

HUD approval and did not follow Federal

requirements regarding the use of the

proceeds. The Authority also transferred

ownership of three properties that were

rehabilitated using HUD’s McKinney grant

funds to the Corporation without HUD

approval. The Corporation sold one

property in 2004. The Authority and/or the

Corporation did not reimburse HUD for

more than $23,000 used to rehabilitate the

property.

44 HUD’s Public and Indian Housing Programs
OIG recommended that HUD require

the Authority to (1) reimburse its HOPE 1

and 5(h) Homeownership Plan programs

more than $520,000 from nonfederal funds

for the improper transfer of the sales

proceeds to its nonprofit; (2) reimburse

HUD more than $23,000 from nonfederal

funds for the McKinney grant funds used

to rehabilitate the one property; and (3)

implement procedures and controls to

correct the weaknesses identified. (Audit

Report: 2006-CH-1005)

Low-Rent Housing Program

HUD OIG audited the Housing

Authority of the City of Winston-Salem,

Winston-Salem, NC, to determine whether

the Authority used funds subject to its lowincome housing annual contributions

contract for the benefit of other programs

or entities without HUD approval.

In violation of its contract with HUD,

the Authority used more than $4.9 million

in operating subsidies to pay expenses of

other Federal and nonfederal programs.

Further, the Authority violated its contract

by encumbering assets when it executed a

guarantee of payment agreement for a

$475,000 loan for an affiliated entity. As a

result, the funds were not available for

operation or modernization of public

housing units, and assets are at risk.

OIG recommended that HUD require

the Authority to repay ineligible costs of

more than $4.9 million to its public housing

fund, establish a procedure that requires the

executive director to provide monthly

financial documents to the board before

meetings to assist the board in providing

oversight, and obtain a release of

encumbered assets in the amount of

$475,000 for use as originally intended. OIG

also recommended that HUD determine

whether the Authority substantially

defaulted on its contract. (Audit Report:

2006-AT-1007)

HUD OIG audited the low-rent housing

program of the Utica Municipal Housing

Authority in Utica, NY, to determine

whether it complied with the provisions of

its annual contributions contract.

The Authority improperly disbursed

more than $511,000 in operating funds for

health benefits of retired employees. It did

not ensure that all procurements allowed for

full and open competition, procured legal

services without executing a contract, made

contract payments without adequate

supporting documentation, and failed to

enforce contract provisions for elevator

construction services. The Authority

incurred questionable costs of more than

$140,000 and did not completely earn the

administrative fees it was paid as a contract

administrator for the Section 8 program

Copyright, 2006. The Columbus Dispatch - Columbus, OH. Reprinted with permission.

HUD’s Public and Indian Housing Programs 45
since it failed to conduct required

management reviews and meet its

monitoring responsibilities.

OIG recommended that HUD require

the Authority to establish controls and

procedures to ensure compliance with all

applicable board, procurement, and contract

administration policies and procedures;

submit documentation to justify all

unsupported costs; and reimburse the

program from nonfederal funds all amounts

found to be ineligible. In addition, the

Authority should enforce the damage clause

of its elevator contract and collect all penalty

income for program use. (Audit Report:

2006-NY-1005)

HUD’s Real Estate Assessment HUD’s Real Estate Assessment HUD’s Real Estate Assessment

Center’s (REAC) Housing Center’s (REAC) Housing

Inspections Inspections Inspections

HUD OIG reviewed HUD’s Real Estate

Assessment Center ’s (REAC) housing

inspections and oversight and controls over

its housing inspection process. OIG initiated

the review as part of its strategic plan to help

HUD improve the execution of its fiscal

responsibilities. The objective was to

determine whether REAC had adequate

controls to safeguard the integrity of its

housing inspection data.

Without REAC’s knowledge, confidential

information maintained in its system was

accessed and used inappropriately by

unauthorized persons. The unauthorized

persons drew a sample of housing authority

units before the inspector’s scheduled

inspection. REAC’s controls and procedures

for securing its housing information after a

download and before the upload of

inspection data were not in place to assure

that only authorized users had access to

HUD’s confidential information. OIG

informed the REAC’s Deputy Assistant

Secretary of other minor deficiencies in a

memorandum, dated November 22, 2005.

46 HUD’s Public and Indian Housing Programs

OIG recommended that HUD

implement procedures and controls over the

physical assessment subsystem to correct

the deficiencies addressed. (Audit Report:

2006-CH-0001)
Investigations Investigations Investigations

During this reporting period, OIG

opened 486 investigation cases and closed

393 cases in the PIH program area. Judicial

action taken on these cases during the

period included $8,829,801 in investigative

recoveries, 386 indictments/informations,

287 convictions/pleas/pretrial diversions,

1,093 arrests, 12 civil actions, 19 personnel

actions, and 991 administrative actions.

Public housing rental assistance fraud

is an investigative priority for the Office of

Investigation. OIG runs rental assistance

fraud initiatives nationwide to reduce fraud

in HUD rental assistance programs and

support the HUD Rental Housing Integrity

Improvement Project (RHIIP). Some of the

investigations discussed in this report were

conducted jointly with Federal, State, and

local law enforcement agencies. The

results of OIG’s more significant

investigations are described below.

Rental Assistance Fraud Rental Assistance Fraud

 Linton White, a Topeka Housing

Authority (THA) public housing tenant,

pled guilty in Topeka, KS, State court to an

information charging him with theft. White

falsified his housing assistance application

by failing to report his Missouri sexual

predator classification to authorities in the

State of Kansas and THA. White received

$6,493 in housing assistance payments to

which he was not entitled.

Robert Askew III, former Section 8

tenant, Oakland Housing Authority (OHA),

was indicted in U.S. District Court, Northern

District of California, Oakland, CA, on nine

counts of mail fraud and one count of false

statements. The indictment also included

criminal forfeiture provisions. From 1999

through 2002, Askew allegedly reported he

was disabled, unemployed, and had no

assets on OHA and Social Security

Administration (SSA) disability

certifications, when Askew was selfemployed, actively operating a home

renovation/improvement business known as

Askew & Company; owned four cars, a

motorcycle, residential property in Oakland,

CA, and rental property in Sacramento, CA;

and made bank account deposits of $87,058

in 1999, $52,365 in 2000, $211,014 in 2001,

and $407,606 in 2002. Askew was arrested

on October 19, 2005. HUD losses are

estimated at $35,500.

Debra Utley pled guilty in U.S. District

Court, Middle District of Tennessee,

Nashville, TN, to one count of theft of public

money and agreed to pay Nashville Metro

Development Housing Agency $10,983 in

restitution. Utley failed to report her August

2000 employment at Vanderbilt University

Medical Center.

Alisa Covington, a Lakeland Housing

Authority (LHA) public housing resident,

was arrested in Lakeland, FL, on a State of

Louisiana arrest warrant for probation

violations. Covington’s probation stemmed

from a Louisiana conviction for possession

with intent to sell 11 pounds of marijuana.

LHA was notified of Covington’s arrest and

began terminating Covington from their

housing assistance program. Covington was

extradited by the Lakeland Police

Department.

Ernest Stevenson, a Section 8 landlord,

and Paula Petruk, also known as

Paula Stevenson, a Duluth Housing

Redevelopment Authority (DRHA) Section

8 tenant, each pled guilty in U.S. District

HUD’s Public and Indian Housing Programs 47

Chart 3.2: Public and Indian Housing

Recoveries Recoveries

Section 8

54%

PHA Fraud

10%

Total Recoveries $8,829,801

Embezzlement

7%

Other

12%

False

Statements

2%

Public

Corruption

15%
Court, District of Minnesota, Duluth, MN,

to one count of conspiracy. Stevenson and

Petruk, who received housing assistance

from DHRA, failed to disclose joint accounts

and co-ownership of real estate located in

Duluth. HUD’s loss is estimated at $54,000.

Jacinda Stokes and Sherrell Lanier,

former Lakeland Housing Authority (LHA)

Section 8 tenants, were arrested after

complaints were filed in State court,

Lakeland, FL, charging them with public

assistance fraud. Stokes and Lanier

allegedly failed to disclose earned income

on their annual Section 8 recertification

forms submitted to LHA. HUD’s loss is

estimated at $19,261.

Carresha Skiffer, a former Inglewood

Housing Authority (IHA) Section 8

recipient, was charged in Superior Court,

County of Los Angeles, Inglewood, CA,

with one count of theft and one count of

obtaining money under false pretenses.

Skiffer allegedly filed false annual housing

certifications by failing to claim income she

earned from operating an adult-sexuallyoriented business out of her subsidized

apartment or rents she collected from

subleasing her unit for extended periods.

IHA removed Skiffer from the rental

assistance program.

Maverick E. Jackson, a Section 8

landlord, Aiken Housing Authority (AHA),

was indicted in U.S. District Court, District

of South Carolina, Aiken, SC, on two counts

of submitting false documents to AHA.

Jackson allegedly lived in a subsidized unit

and falsely certified that he had no

relationship to a tenant in his unit, who was

his half brother and an AHA Section 8

applicant. HUD’s loss is estimated at $6,100.

Kelly Turnage, a former Inglewood

Housing Authority (IHA) Section 8

recipient, was charged in Superior Court,

County of Los Angeles, Inglewood, CA,

with one count of theft and one count of

obtaining money under false pretenses.

Turnage allegedly filed false annual housing

certifications by failing to report her prior

criminal convictions for prostitution, auto

theft, forgery, and narcotics; her current

probation status; or her use of numerous

aliases. IHA removed Turnage from the

rental assistance program.

Rocky Stubbs, a Section 8 landlord with

Coshocton Metropolitan Housing Authority

(CMHA), was sentenced in Coshocton

County Court, Coshocton, OH, to 3 years

probation and ordered to pay CMHA $27,000

in restitution. Stubbs, leasing his property

to CMHA, resided at his property with a

CMHA Section 8 recipient and concealed

their living arrangement from CMHA.

Tyrone Mock, a Cuyahoga Metropolitan

Housing Authority (CMHA) Section 8

landlord, was sentenced in U.S. District

Court, Northern District of Ohio, Cleveland,

OH, to 46 months incarceration and 3 years

supervised release and ordered to pay

CMHA $37,438 in restitution. Mock

previously pled guilty to providing

fraudulent information to obtain multiple

properties, leasing the properties to CMHA

tenants, residing in one leased property with

a CMHA Section 8 recipient, failing to pay

mortgages associated with the properties,

and filing bankruptcies to stop foreclosure

proceedings and continued to receive

CMHA housing assistance payments.

Carol Tharpe, a former Seattle Housing

Authority (SHA) Section 8 tenant, was

sentenced in U.S. District Court, Western

District of Washington, Seattle, WA, to 5

years probation and ordered to pay SHA

$37,500 in restitution for her previous guilty

plea to one count of theft. From 1997 through

2004, Tharpe understated her income on

annual SHA certifications.

Sherrell A. Lanier, a Lakeland Housing

Authority (LHA) Section 8 tenant, was

charged in an information filed in the 10th

Judicial Circuit, State of Florida, Lakeland,

FL, with one count of public assistance

48 HUD’s Public and Indian Housing Programs
fraud. From January 2001 through February

2004, Lanier allegedly failed to report

employment income and received $8,114 in

LHA housing benefits to which she was not

entitled.

Xavier Williams, New York City

Housing Authority (NYCHA) public

housing tenant and member of a violent

Bronx-based gang called Sex, Money and

Murder Crew, was sentenced in U.S. District

Court, Southern District of New York, New

York, NY, to life imprisonment without

parole. Williams was convicted on July 8,

2005, after a 7-week trial involving public

housing fraud, narcotics and firearms

trafficking, money laundering, racketeering,

and attempted murder violations. Williams

operated a narcotics and money-laundering

enterprise from his public housing unit at

NYCHA’S Bronx River Houses and

provided false statements on his annual

public housing recertifications.

Jacinda Stokes, a Lakeland Housing

Authority (LHA) Section 8 tenant, was

charged in an information filed in 10th

Judicial Circuit, State of Florida, Lakeland,

FL, with one count of public assistance

fraud. From April 2001 through July 2005,

Stokes allegedly failed to report

employment income and received $11,147

in LHA housing benefits to which she was

not entitled.

Geno Wilson, a former Inglewood

Housing Authority (IHA) Section 8

recipient, was charged in Superior Court,

County of Los Angeles, Inglewood, CA,

with four counts of filing a false document

with a public office, one count of obtaining

money under false pretenses, and one count

of grand theft. Wilson allegedly failed to

disclose his 1991 sexual offender conviction

on his initial IHA Section 8 application or

on IHA annual certifications. Since

February 2002, Wilson has received an

estimated $50,000 in Section 8 housing

assistance payments to which he was not

entitled.

Tony Jones, former St. Petersburg

Housing Authority (SPHA) landlord, was

sentenced in U.S. District Court, Middle

District of Florida, Tampa, FL, to 4 months

incarceration and 3 years supervised release

with 4 months home detention and ordered

to pay HUD $31,606 in restitution, jointly

and severally with codefendant Natalie

Jones, and $26,000 to the U.S. Government

solely. On June 8, 2005, Jones was convicted

of conspiracy to defraud HUD. Tony Jones

leased his residence to SPHA and SPHA

Section 8 tenant Natalie Jones, his wife, but

failed to report to SPHA that he resided with

his wife at his residence. As a result of his

actions, Jones received $31,606 in housing

assistance to which he was not entitled.

Angelina Lyles, former DuPage

Housing Authority (DHA) Section 8 tenant,

was found guilty in U.S. District Court,

Northern District of Illinois, Chicago, IL, of

three counts of false statements. Lyles failed

to report her income, the presence and fulltime income of her husband, her criminal

record, and bank accounts to the DHA.

HUD loss is estimated at $15,000.

Paul and Kristen West, former King

County Housing Authority (KCHA) Section

8 recipients, were each charged in King

County Superior Court, Seattle, WA, with

one count of theft. The Wests allegedly failed

to report their employment or income

earned on their initial KCHA Section 8

application or annual recertifications. Since

April 2002, Paul and Kristen West have

received more than $28,000 in housing

assistance payments to which they were not

entitled.

Dannette Thomas, an Inglewood

Housing Authority (IHA) Section-8

recipient, was charged in Superior Court,

County of Los Angeles, Inglewood, CA,

with one count of grand theft, one count of

obtaining money under false pretenses, and

one count of filing a false document with a

public office. Thomas allegedly failed to

report the 6-month residency and income of

HUD’s Public and Indian Housing Programs 49
her brother Billy Thomas, a convicted sex

offender, to IHA on her housing certification.

Dannette Thomas was arrested on an

outstanding warrant, and Billy Thomas was

arrested on parole violations and possession

of crack cocaine at Thomas’s IHA subsidized

unit.

Toria Woods, an Inglewood Housing

Authority (IHA) Section-8 recipient, was

charged in Superior Court, County of Los

Angeles, Inglewood, CA, with one count of

grand theft, one count of obtaining money

under false pretenses, and one count of filing

a false document with a public office.

Woods allegedly failed to claim

unauthorized tenants residing in her unit,

income she gained from an identity theft

scheme, use of aliases, or her prior criminal

history on IHA annual housing

certifications. As a result, she received

approximately $20,375 in housing assistance

payments to which she was not entitled.

IHA has removed Woods from its rental

assistance program.

Kamilah Rainey and Iris Riley were

arrested pursuant criminal complaints filed

in the 10th Judicial Circuit, State of Florida,

Lakeland, FL, on Section 8 fraud charges.

Rainey and Riley are current Lakeland

Housing Authority (LHA) Section 8 tenants

who allegedly underreported their incomes

during annual recertifications submitted to

LHA. HUD’s loss is approximately $21,435.

Sharon Dixon, a Miami-Dade Housing

Authority (MDHA) Section 8 tenant, was

indicted in U.S. District Court, Southern

District of Florida, Miami, FL, on false

statements to HUD and theft of government

funds. Dixon was arrested after her

indictment. From January 2001 through

December 2004, Dixon allegedly submitted

false applications to MDHA for HUD

Section 8 subsidies by failing to disclose her

Miami-Dade County Transit Authority

employment. HUD’s loss is estimated at

$49,500.

Barbara Singleton, a Rochester Housing

Authority (RHA) Section 8 tenant, and Larry

Pradia, RHA landlord, were each charged

in U.S. District Court, Western District of

New York, Rochester, NY, with one count

of conspiracy, false statements, and theft of

government funds. From 1998 through 2004,

Singleton and Pradia allegedly conspired to

collect more than $70,000 in RHA Section 8

housing assistance payments when

Singleton certified that Pradia was her

landlord residing elsewhere on annual

recertification and other RHA documents.

Brooks Rice was sentenced in U.S.

District Court, Eastern District of Tennessee,

Chattanooga, TN, to 21 months confinement

and 26 months supervised release and

ordered to pay HUD $16,565 in restitution.

On September 15, 2005, Rice pled guilty to

one count of use of a false Social Security

number (SSN). Rice used a fraudulent SSN

to obtain Section 8 benefits she was not

entitled to receive.

Celestine Gallegos, San Francisco

Housing Authority (SFHA) and Housing

Authority of the County of San Mateo

(HACSM) housing assistance recipient, was

charged with one count of false statements

in an information filed in U.S. District Court,

Northern District of California, San

Francisco, CA. On December 16, 2005,

Gallegos pled guilty to receiving housing

assistance payments simultaneously from

SFHA and HACSM, receiving $13,285 to

which she was not entitled.

Benzalda Delarosa was indicted on two

felony counts of theft in Washington

Superior Court for Grays Harbor County,

Aberdeen, WA. Delarosa allegedly failed to

report all household resident income and

received $11,000 in HUD Section 8 funds and

$12,000 in Washington Department of Social

and Health Services welfare benefits to

which she was not entitled.

50 HUD’s Public and Indian Housing Programs
Evelyn Bessent was charged with theft

of government funds in an information filed

in U.S. District Court, Southern District of

Florida, West Palm Beach, FL. Bessent, a

participant in the Palm Beach County

Housing Authority Section 8 Housing

Choice Voucher program, allegedly used her

voucher to reside in a home she co-owned

with her spouse and concealed ownership

of two additional residential properties

occupied by Section 8 program participants.

Bessent received $21,255 in housing

assistance payments to which she was not

entitled.

An Essex County Superior Court Grand

Jury, Salem, MA, indicted Jennifer

Stevanovich, a former Andover Section 8

tenant, on two counts of larceny and four

counts of criminal perjury. Stevanovich was

previously convicted of selling stolen

“Victoria’s Secret” merchandise from her

subsidized housing unit. Between January

2000 and January 2005, Stevanovich

allegedly deposited approximately $280,000

cash into eight bank accounts, but failed

to report the funds to HUD or the state of

MA, and received $59,765 in housing

benefits and $57,790 in welfare benefits she

was not entitled to receive.

In Bucks County Court of Common

Pleas, Bucks County, PA, Herbert and

Annette Smith entered guilty pleas to felony

charges of theft, criminal conspiracy, and

false swearing. The Smiths, residents of

subsidized housing, Bucks County Housing

Authority (BCHA), failed to report Herbert

Smith’s 30-year criminal history including

two sex offender convictions to BCHA. The

Smiths were evicted from BCHA housing.

Copyright, 2006. Eagle Tribune - Lawrence, MA. Reprinted with permission.

HUD’s Public and Indian Housing Programs 51
Andrea Henderson was charged with

four felony counts of grand theft, filing false

documents with a public office, and

obtaining money under false pretenses in

Superior Court, County of Los Angeles,

Inglewood, CA. In 2004 and 2005,

Henderson allegedly filed false housing

certifications with the Inglewood Housing

Authority (IHA) by failing to identify her

husband, Darryl Kennedy, a convicted sex

offender, and two unauthorized individuals

as residents in her Section 8 subsidized unit.

As a result, Henderson received $14,000 in

housing assistance payments to which she

was not entitled.

A civil complaint was filed by the U.S.

Attorney’s Office, District of New

Hampshire, Concord, NH, against Amy

McPherson, John Nionakis, and Delilah

Properties Inc. The complaint, filed on

behalf of HUD, U.S. Department of Health

and Human Services (HHS), U.S.

Department of Agriculture (USDA), and

SSA, seeks approximately $382,000 and civil

penalties against McPherson, Nionakis, and

Delilah Properties, Inc., under the False

Claims Act. On November 14, 2005,

McPherson, a former Section 8 recipient, was

sentenced to 6 months in prison and 3 years

supervised release and ordered to pay HUD,

USDA, and HHS $67,547 in restitution

following her previous guilty plea to

multiple counts of false statements.

McPherson received Section 8 subsidies at

a home she owned under the corporate

name of Delilah Properties, Inc., in Exeter,

NH.

Kelly M. Summerour, Tracy CurryCulbreath, and Wanda T. Nolan, former

Internal Revenue Service (IRS) employees,

were each indicted in U.S. District Court,

Northern District of Georgia, Atlanta, GA,

on two counts of false statements.

Summerour, Curry-Culbreath, and Nolan

allegedly provided false verifications of

employment to Atlanta and Decatur/Dekalb

Housing Authorities, fraudulently receiving

$38,532 in housing assistance payments.

Michael Washington, a former Section

8 landlord, pled guilty to one felony count

of grand theft in State of California Superior

Court, County of San Mateo, San Mateo, CA.

Washington was sentenced to 90 days in

county jail and 3 years probation and

ordered to pay approximately $15,668 in

restitution to the Housing Authority of the

County of San Mateo (HACSM). From

December 2002 to December 2003,

Washington received approximately $15,668

in Section 8 housing assistance payments

from HACSM for a tenant who had moved

from her unit.

Ebony Lucien, a Section 8 recipient, was

charged in Superior Court, County of Los

Angeles, Los Angeles, CA, with one count

of perjury, one count of grand theft, one

count of unlawfully making a false financial

statement, and two counts of filing a false

document with a public office. In 2003 and

2004, Lucien allegedly filed false housing

certifications with both City of Los Angeles

and County of Los Angeles Housing

Authorities, receiving $11,721 in housing

assistance payments to which she was not

entitled.

Jacqueline Watson, a Section 8 tenant,

was charged in a complaint filed in Superior

Court of California, Solano County, Vallejo,

CA, with one count of grand theft. Watson

allegedly failed to report her incarceration

and absence for more than 1 year from her

Vallejo Housing Authority Section 8 unit.

The loss to HUD is estimated at $40,625.

Barbara Mack, former Section 8 tenant,

Tampa Housing Authority (THA), was

indicted in U.S. District Court, Middle

District of Florida, Tampa, FL, on two counts

of theft of government funds and one count

of bankruptcy fraud. Mack allegedly

acquired and used two SSNs to obtain HUD

housing assistance and SSA disability

benefits while earning employment income,

obtaining a Federal Housing Administration

(FHA)-insured mortgage, and filing

bankruptcy. Mack allegedly failed to report

employment income earned to THA or

52 HUD’s Public and Indian Housing Programs
approximately $23,455 in Section 8 and

$61,788 SSA disability benefits she received

to the bankruptcy court. On February 3,

2006, Mack was arrested in Clearwater, FL.

Sharon Smith, a superior court judicial

clerk, Union, NJ, pled guilty to an

information filed in U.S. District Court,

Newark, NJ, charging her with one count

of theft of government funds. From January

2002 to September 2005, Smith caused

fraudulent verification of employment

forms to be submitted to the Elizabeth

Housing Authority (EHA), resulting in

Smith defrauding EHA of approximately

$20,714.

Tyeshia Borela, a former San Francisco

Housing Authority (SFHA) Section 8 tenant,

was indicted in U. S. District Court,

Northern District of California, San

Francisco, CA, on one count of false

statements to HUD. From 2002 to 2005,

Borela allegedly claimed a nonexistent

daughter, failed to report her actual income,

and subleased her SFHA Section 8

subsidized unit. In addition, Borela

allegedly provided false income information

during her November 2004 bankruptcy

filing. As a result, she received

approximately $64,000 in Section 8 housing

assistance and $36,000 in discharged debts

to which she was not entitled.

Billy Nsubuga, a former Section 8

tenant, Malden Massachusetts Housing

Authority (MMHA), pled guilty to an

Information filed in U.S. District Court,

Boston, MA, charging six counts of bank

fraud, five counts of mail fraud, five counts

of identity theft, and one count of identity

document fraud. Nsubuga opened bank

accounts in Massachusetts, New York, and

Connecticut with cash deposits in the names

of others using altered passports from

Uganda, The Republic of Congo, and South

Africa and bogus identification documents

from California. Nsubuga received more

than $100,000, which was not reported to

MMHA, before her scheme was detected by

New York and Connecticut banks.

Quiana Adams pled guilty to 35 counts

of theft of government funds, four counts of

false statements, and one count of

conspiracy in U.S. District Court, Southern

District of Florida, Miami, FL. Adams’

spouse, Anthony Boatwright, pled guilty to

two counts of false statements and one count

of conspiracy. Adams and Boatwright,

participants in the Section 8 Housing Choice

Voucher program, provided false household

composition and income information to the

Miami-Dade Housing Agency to qualify for

housing assistance. Adams and Boatwright

received $37,229 in housing assistance

benefits to which they were not entitled.

They were arrested on December 8, 2005.

Nasir Javaid and Nancy Kharsa, former

San Francisco Housing Authority (SFHA)

Section 8 landlord and tenant, each pled

guilty in U.S. District Court, Northern

District of California, San Francisco, CA, to

one count of making false statements to

HUD. Under the plea agreement, Javaid and

Kharsa agreed to pay HUD $51,717 in

restitution. From 1998 to 2002, Javaid and

Kharsa participated in a scheme to defraud

HUD’s Section 8 program by using SFHA

and/or HUD multifamily housing assistance

payments received by Javaid, Kharsa, and

Javaid’s mother, Jhan Noor, to purchase two

properties in El Cerrito and San Francisco,

CA. As a result, Javaid and Kharsa received

approximately $51,717 in Section 8 housing

assistance benefits to which they were not

entitled.

Kalsoum Berro, a Michigan State

Housing Development Authority (MSHDA)

Section 8 tenant, and her husband, Hassan

Berro, a MSHDA Section 8 landlord, were

each charged in 19th District Court,

Dearborn, MI, with one count of violating

the State Housing Development Authority

Act of 1996. Hassan and Kalsoum Berro

allegedly had lived together since 1990 and

HUD’s Public and Indian Housing Programs 53
received $94,000 in housing assistance

payments to which they were not entitled.

Farid Bayot, real estate broker and

owner of Global One Realty, Inc., Aurora,

CO, was charged in an information filed in

U.S. District Court, District of Colorado,

Denver, CO, with one count of loan and

credit applications generally. Bayot

allegedly assisted Littleton Housing

Authority (LHA) Section-8 tenant,

Hamidullah Sarwary, in purchasing the

home in which Sarwary resided and for

which Sarwary received LHA housing

assistance payments. As a result of his

action, HUD realized losses of $3,000.

Jessica Jackson-Elston, former Rock

Island Housing Authority (RIHA) Section 8

tenant, along with Fabiola Munoz and Julio

Gallegos, former Moline Housing Authority

(MHA) public housing tenants, were

charged in Rock Island Circuit Court, Rock

Island, IL, with multiple counts of theft and

identity fraud. Jackson-Elston allegedly

failed to report her husband’s ownership of

her RIHA Section 8 subsidized unit, and

Munoz and Gallegos allegedly failed to

report income and/or used false identities

and SSNs on MHA annual recertifications.

As a result of their actions, the collective loss

to HUD exceeds $35,000. Jackson-Elston

was terminated from the RIHA rental

assistance program.

Mary Martin, former St. Petersburg

Housing Authority (SPHA) Section 8 tenant,

pled guilty in U.S. District Court, Middle

District of Florida, Tampa, FL, to one count

of theft of government funds. Martin failed

to report income earned by her resident

spouse to SPHA and claimed a resident

daughter while the daughter received her

own Section 8 housing benefits from Pinellas

County Housing Authority. As a result,

HUD realized an estimated $36,997 loss.

Martin was arrested on March 1, 2006.

Ranina Jones, former San Francisco

Housing Authority (SFHA) and Housing

Authority of the County of San Mateo

(HACSM) Section 8 tenant, was sentenced

in U.S. District Court, Northern District of

California, San Francisco, CA, to 2 years

probation and ordered to pay HACSM

$25,582 in restitution for her previous guilty

plea to false statements to HUD. Jones,

while living in and receiving public housing

assistance from SFHA, applied for and

received Section 8 housing assistance

payments from HACSM. As a result, Jones

received $25,582 in Section 8 housing

assistance to which she was not entitled.

PHA Employee Theft/ PHA Employee Theft/

Embezzlement

Embezzlement Embezzlement

Douglas Hamond, former maintenance

general foreman, Utica Housing Authority

(UHA), was arrested and charged with five

counts of petty theft and one count of perjury

in Oneida County Court, Utica, NY.

Hamond allegedly misused UHA’S credit

card for personal purchases.

In Grand Rapids, MI, Jerome

Wisniewski, former executive director,

Manistee Housing Commission (MHC), was

sentenced to 3 years in prison and 3 years

probation and ordered to pay HUD

$1,308,522 in restitution after he pled guilty

to embezzlement and unlawful monetary

transactions. Wisniewski, in a scheme to

defraud MHC of more than $1.2 million,

funneled MHC’S funds into a fictitious

company he created and used the money to

purchase a 1989 Rolls Royce Silver Spur, a

1999 Porsche 911, and two residential

properties.

Jane A. Burchett, former executive

director, Wymore Housing Authority

(WHA), was sentenced in U.S. District

Court, District of Nebraska, Omaha, NE, to

3 years probation and ordered to pay WHA

$19,977 in restitution. Burchett, who was

convicted of Federal program fraud on

August 18, 2005, embezzled approximately

$26,683 from WHA by issuing inflated WHA

54 HUD’s Public and Indian Housing Programs
payroll checks to an employee, forging the

employee’s signature, and cashing the

checks.

Wilma A. Nicholson, former executive

director of the Housing Authority of the City

of Alamo (HACA), was sentenced in U.S.

District Court, Southern District of Georgia,

Alamo, GA, to 10 months incarceration and

3 years supervised release and ordered to

pay HACA $46,169 in restitution. Nicholson

previously pled guilty to one count of theft

of government funds for pilfering cash

dwelling receipts from HACA.

Michael Mullins and David Carte,

former Cuyahoga Metropolitan Housing

Authority (CMHA) employees, each pled

guilty in Court of Common Pleas, Cuyahoga

County, Cleveland, OH, to a one-count

information charging them with theft.

Mullins and Carte claimed labor hours on

CMHA time sheets and received CMHA

wage payments while working at other jobs.

Mullins and Carte were each sentenced to 2

years probation and ordered to pay CMHA

restitution of $8,214 and $8,813 respectively.

Lawrence Bower, former Williamsport

Housing Authority (WHA) board member,

was indicted in U.S. District Court, Middle

District of Pennsylvania, Williamsport, PA,

for allegedly making false statements to

HUD. Bower allegedly failed to apply for

or obtain a waiver from HUD to participate

in the WHA Section 8 program as required.

Bower, in his position as WHA board

member, approved monthly WHA housing

assistance checks made payable to him,

receiving a total of $25,324 over 11 years.

The Williamsport City Council dissolved

WHA, assigning WHA duties Lycoming

County Housing Authorities.

Jaymie Jo Phillips, former Yankton

Sioux Housing Authority (YSHA)

occupancy specialist, was sentenced in U.S.

District Court, District of South Dakota,

Sioux Falls, SD, to 3 years probation and

ordered to pay YSHA $8,389 in restitution

following her previous guilty plea to

embezzlement and theft from an Indian

tribal organization. During 2004, Phillips

skimmed $7,000 in cash rental proceeds

from YSHA.

Bernard Meyer, former Williamsport

Housing Authority (WHA) executive

director, was sentenced in U.S. District

Court, Middle District of Pennsylvania,

Williamsport, PA, to 1 year supervised

probation and ordered to pay HUD $9,766

in restitution. Meyer was charged with

conflict of interest for failing to disclose his

financial interest in several properties

housing Section 8 tenants through WHA and

failing to obtain a waiver from HUD. Meyer

received $9,766 in housing assistance checks

on behalf of Section 8 tenants over 6 years.

Meyer resigned his position when charged,

and Williamsport City Council dissolved

WHA, assigning WHA duties to Lycoming

County Housing Authorities.

Thomas Herrera, former executive

director, Pueblo de Cochiti Housing

Authority (PCHA), pled guilty in U.S.

District Court, District of New Mexico,

Albuquerque, NM, to one count of theft and

one count of embezzlement from an Indian

tribal organization. From February to

November 2003, Herrera embezzled PCHA

funds by issuing unauthorized PCHA

checks to himself, forging PCHA board

members’ signatures, cashing the checks,

and using the funds for personal expenses.

HUD realized losses of $78,448.

Stan Self, former executive director for

Hugo Housing Authority (HHA), Hugo,

OK, and Region VI Housing Authority,

Roswell, NM, was indicted in U.S. District

Court, Eastern District of Oklahoma,

Muskogee, OK, on one count of mail fraud.

Self pled guilty to the charge during a plea

hearing on December 29, 2005. Self, as

executive director of HHA, embezzled HHA

funds by providing HHA consulting

services according to his employment

contract on 25 occasions, collecting the

payments on behalf of HHA, failing to remit

the payments to HHA, and using the funds

HUD’s Public and Indian Housing Programs 55
for his personal benefit. Self resigned from

HHA after receiving a limited denial of

participation (LDP) suspension from HUD.

Self was then hired as executive director,

Region VI Housing Authority, Roswell, NM,

but resigned this position on December 30,

2005. As a result of his actions, HUD

realized losses of $6,304.

Loren Goldtooth, former executive

director, KI:KI Association, the HUDfunded tribally designated housing entity

of the Tohono O’Odham Indian Nation, and

certified public accountant doing business

as Goldtooth & Company, P.C., was indicted

on February 6, 2006, in U.S. District Court,

District of Arizona, Tucson, AZ, on two

counts of embezzlement and theft from an

Indian tribal organization, three counts of

failing to file Federal individual income tax

returns, and two counts of failing to file

Federal corporate income tax returns. From

February 2000 through August 16, 2002,

Goldtooth allegedly embezzled $216,531 of

KI:KI Association funds and failed to file

Federal individual and/or corporate tax

returns for 1999 through 2002. On February

16, 2006, Goldtooth was arrested.

James H. Tate, former executive

director, Junction City, KS, Housing

Authority (JCHA), was sentenced in U.S.

District Court, District of Kansas, Topeka,

KS, to 5 months prison, 5 months house

arrest and 3 years probation and ordered to

pay JCHA $102,701 in restitution. On

August 23, 2005, Tate pled guilty to theft of

government property for stealing $102,701

from JCHA by purchasing personal items

on JCHA credit cards. Tate paid his

unauthorized JCHA credit card expenses

using the electronic signature password of

the JCHA board chairman to approve the

issuance of checks from JCHA’S

computerized accounting program.

John C. Wolfe, Sr., former executive

director, Marionville Housing Authority

(MHA), was charged in a felony complaint

filed in 39th Missouri Judicial Circuit Court,

Marionville, MO, with two counts of

stealing. From April 2003 through August

2004, Wolfe allegedly embezzled $23,267

from MHA by issuing himself payroll

checks not reported to or approved by the

MHA board of directors.

Copyright, 2006. Arizona Daily Star - Tucson, AZ. Reprinted with permission.

56 HUD’s Public and Indian Housing Programs
Barbara Gilbert, former executive

director, Buena Housing Authority (BHA),

was sentenced in Atlantic County Court,

Newark, NJ, to 180 days in prison and 3

years probation and ordered to permanently

forfeit public employment and pay HUD

restitution in an amount to be determined.

Gilbert pled guilty to two counts of theft by

deception on December 9, 2005. Gilbert

used BHA checks and BHA’s Home Depot

account to pay for and obtain more than

$7,800 in personal purchases.

Serena Parker, a former Greensboro

Housing Authority (GHA) intake specialist,

along with Teresa Thomas and Vivian

Pandora Bailey, fictitious GHA landlords,

were each indicted in U.S. District Court,

Middle District of North Carolina,

Greensboro, NC, on seven counts of mail

fraud and seven counts of aiding and

abetting. Parker allegedly accessed GHA’S

computer system, illegally added Thomas

and Bailey as GHA landlords, and caused

the mailing of 48 fraudulent housing

assistance checks totaling more than $70,000

to both Thomas and Bailey.

PHA Contract Fraud PHA Contract Fraud

In the Eastern District of Michigan,

Detroit, MI, LaToya Cotton, a former

contractor for Michigan State Housing

Development Authority (MSHDA), entered

into a plea agreement with the U. S.

Attorney’s Office, following the filing of a

criminal information charging Cotton with

one count of theft/embezzlement and one

count of criminal forfeiture against her

property valued at $750,780. Cotton, doing

business as Washtenaw Payee Services, a

former MSHDA contractor who

administered the Washtenaw County

Section 8 rental assistance program, created

false tenant files and inspections and

diverted $1,052,701 in housing assistance

payments to herself over 10 years.

Nicholas Kastounakis, doing business

as Manny’s Plumbing & Heating, pled guilty

to a six-count information filed in U.S.

District Court, District of Massachusetts,

Springfield, MA, charging him with three

counts of bribery and three counts of aiding

and abetting. Katsounakis, a contractor for

Springfield Housing Authority (SHA), was

involved in a kickback scheme with

Raymond Asselin, former SHA executive

director, and Arthur Sotirion, former SHA

deputy director.

William Moorehead, doing business as

William Moorehead and Associates (WMA),

acknowledged a joint liability of $2.8 million

to the U.S. Government in a stipulation for

entry of consent judgment filed in U.S.

District Court, Northern District of Illinois,

Copyright, 2006. The Republican -

Springfield, MA. Reprinted with permission.

HUD’s Public and Indian Housing Programs 57
Chicago, IL. Moorehead, a property

manager for many housing authorities and

privately owned Section 8 developments,

created fraudulent records and money

transfers to hide missing and misused

funds. Moorehead also directed

codefendants Patricia Taylor and Brian

Townsend, accountants at WMA, to create

false bank records and write checks drawn

on accounts containing insufficient funds.

Eric Ackerman, a plumbing contractor

for Buffalo Municipal Housing Authority

(BMHA), pled guilty in U.S. District Court,

Buffalo, NY, to one count of false statements

to HUD. Ackerman falsely certified his

qualifications as a minority business

enterprise (MBE) and distribution of BMHA

work to other MBE companies. As a result,

he received approximately $1.75 million

in BMHA contracts to which he was not

entitled.

Fugitive Felon Fugitive Felon

Michael Deuso, a Franklin County

Housing Authority Section 8 recipient and

fugitive, was arrested at his apartment in

Turners Falls, MA, for probation violations,

including smuggling drugs into a New

Mexico prison.

Jose Verdejo-Santiago, a public housing

tenant, Puerto Rico Housing Authority

(PRHA), was arrested at his Covadonga

public housing unit in Trujillo Alto, PR, on

an outstanding fugitive-felon arrest warrant

relating to the illegal sale and distribution

of firearms and drugs. At the time of his

arrest, 259 heroin decks, 340 units of

marijuana, and five grams of pure heroin

were seized from his apartment.

Joel Moreno, Ithier Rivera, Jose A.

Rivera, Luis Melendez, Jose Ortiz, Omar

Moreno, Jose G. Rivera, Jose M. Rivera,

Ramon Martinez, Carlos Cruz, Lizette

Rivera, and Yaritza Franceshi, all Puerto

Rico Housing Authority (PRHA) public

housing tenants, were arrested at Las Palmas

public housing complex in Coamo, PR, on

outstanding arrest warrants relating to the

sale and distribution of firearms and drugs.

Francisco Frias was arrested at his New

York City Housing Authority public

housing unit in New York, NY, on a warrant

for making terror threats out of Stamford,

CT, by the NY/NJ High Intensity Drug

Trafficking Area Regional Fugitive Task

Force. A bullet resistant vest, 64 grams of

cocaine, a 9mm semiautomatic weapon,

drug paraphernalia, and $5,945 in cash were

seized during a search of his unit.

Six Chester Housing Authority (CHA)

public housing and Section 8 voucher

tenants were arrested at CHA public

housing units or subsidized residences in

Chester, PA, on outstanding warrants,

including one warrant charging attempted

murder.

As a result of an ongoing fugitive felon

initiative, 10 individuals were arrested

throughout Windham County, VT, on

outstanding State warrants. Several

individuals arrested received Section 8

housing assistance either through the

Vermont State Housing Authority or

Brattleboro Housing Authority.

Juan Almodovar, an illegal resident of a

public housing unit was arrested in

Worcester, MA, for failure to register as a

sex offender. Almodovar, previously

convicted of rape in New York, failed to

register as a sex offender in either New York

or Massachusetts.

Dashonn Graves, a management

information specialist, Plainfield Housing

Authority and City of Orange Housing

Authority, was arrested in Newark, NJ, on

an outstanding warrant for failing to fulfill

requirements of his pretrial intervention

(PTI) program. Graves, originally arrested

in April 2002 for credit card fraud and

larceny, pled guilty to embezzling $37,000

58 HUD’s Public and Indian Housing Programs
from his previous employer. Graves was

sentenced to 1 year pretrial probation and

restitution of $25,000. In March 2004, after

failing to meet probation requirements,

Middlesex County District Attorney’s

Office, MA, issued an arrest warrant for

Graves.

Dion Johnson of Richmond, VA, was

arrested in North Carolina on charges that

he failed to reregister as a sex offender. In

April 1991, Johnson was convicted of felony

rape and breaking and entering; later

convictions include attempted rape,

robbery, assault, grand larceny, and failing

to register as a violent sexual offender. In

March 2005, Johnson registered as a violent

sex offender living in a Richmond

Redevelopment and Housing Authority

(RRHA) unit leased to his mother. Johnson

failed to reregister after 90 days as required.

HUD OIG participated in a United

States Marshal’s Service (USMS) fugitive

felon apprehension plan dubbed “Operation

City Sweep” from March 6 through March

31, 2006, in the Washington, DC,

metropolitan area. HUD OIG and other

members of the Capital Area Regional

Fugitive Task Force (CARTF) arrested

fugitives with outstanding warrants on

charges ranging from parole violations to

homicide. Three hundred-fifteen of

Washington, DC’s most notorious criminals

were arrested by CARTF. Some outstanding

warrants included crimes involving sex

offenses, homicides, assault, drugs, and

burglary and/or robbery. Many of the

arrests occurred in and around DC Housing

Authority public housing properties and

HUD multifamily properties located in

Washington, DC. In addition to the 315

fugitives arrested, CARTF seized nine

weapons, various types of narcotics, $28,000

cash, and one vehicle. HUD OIG is

accessing HUD rental assistance databases

to identify and investigate numerous cases

of rental assistance fraud. Operation City

Sweep accounts for the largest multiagency

mass arrest plan of its kind in the District of

Columbia during a 3-week period.

Regina Battles, Tashanique Leonard,

Brenda Vazquez, and Michael Martin, four

tenants of the Springfield Housing

Authority (SHA), Sullivan Public Housing

Development, were arrested on outstanding

warrants in Springfield, MA.

Sixteen individuals were arrested on

outstanding State warrants throughout

Windsor County, VT, as part of an ongoing

Fugitive Felon Initiative. Several of the

individuals targeted were Vermont State

Housing Authority Section 8 residents.

Other Fraud/Crimes Other Fraud/Crimes Other Fraud/Crimes

Veronika Smith-Riley, a loan processor

with Commonwealth United Mortgage, was

sentenced in U.S. District Court, Southern

District of Florida, Miami, FL, to 11 months

imprisonment and 3 years probation and

ordered to perform 450 hours of community

service. Smith-Riley previously pled guilty

to one count of conspiracy to commit mail

fraud. Smith-Riley, using false loan

information, enabled a straw-buyer to

secure a mortgage and quit claimed the

property back to her. Smith-Riley then

leased the property to the Miami-Dade

Housing Authority (MDHA) for use in its

rental assistance program. MDHA

terminated Smith-Riley’s contract as a result

of her actions.

A 25-count felony criminal complaint

was filed in State Court, Los Angeles, CA,

against Anthony Miller, a 12-year public

housing resident, and coconspirator

Marjorie Craddock, a former insurance

agent, Western Southern Life Insurance

Company. Miller and Craddock were each

charged with three counts of insurance

fraud, two counts of grand theft, and one

count of conspiracy. In addition, Miller was

charged with 10 counts of forgery, and

Craddock was charged with nine. On

January 18, 2006, Miller was arrested as a

primary suspect in an unsolved homicide.

On January 25, 2006, an arrest warrant was

issued for Craddock. Miller and his family

HUD’s Public and Indian Housing Programs 59
reside at Jordan Downs Public Housing

Apartment Complex in Los Angeles. Miller,

the alleged beneficiary on 54 life insurance

policies, including a policy on the murder

victim, paid approximately $2,000 in cash

monthly for the policies, an amount not

supported by his reported Social Security

Supplemental Security Income (SSI) and Aid

to Families with Dependant Children

(AFDC) benefits.

Danilo Rico, a former East Hartford

Housing Authority (EHHA) Section 8

tenant, was indicted in U.S. District Court,

District of Connecticut, East Hartford, CT,

on one count of possession of a firearm by a

convicted felon for possessing a 9 mm

handgun seized during a Federal search

warrant at his EHHA Section 8 unit on

August 31, 2005. EHHA terminated Rico

from its rental assistance program.

Clarence E. Baker, Jr., a Section 8 tenant

at Canterbury Towers Apartments, was

charged in a State criminal complaint, in

Worcester, MA, with felony charges of

presenting a false claim to a government

agency and larceny over $250 by false

pretense. Baker also failed to report his

sexual offender conviction on housing

assistance documents.

Louis Hanley was sentenced in U.S.

District Court, District of Massachusetts,

Worcester, MA, to 4 years incarceration and

3 years supervised release following his

October 5, 2005, guilty plea to one count of

interstate travel for the purpose of dealing

in firearms without a license. Hanley, a

convicted felon, traveled from Maine to the

Worcester Housing Authority (WHA) to

retrieve a shotgun found by WHA

maintenance employees in a WHA Addison

Street Apartments housing unit formerly

leased to his mother.

Thomas C. McGee and Andrea Wilks

were each indicted by a State of Missouri

grand jury, in St. Louis, MO, on one count

of second degree robbery, one count of

kidnapping, four counts of false

impersonation, one count of attempted

stealing, and two counts of stealing over $500

by deceit. Allegedly, McGee and Wilks

obtained the tenant list of Greater Bethlehem

Elderly, a HUD-funded elderly housing

project and, posing as police officers and/or

detectives, attempted to steal or embezzle

assets of the elderly.

Fifteen unauthorized tenants were

found residing at the Worcester Housing

Authority (WHA) Great Brook Valley

Gardens Housing Development in

Worcester, MA. During the interview of one

unreported tenant, police observed

marijuana in plain view and arrested the

unreported tenant on drug charges. A

juvenile reported missing for 6 months was

found hiding in another unit.

Louis Douglas, a Section 8 recipient, was

charged in Superior Court, County of Los

Angeles, Los Angeles, CA, with three felony

counts of failing to register annually as a

convicted sex offender. Douglas, previously

convicted in 1997 of committing lewd and

lascivious acts on a child under the age of

14, allegedly failed to disclose his status as

a lifetime sex offender to the City of Los

Angeles Housing Authority before

obtaining housing assistance benefits.

  

60 HUD’s Public and Indian Housing Programs
Chapter 4 Chapter 4

HUD’s Multifamily HUD’s Multifamily HUD’s Multifamily

Housing Programs Housing Programs Housing Programs
In addition to multifamily housing

developments with U.S. Department

of Housing and Urban Development

(HUD)-held or HUD-insured mortgages, the

Department owns multifamily projects

acquired through defaulted mortgages,

subsidizes rents for low-income

households, finances the construction or

rehabilitation of rental housing, and

provides support services for the elderly

and handicapped.

Audits

During this period, the Office of

Inspector General (OIG) issued nine

external reports and one internal report in

the multifamily housing program area.

These reports disclosed more than $15

million in questioned costs and more than

$19 million in recommendations that funds

be put to better use.

Over the past 6 months, OIG has

audited owner and management agent

operations with an emphasis on combating

equity skimming. The results of OIG’s more

significant audits are described below.

Owner and Management Owner and Management Owner and Management

Agent Operations Agent Operations Agent Operations

HUD OIG audited Mount Saint Francis

Health Center in Woonsocket, RI, to

determine whether the owner complied with

its HUD regulatory agreement and other

applicable laws and regulations.

Chart 4.1: Multifamily Housing Dollars Chart 4.1: Multifamily Housing Dollars

25,000,000

Questioned Costs Funds Put to Better Use

20,000,000

15,000,000

10,000,000

5,000,000

0

The project had more than $4.4 million

in questionable cash disbursements and

accrued expenses. Under the direction of

the owner and identity-of-interest

management agent, the project made

questionable cash disbursements of more

than $1.6 million and accrued questionable

expenses of more than $192,000 while in a

non-surplus-cash position, and the owner

and identity-of-interest management agent

billed HUD more than $2.4 million for

services not provided. In addition, the

general manager of the management agent

received a salary as the assistant

administrator of the nursing home, resulting

in more than $112,000 in unnecessary

expenses.

OIG recommended that HUD 1) pursue

the recovery of double the amount of

questionable cash disbursements to

identities of interest; 2) obtain support or

reimbursements for unsupported and

unnecessary disbursements; 3) pursue the

recovery of questionable distributions to

non-identities-of-interest; 4) take

appropriate action to prevent payment of

ineligible and unnecessary cash

disbursements after the audit period; 5)

require the project to develop and

implement procedures that ensure only

eligible expenses are paid from project funds

and that documentation is maintained to

support the eligibility of payments made; 6)

require the project to replace the

management agent; and 7) pursue all

applicable administrative sanctions against

the owner, management agent, and identityof-interest companies. (Audit Report: 2006-

BO-1004)

HUD OIG audited Holiday Apartments,

LA Pro 30, and Two Worlds II in Los

Angeles, CA, to assess HUD’s concerns over

inappropriate disbursements and determine

whether the projects were administered in

compliance with HUD requirements.

The owner and identity-of-interest

management agent used project funds to

62 HUD’s Multifamily Housing Programs
HUD’s Multifamily Housing Programs 63

pay more than $2.6 million in ineligible and

unsupported costs, including excessive and

unreasonable charges by an identity-ofinterest maintenance contractor, excessive

charges for the management agent’s

president, unsupported rent charges and

capital improvement expenses for the

management agent’s office, and ineligible

ownership expenses. OIG anticipates

similar additional questionable costs

continued after the end of the audit period

that could cost the projects another $457,000.

OIG’s building inspections identified more

than 240 health or safety violations, which

resulted in more than $561,000 in housing

assistance payments for units and buildings

that were not decent, safe, and sanitary. In

addition, the owner and identity-of-interest

management agent did not effectively

manage the projects, to include not

accurately calculating, reporting, and

resolving more than $655,000 in project

liabilities.

OIG recommended that HUD require

the owner to repay the respective projects

for the ineligible costs and provide support

for the reasonableness of unsupported costs

or repay the projects. In addition, HUD

should require the owner to correct unit

deficiencies and obtain new management,

accounting, and maintenance services.

(Audit Report: 2006-LA-1010)

HUD OIG reviewed the books and

records of Coventry Health Center of

Coventry, RI, to determine whether

Coventry Health Center Associates, L.P.,

and/or Sterling Health Care Management

Company, an identity-of-interest

management agent, used the project’s funds

in compliance with the regulatory

agreement and HUD’s requirements.

Coventry was selected for audit because the

nursing home was in default.

Coventry’s owner and/or management

agent used project funds for inappropriate

and unsupported disbursements.

The inappropriate and unsupported

disbursements occurred while the project

was in a non-surplus cash position and/or

in default of its HUD-insured loan. HUD

sold the project’s note and lost more than

$6.3 million. OIG identified more than $1.8

million in questionable cash disbursements

made by the project’s owner and/or

management agent. The disbursements

were used to pay for non-project-related

expenses, loan repayments, excessive

management fees, and unnecessary services

while the project was in a non-surplus-cash

position and/or in default of its HUDinsured loan.

OIG recommended that HUD pursue

the recovery of double the amount of

questionable cash disbursements to

identities of interest, support or reimburse

the insurance fund for unsupported costs,

and require reimbursement of

disbursements that were deemed

unnecessary to the nursing home. (Audit

Report: 2006-BO-1006)

HUD OIG reviewed the books and

records of the Villas at Camelback Crossing

Phase I, a 264-unit multifamily housing

project located in Glendale, AZ, at the

request of HUD. HUD expressed concerns

regarding the owner’s use of project funds.

The objective was to determine whether the

owner and its identity-of-interest

management agent used project funds only

for reasonable operating expenses and

necessary repairs as required by the

regulatory agreement.

The project’s owner, Millenium

Communities, Inc., and American West

Communities, LLC, the project’s identity-ofinterest management agent, inappropriately

used more than $1 million in project funds

for ineligible purposes in violation of the

regulatory agreement. The ineligible uses

included more than $300,000 in international

wire transfers to unknown entities, more

than $26,000 for payments on unauthorized

loans, and more than $180,000 for payment

of project construction costs. Additional
improper uses included more than $80,000

paid to management agent supervisory

personnel and corporate officers; net

payments of approximately $65,000 to other

identity-of-interest projects; and payments

of more than $116,000 for unallocated

payroll, health insurance, and other

expenses of the identity-of-interest

Camelback II project. The project owner

and/or management agent lacked

documentation to support additional

disbursements of more than $165,000 for

credit card expenses, legal expenses,

insurance expenses, and other costs.

Further, the project did not obtain required

HUD approval of its management agents

and inappropriately paid approximately

$104,000 in management fees.

OIG recommended that HUD ensure

that the owner reimburses the project’s

operating account for the inappropriate

expenses and provides documentation for

the unsupported payments or reimburses

those amounts that cannot be supported to

the project’s operating account. (Audit

Report: 2006-LA-1005)

HUD OIG reviewed the books and

records of the Villas at Camelback Crossing

Phase II, a 240-unit multifamily housing

project located in Glendale, AZ, at the

request of HUD. HUD expressed concerns

regarding the owner’s use of project funds.

The objective was to determine whether the

owner and its identity-of-interest

management agent used project funds only

for reasonable operating expenses and

necessary repairs as required by the

regulatory agreement.

The project’s owner, Camelback

Crossing II Limited Partnership, and

American West Communities, LLC, the

project’s general partner and identity-ofinterest management agent, inappropriately

used more than $1 million in project funds

for ineligible purposes during a period when

the project did not have surplus cash

available for distribution and/or was in

default on its HUD-insured mortgage. The

ineligible uses included $262,000 in

international wire transfers to unknown

entities, more than $101,000 for payments

on unauthorized loans, $100,000 to an

unknown certificate of deposit account, and

approximately $79,000 for payment of

project construction costs. Additional

improper uses included more than $151,000

paid to corporate officers and management

agent supervisory personnel and net

payments of $119,000 to other identity-ofinterest projects. The owner and/or

management agent also lacked

documentation to support additional

disbursements of more than $182,000 for

credit card expenses, real estate taxes, and

other costs. Further, the owner did not

obtain required HUD approval for American

West to serve as the project’s management

agent and allowed another identity-ofinterest project to retain $12,000 in project

revenue.

OIG recommended that HUD ensure

that the owner reimburses the project’s

operating account for the ineligible

disbursements and provides documentation

for the unsupported payments or

reimburses those amounts that cannot be

supported to the project’s operating account.

(Audit Report: 2006-LA-1006)

HUD OIG reviewed the books and

records of the Villas at Augusta Ranch, a 238-

unit multifamily housing project located in

Mesa, AZ, at the request of HUD. HUD

expressed concerns regarding the owner’s

use of project funds. The objective was to

determine whether the owner and its

identity-of-interest management agent used

project funds only for reasonable operating

expenses and necessary repairs as required

by the regulatory agreement.

The project’s owner, Tegan

Communities, Inc., and American West

Communities, LLC, the project’s identity-ofinterest management agent, inappropriately

used more than $965,000 in project funds for

64 HUD’s Multifamily Housing Programs
nonproject (ineligible) purposes in violation

of the regulatory agreement. The ineligible

uses included approximately $367,000 in

wire transfers to unknown entities,

approximately $137,000 for payments on an

unauthorized line of credit, and $8,600 for

payment of project construction costs.

Additional improper uses included more

than $78,000 paid to management agent

supervisory personnel and corporate

officers and net payments of approximately

$72,000 to other identity-of-interest projects.

The owner lacked documentation to support

additional disbursements of more than

$246,200 for credit card expenses, legal

expenses, and other costs. Further, the

project did not obtain required HUD

approval of its management agent and

inappropriately paid more than $56,000 in

management fees.

After OIG’s audit, the project was sold,

and the HUD-insured mortgage was paid

in full, canceling HUD’s insurance liability

on the project. Accordingly, OIG did not

recommend repayment of the ineligible

costs identified but recommended that HUD

pursue double damages remedies under the

equity skimming statues for the misuse of

project funds. (Audit Report: 2006-LA1007)

In response to a request from HUD’s

Office of Multifamily Housing in San

Francisco, CA, HUD OIG audited The

Avenue, a 145 bed assisted living facility.

The objective was to determine whether

project funds were administered in

compliance with the regulatory agreement

and HUD requirements.

The project’s owner misused more than

$32,800 in project funds by entering into a

food service contract that had excessive

costs and paid Feng Shui Consulting for

ineligible expenses.

OIG recommended that HUD require

the owner to repay The Avenue more than

$32,800 from nonproject funds. (Audit

Report: 2006-LA-1003)

HUD OIG reviewed the books and

records of The Sanctuary, a 39-bed assisted

living facility located in Geneva, OH. The

review was part of OIG’s efforts to combat

multifamily equity skimming on HUD’s

Federal Housing Administration (FHA)

insurance fund. OIG chose the project based

upon its negative surplus-cash position

since 2002 and indications that project funds

or assets were not used as required. The

objective was to determine whether the

owner/management agent used project

funds in compliance with the regulatory

agreement and HUD’s requirements.

Eld-Terra, Incorporated, the managing

general partner of The Sanctuary of Geneva

Limited Partnership, improperly used more

than $43,000 in project funds from February

2003 through January 2005, when the project

was in a non-surplus-cash position. The

general partner inappropriately disbursed

$37,000 to repay owner advances to the

project and approximately $1,000 for nonproject-related legal services. Also, the

general partner lacked documentation to

support that more than $5,000 in project

funds was properly used.

OIG recommended HUD require the

general partner to reduce the project’s

management fee liability for the

inappropriate payments, provide

documentation to support the unsupported

payments or reduce the project’s

management fee liability for the appropriate

amount, and implement procedures and

controls to ensure that future repayments

of owner advances are made only from

project surplus cash or with prior HUD

approval and project funds are used

according to HUD’s requirements. (Audit

Report: 2006-CH-1002)

HUD’s Multifamily Housing Programs 65
Section 8 Contract

Section 8 Contract Section 8 Contract

Administrators Administrators Administrators

In response to a request from HUD, OIG

audited the Idaho Housing and Finance

Association in Boise, ID. The objective was

to determine whether Idaho Housing

monitored projects in accordance with its

annual contributions contract with HUD to

ensure that project funds were expended

appropriately.

Idaho Housing inappropriately allowed

excessive owner distributions; duplicate and

other unsupported reimbursements from

replacement reserves; a conflict-of-interest

to exist between itself and The Housing

Company, a nonprofit owner of subsidized

multifamily projects; and excessive

management fees. These deficiencies

resulted in questioned costs of more than

$3.8 million and unsupported costs of more

than $182,000.

OIG recommended that HUD require

Idaho Housing to reimburse the affected

projects’ residual receipts accounts for the

excessive distributions, duplicate

reimbursement, and excessive management

fees; provide supporting documentation or

reimburse the affected projects’ replacement

reserve accounts for unsupported

reimbursements; and take corrective action

to resolve the conflict of interest relationship.

OIG also recommended that HUD obtain a

formal legal opinion to determine whether

the 1988 housing assistance payments

amendments subject the owners of the

projects to limitations on distributions in

accordance with 24 CFR 883.702(e). (Audit

Report: 2006-SE-1001)

66 HUD’s Multifamily Housing Programs
Investigations Investigations Investigations

During this reporting period, OIG

opened 74 investigation cases and closed 105

cases in the multifamily housing program

area. Judicial action taken on these cases

during the period included $3,931,894 in

investigative recoveries, 60 indictments/

informations, 30 convictions/pleas/pretrial

diversions, 101 arrests, 1 civil action, 1

personnel action, and 81 administrative

actions.

Multifamily rental assistance fraud is

one of the investigative priorities for the

Office of Investigation. OIG continues rental

assistance fraud initiatives nationwide that

will help reduce fraud in HUD rental

assistance programs and support the

HUD Rental Housing Integrity

Improvement Project (RHIIP). Some of the

investigations discussed in this report were

conducted jointly with Federal, State, and

local law enforcement agencies. The

results of OIG’s more significant

investigations are described below.

Rental Assistance Fraud Rental Assistance Fraud

 Olandria Williams, a former Section 8

tenant at Shoreview Apartments, a HUDsubsidized housing complex, pled guilty in

the U.S. District Court, Northern District of

California, San Francisco, CA, to one count

of false statements to HUD. Williams

Chart 4.2: Multifamily Housing Recoveries Chart 4.2: Multifamily Housing Recoveries

Equity Skimming

70%

False Statements

15%

Total Recoveries $3,931,894

Davis Bacon

3%

Contract Fraud

Embezzlement 1%

Section 8 2%

9%

falsified her reported income and failed to

disclose property she owned in Sacramento,

CA. Under the plea agreement, Williams

agreed to pay HUD $45,072 in restitution for

Section 8 subsidies to which she was not

entitled.

Carsereena Red Dog, a Section 8

Moderate Rehabilitation recipient and

accountant for Opportunities Inc. (OI), a

HUD funded nonprofit organization in

Great Falls, MT, along with Leslie Red Dog,

also an OI Section 8 Moderate Rehabilitation

recipient, were each indicted in U.S. District

Court, District of Montana, Billings, MT, on

one count of conspiracy and one count of

false statements to HUD. Carsereena and

Leslie Red Dog allegedly failed to report all

income on annual rental assistance

recertification documents submitted to OI.

As a result, HUD’s loss is estimated at

$36,000.

Rosalyn Tillery, a former Section 8

tenant at La Salle Apartments, a HUDsubsidized multifamily housing complex,

was indicted in U.S. District Court, Northern

District of California, San Francisco, CA, on

one count of making false statements to

HUD. From July 1995 through December

2001, Tillery allegedly failed to claim her

employment with the County and City of

San Francisco or her 1997 purchase and coownership of a single-family residence in

Hercules, CA, on HUD documents. As a

result, Tillery received approximately

$35,759 in Section 8 housing assistance to

which she was not entitled.

Shaneen Edwards, a Miami Department

of Community Development (MDCD)

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

Court, Southern District of Florida, Miami,

FL, on two counts of false statements to HUD

and 44 counts of theft of government funds.

Edwards allegedly concealed her

employment as a teacher with the MiamiDade County Public Schools to qualify for

continued MDCD housing assistance, and

HUD’s Multifamily Housing Programs 67
failed to use her subsidized unit as her

primary residence. As a result, HUD

realized losses of $25,445.

Rhonda Olkowski, a former Section 8

tenant, South Middlesex Opportunity

Council (SMOC), was sentenced in the U.S

District Court, Boston, MA, to 6 months

probation and ordered to pay HUD $30,360

in restitution for her guilty plea to one count

of false statements on November 9, 2005.

From February 2001 to April 2004,

Olkowski, whose husband is a U.S. Federal

Air Marshal, failed to report her husband’s

income on SMOC documents.

Manila McCloud, a Miami Department

of Community Development (MDCD)

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

Court, Southern District of Florida, Miami,

FL, on one count of false statements to HUD

and 39 counts of theft of government funds.

McCloud allegedly concealed her

employment with Miami-Dade Transit

Agency to qualify for MDCD housing

assistance and failed to use her subsidized

unit as her primary residence. As a result,

HUD realized losses of $22,695.

Alan C. Maki, a Section 8 tenant at

Canterbury Towers Apartments, a HUDassisted multifamily housing complex, was

charged in Worcester District Court,

Worcester, MA, with perjury and larceny

over $250 by false pretense. Maki allegedly

failed to disclose his previous sex offender

conviction on housing assistance

documents.

Eight Walnut Grove Apartment Section

8 tenants were arrested in Kansas City, MO,

on outstanding felony warrants involving

fraud, tampering, and other charges by the

Kansas City, MO, Police Department; State

of Missouri, Division of Family Services,

Department of Social Services Investigation

Section; and HUD OIG. Five of the felony

warrants relate to housing assistance fraud

cases filed against Walnut Grove projectbased Section 8 tenants for failing to report

income.

Theft and Embezzlement

Theft and Embezzlement Theft and Embezzlement

Golam Mostafa, owner of Mostafa

Contracting and T&MTT, construction

companies based in Brooklyn, NY, was

found guilty in U.S. District Court, Southern

District of New York, New York, NY, on five

counts of Federal income tax evasion and

one count of filing a false Federal Income

Tax Return. From 1997 through 2003,

Mostafa Contracting and T&MTT received

$17,708,578 in HUD funds through ARCO,

a $425 million HUD contractor that Copyright, 2006. Daily News - Boston, MA.

Reprinted with permission.

68 HUD’s Multifamily Housing Programs
managed Caldwell Houses, Gates Avenue

Houses, Jose Diego Beekman, JD Beekman,

Medgar Evers, Mott Haven 6, Willow Street

Apartments, West Street Apartments,

Oxford Knolls Apartments, 31 North

Virginia Avenue, Willard J. Price, and

Pueblo, all HUD mortgagee in possession

(MIP) multifamily properties. Mostafa’s

contract with HUD/ARCO required him to

complete all building and unit renovations

and rehabilitations on HUD MIP

multifamily properties, but Mostafa

subcontracted building and unit

renovations back to ARCO employees

instead. From 1998 through 2002, while

under contract with HUD/ARCO, Mostafa

sent approximately $7 million to Bangladesh

via a money remitter, reporting this amount

as a cost-of-goods-sold expense for income

tax purposes. Mostafa was arrested on

March 22, 2005, by HUD OIG and remains

incarcerated.

Jill M. Trayner, former executive director,

United Methodist Retirement Center of

Tampa, Inc., also known as Methodist Place,

a HUD multifamily housing complex for the

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

Middle District of Florida, Tampa, FL, to a onecount information charging her with theft of

government funds. The plea agreement

requires Trayner to pay $366,228 in restitution

to Methodist Place. Trayner diverted

Methodist Place program funds into an

unknown account and used the funds to pay

her gambling, vehicle, credit card, and other

personal expenses. Trayner was arrested

after her plea.

Jessica Elaine Thompson Miller, Green

River Management, Inc., was charged in

State Court, Payne County, OK, Stillwater,

OK, with one count of embezzlement. From

May 1992 until December 2003, Miller was

the on-site manager for Southern Heights

Apartments, a HUD-subsidized multifamily

complex. Miller allegedly moved tenants into

vacant units, reported tenant move outs when

tenants remained in their apartments, and

embezzled cash rents from tenants and utility

reimbursements from HUD associated with

these units. HUD’s loss is $87,775.

Other Fraud/Crimes

American Management Incorporated

(AMI), a property management company for

HUD-owned multifamily properties, was

named in a civil complaint filed in U.S.

District Court, Eastern District of Michigan,

Detroit, MI. AMI and its employees

allegedly fabricated repair and service

subcontracts totaling $133,364 at HUDowned multifamily properties managed by

AMI. The complaint further alleges AMI

facilitated the issuance of purchase orders

for employee labor previously paid by HUD.

Mark Rolfsema, a former Section 8

tenant, Andover Commons Apartments,

was sentenced in U.S. District Court,

District of Massachusetts, Andover, MA, to

57 months incarceration and 3 years

supervised release following his previous

guilty plea to possession of child

pornography. Rolfsema possessed child

pornography found during a search of his

Section 8 apartment.

Joel Hernandez Pedroso, was arrested

in Miami, FL, following the unsealing of a

Federal indictment charging Hernandez

Pedroso with one count of conspiracy to

commit fraud against the United States.

Hernandez Pedroso, in conjunction with

employees of Maloney Properties and

United Housing Management, allegedly

facilitated and received approximately

$8,000 in cash from at least five individuals

in exchange for Section 8 subsidized units

at several HUD-assisted multifamily

housing complexes in Boston. During the

investigation, Hernandez Pedroso fled to

Miami where he was arrested by HUD OIG,

U.S. Marshal’s Service, and the Miami Police

Department.

HUD’s Multifamily Housing Programs 69
Wanda Mercado, former Property

Manager for Peabody Properties, was

indicted in U.S. District Court, Boston, MA,

on five counts of bribery. Mercado solicited

and accepted approximately $26,000 in

bribes from five Section 8 applicants in

exchange for subsidized rental units at

Schoolhouse 77, a Boston multifamily

complex. In addition to criminal charges,

Peabody Properties placed a $350,000 lien

Copyright, 2006. The Enterprise - Brockton, MA. Reprinted with permission.

on Mercado’s personal residence in

Brockton, MA.

Francis Oppong, an illegal resident of

Lincoln Village Apartments, a HUD-assisted

multifamily housing complex, was arrested

in Worcester, MA, on an outstanding

Immigration and Customs Enforcement

deportation warrant.

  

70 HUD’s Multifamily Housing Programs
Chapter 5 Chapter 5

HUD’s Community Planning HUD’s Community Planning HUD’s Community Planning

and Development Programs and Development Programs and Development Programs
72 HUD’s Community Planning and Development Programs

The Office of Community Planning and

Development (CPD) seeks to develop viable

communities by promoting integrated

approaches that provide decent housing,

suitable living environments, and expanded

economic opportunities for low- and

moderate-income persons. The primary

means toward this end is the development

of partnerships among all levels of

government and the private sector.

Audits

During this reporting period, the Office

of Inspector General (OIG) issued eight

external audit reports in the CPD program

area. These reports disclosed nearly $2

million in questioned costs and more than

$1 million in recommendations that funds

be put to better use.

OIG audited Community Development

Block Grant (CDBG) program, Home

Investment Partnership program (HOME),

and Special Purpose Grants program.

Community Development Community Development Community Development

Block Grant Program

HUD OIG audited the City of Hartford,

CT, Division of Grants Management,

regarding its administration of the CDBG

program in response to a Hotline complaint.

The objectives were to determine whether

the City awarded grants to subrecipients for

Chart 5.1: Community Planning and

Development Dollars Development Dollars

5,000,000

Questioned Costs Funds Put to Better Use

4,000,000

3,000,000

2,000,000

1,000,000

0

eligible activities and adequately monitored

their performance to ensure they were paid

in accordance with the contract terms, met

contract objectives, and properly accounted

for Emergency Demolition and Repair

program income.

The City paid more than $1 million in

ineligible costs associated with 5 of the 17

activities reviewed. Of the ineligible costs,

more than $831,000 related to activities

ineligible under the CDBG program, and

approximately $207,000 related to an activity

that was ineligible under the cited eligibility

category. OIG also identified more than

$394,000 allocated for ineligible activities for

the City’s CDBG program year beginning

July 1, 2005. In addition, although the City

paid subrecipients in accordance with the

contracts, we could not always determine

whether the contract objectives were met.

The City also did not properly account

for approximately $147,000 in CDBG

program income generated through its

Emergency Demolition and Repairs

program. In addition, more than $525,000

in receivables is at risk of not being returned

because of ineffective internal controls over

the program receipts.

OIG recommended that HUD require

the City to develop and implement

procedures to ensure that only eligible

activities meeting CDBG program objectives

are funded. In addition, HUD should

require the City to repay more than $831,000

in ineligible costs, repay approximately

$207,000 in costs that were improperly

classified as direct homeownership

assistance, reprogram more than $394,000

allocated for ineligible activities in the

program year beginning July 1, 2005, repay

more than $62,000 in Emergency Demolition

and Repair program income, and provide

support for or repay the more than $85,000

in Emergency Demolition Repair program

payments. (Audit Report: 2006-BO-1001)
HUD’s Community Planning and Development Programs 73

This is the sixth of HUD OIG’s ongoing

audits of the Lower Manhattan

Development Corporation’s administration

of the CDBG Disaster Recovery Assistance

funds, which were provided to the State of

New York as a result of the September 11,

2001, terrorist attacks on the World Trade

Center in New York City, NY. The auditee

disbursed $64 million of these funds during

OIG’s audit period of April 1 through

September 30, 2005. The objectives of the

current review were to determine whether

the auditee disbursed the funds in

accordance with HUD-approved action

plans, expended the funds for eligible

planning and administrative expenses in

accordance with applicable laws and

regulations, and maintained a financial

management system that adequately

safeguarded the funds.

The auditee generally disbursed

Disaster Recovery Assistance funds in

accordance with the HUD-approved action

plans. The auditee also expended the funds

for eligible planning and administrative

expenses in accordance with applicable laws

and regulations and maintained a financial

management system that adequately

safeguarded the funds. However,

weaknesses in the auditee’s control

procedures permitted funds to be disbursed

contrary to the terms of its subrecipient

agreements and charged to the wrong

program. More than $259,000 was

disbursed contrary to a subrecipient

agreement, $7.5 million was disbursed for

eligible costs but without auditee approval

as required, and more than $7,000 was

charged to the wrong program.

OIG recommended that HUD require

the auditee to obtain reimbursement for the

more than $259,000 disbursed contrary to

the subrecipient agreement, strengthen its

controls over the Disaster Recovery

Assistance funds to ensure that funds are

not disbursed without proper approval and/

or authorization, and obtain reimbursement

for more than $7,000 charged to the wrong

program. (Audit Report: 2006-NY-1006)

Special Purpose Grant

Special Purpose Grant Special Purpose Grant

Program

HUD OIG audited NorthStar

Community Development Corporation’s

Economic Development Initiative – Special

Purpose Grant in Detroit, MI, as part of its

2005 annual audit plan. OIG chose

NorthStar’s Grant because it disbursed 90

percent or more of its funds. The objectives

were to determine whether NorthStar used

its Grant funds in accordance with HUD’s

requirements and recorded HUD’s interest

on the assisted properties.

NorthStar improperly used more than

$123,000 in Grant funds and lacked

documentation to support that nearly $2,000

in Grant funds was used according to

NorthStar’s amended budget. In addition,

NorthStar used more than $184,000 in Grant

funds to acquire or aid in the acquisition of

and/or rehabilitate real property; however,

it did not place covenants on the properties’

titles, assuring nondiscrimination based on

race, color, national origin, or handicap.

Further, NorthStar did not record HUD’s

interest on the properties’ titles.

OIG recommended that HUD

require NorthStar to reimburse HUD

from nonfederal funds for the

inappropriate expenses; provide

supporting documentation or reimburse

HUD for unsupported expenses; implement

procedures and controls to address the

deficiencies identified; and record covenants

and liens on the titles. If the covenants and

liens are not recorded, NorthStar should

reimburse HUD the more than $184,000

used on the properties. (Audit Report: 2006-

CH-1006)

HUD OIG audited the City of St. Ignace,

MI’s Economic Development Initiative –

Special Purpose Grant as part of its 2005

annual audit plan. OIG chose the City’s

grant because it had disbursed 90 percent

or more of its funds. The objectives were to
74 HUD’s Community Planning and Development Programs

determine whether the City used its Grant

funds in accordance with HUD’s

requirements and recorded HUD’s interest

on the assisted property.

The City used the Grant funds in

accordance with HUD’s requirements. It

used the funds to pay for the construction

of the St. Ignace Public Library. However,

it did not place a covenant on the property

title for the library, assuring

nondiscrimination based on race, color,

national origin, or handicap.

OIG recommended that HUD assure

the covenant, executed on October 18, 2005,

on the library’s property title, ensuring

nondiscrimination based on race, color,

national origin, or handicap, includes HUD’s

remedies in the event that discrimination

occurs. The appropriately executed

covenant with HUD’s remedies should help

ensure that the City protects HUD’s interest

in the more than $223,000 in Grant funds

used for the library. (Audit Report: 2006-

CH-1001)

HUD OIG audited the City of

Rhinelander, WI’s Economic Development

Initiative – Special Purpose Grant. OIG

chose the City’s grant because it had

disbursed 90 percent or more of its funds.

The objectives were to determine whether

the City used its Grant funds in accordance

with HUD’s requirements and recorded

HUD’s interest on the assisted property.

The City used the Grant funds in

accordance with HUD’s requirements. It

used $120,000 in Grant funds to pay for the

reconstruction of U.S. Highway 8, which

included the construction of a rail spur

crossing and access road. However, it did

not place a covenant on the property title

for the access road, assuring

nondiscrimination based on race, color,

national origin, or handicap. Further, HUD

did not request that the City record HUD’s

interest on the access road’s property title.

OIG recommended that HUD require

the City to record a covenant on the title,

assuring nondiscrimination based on race,

color, national origin, or handicap and

record a lien on the property title for the

access road showing HUD’s interest in the

assisted property. If the covenant and lien

are not recorded, the City should reimburse

HUD approximately $47,600 for the Grant

funds used to pay for the construction of the

access road. (Audit Report: 2006-CH-1003)

Supportive Housing Program

HUD OIG audited the Fontana Native

American Indian Center in Fontana, CA, in

response to a request from HUD. The

objectives were to determine whether the

Center administered its Supportive Housing

Program grant in accordance with HUD

requirements and its grant agreement.

The Center spent more than $194,500

in grant funds for ineligible, unsupported,

and unnecessary expenses. Additionally, the

Center ’s financial management and

record-keeping systems were inadequate.

HUD OIG recommended that HUD

require the Center to reimburse the grant or

repay HUD for the ineligible, unsupported,

and unnecessary expenses. OIG also

recommended that HUD require the Center

to establish and implement financial

management and record-keeping systems

that meet Federal requirements and not

award the Center additional funding until

it has implemented adequate systems and

controls. (Audit Report: 2006-LA-1009)

In response to a complaint from the

Government Accountability Office (GAO),

HUD OIG completed a limited review of

Women Rising, Inc., located in Jersey City,

NJ. The complaint generally alleged that the

grantee was misappropriating funds in

regard to reimbursable expenses and the

payment of salaries under its Program

Home, part of HUD’s Supportive Housing

program. The review objectives were to
HUD’s Community Planning and Development Programs 75

determine whether the allegations in the

complaint were valid, the grantee had

adequate controls over disbursements and

drawdowns, and the grantee’s cost

allocation plan was approved by HUD.

The allegations in the complaint

regarding HUD funding were not valid. The

grantee generally had adequate controls

over disbursement and drawdowns;

however, more than $94,000 of the final

drawdown was not supported by invoices

or evidence that costs were incurred.

Additionally, the grantee’s cost allocation

plan had not been approved by HUD.

OIG recommended that the grantee be

directed to provide documentation to

support more than $94,000 in drawdowns

or reimburse HUD for the unsupported

costs. In addition, the grantee should ensure

that all drawdowns are properly supported

with documentation and submit its cost

allocation plan to HUD for review and

approval. (Audit Report: 2006-NY-1002)
76 HUD’s Community Planning and Development Programs

Investigations Investigations Investigations

During this reporting period, OIG

opened 42 investigative cases and closed

36 cases in the CPD program area. Judicial

action taken on these cases during the

period included $8,205,359 in investigative

recoveries, 43 indictments/informations,

13 convictions/pleas/pretrial diversions, 49

arrests, 2 civil actions, 3 personnel actions,

and 17 administration actions.

Some of the investigations discussed in

this report were conducted jointly with

Federal, State, and local law enforcement

agencies. The results of OIG’s more

significant investigations are described

below.

Public Corruption Public Corruption

Jose Cipolla, a contractor with Mardell

Construction Company, and Frank Guido,

owner of Franklin Construction Company,

were sentenced in U.S. District Court,

Western District of New York, Rochester,

NY, following their earlier guilty pleas to one

count of perjury for lying to a Federal grand

jury by denying they paid kickbacks to City

of Rochester rehabilitation specialist David

Lippa. Cipolla was sentenced to 6 months

home confinement and 5 years probation

and ordered to pay HUD $5,000 in

restitution; Giudo was sentenced to 5 years

Chart 5.2: Community Planning and

Development Recoveries Development Recoveries

Public Corruption

83%

Kickbacks

3%

Total Recoveries $8,205,359

Embezzlement

11%

Theft of Government

Property

2%

False Statements

1%

probation and ordered to pay the U.S.

Department of Justice (DOJ) $5,000 in

restitution. On December 14, 2005, Lippa

and Mark Stedman, former City of

Rochester rehabilitation specialists, were

sentenced for their earlier guilty pleas to one

count of bribery. Lippa was sentenced to 5

months incarceration, 5 months home

confinement, and 3 years probation; fined

$3,000; and ordered to perform 40 hours of

community service. Stedman was sentenced

to 2 years probation and 6 months home

confinement and fined $1,000. Lippa and

Stedman solicited kickbacks from

contractors in exchange for City of

Rochester rehabilitation contracts. The City

of Rochester Rehabilitation program

receives $2 million yearly in HUD CDBG

and HOME grant funds to rehabilitate

housing for low-income families in the City

of Rochester.

Emmanuel Onunwor, the former mayor

and director of East Cleveland Department

of Community Development (ECDCD), a

HUD-funded organization, and Cuyahoga

Metropolitan Housing Authority (CMHA)

Section 8 landlord, was sentenced in U.S.

District Court, Northern District of Ohio,

Cleveland, OH, to 9 years in prison and 3

years probation and ordered to pay the

Bankruptcy Court and Internal Revenue

Service (IRS) $5,111,000 in restitution.

Onunwor was convicted of violating the

Racketeering Influenced Corrupt

Organizations Act (RICO), mail fraud,

extortion, witness tampering, and filing false

Federal income tax returns from 1998 to

2002. Onunwor solicited and received

bribes, kickbacks, and secret payoffs

through intermediaries using HUD funds as

an inducement for contractor bribes while

he was director of ECDCD and mayor of East

Cleveland. In addition, Onunwor filed false

disclosure forms with the Ohio Ethics

Commission and failed to disclose his receipt

of Section 8 housing assistance payments

from CMHA to the Bankruptcy Court or IRS.
HUD’s Community Planning and Development Programs 77

Mark Marcucilli, assistant director of

housing management, New York State

Division of Housing and Community

Renewal (DHCR), and his father, Fred

Marcucilli, were each indicted in U.S.

District Court, New York, NY, on eight

counts of conspiracy to commit mail fraud

and theft of government funds. The

Marcucillis allegedly deceived and obtained

HUD and Lower Manhattan Development

Corporation (LMDC) funds by falsely

claiming residence in the lower Manhattan

World Trade Center area. HUD provided

$2.7 billion for LMDC, an organization

created to coordinate the rebuilding and

revitalization of lower Manhattan after the

September 11, 2001, terrorist attacks. Mark

Marcucilli was arrested on December 21,

2005.

Warren Godbolt, former executive

director, Progressive Training Associates

(PTA), a non-profit organization receiving

funds through HUD’s Supportive Housing

Program, and Ernest Newton, a former State

senator, were sentenced in U.S. District

Court, Bridgeport, CT, followingtheir

earlier guilty pleas. Godbolt was sentenced

to 6 months home confinement, 5 years

probation, and ordered to perform 300 hours

of community service and pay a $25,000 fine.

Godbolt pled guilty on August 2, 2005, to

Copyright, 2006. Downtown Express - New York, NY. Reprinted with permission.
78 HUD’s Community Planning and Development Programs

two counts of bribery and one count of

conspiracy for embezzling more than

$100,000 from PTA, which he used for a

cruise and to purchase a BMW automobile

and for paying a $5,000 bribe to Newton for

his assistance in securing a $125,000 grant

for PTA. Newton was sentenced to 5 years

prison and 3 years probation and ordered

to pay the State of Connecticut Elections

Enforcement Commission approximately

$14,000 in restitution. Newton pled guilty

on September 20, 2005, to one count of

bribery, one count of mail fraud and one

count of tax evasion, for accepting a $5,000

bribe from Godbolt and assisting PTA in

securing a $125,000 grant.

Francis G. Keough III, the former

director of Friends of the Homeless, Inc.

(FOH), Angel T. Guzman, and Michael P.

Hallahan, former employees of FOH, were

charged in a 50-count superseding

indictment with conspiracy to defraud the

U.S. Government, obstruction of justice,

extortion, mail fraud, theft of honest

services, false statements, perjury, criminal

contempt, filing false Federal income tax

returns, and witness tampering in U.S.

District Court, Springfield, MA. The

superseding indictment also seeks more

than $1 million in forfeitures. On January

13, 2006, Guzman and Hallahan were

arrested; Keough remains in Federal

custody pending trial.

The superseding indictment charges

Keough, Guzman, and Hallahan with

receiving CDBG and Emergency Shelter

Grants funds for their personal use and

conspiring to produce and issue false

documents. Further charges allege Keough

received more than $225,000 in salary

payments to which he was not entitled,

concealed income and expenses to avoid

paying Federal income tax, pilfered

appliances from FOH, used shelter and city

employees to rehabilitate his beach house

in Rhode Island, and provided jobs and

housing in exchange for sex or cash. The

indictment also alleges Raymond Asselin,

the former Springfield Housing Authority

executive director, facilitated Keough’s

receipt of $50,000 in consulting fees from a

publicly funded housing project for

negotiating a Hampden County position for

his son, James Asselin. James Asselin was

convicted of embezzling more than $600,000

from a CDBG-funded agency in March 2004.

Copyright, 2006. The Republican - Springfield, MA.

Reprinted with permission.
HUD’s Community Planning and Development Programs 79

Reverend Lamar Wright, president and

chief executive officer of Save Our Children

Community Project (SOCC) and SOCC

subsidiary People United For Change

(PUFC), nonprofits funded by HUD, signed

a pretrial diversion agreement in U.S.

District Court, Eastern District of Arkansas,

Little Rock, AR, and agreed to pay the

Arkansas Department of Human Services

$14,000 in restitution and perform 100 hours

of community service in return for 18

months deferred adjudication. Wright,

previously indicted on June 7, 2005,

admitted to aiding and abetting in the theft

of Federal grant money. From April 2002

through January 2003, Wright transferred

Federal grant money from SOCC and PUFC

bank accounts to his personal account; wrote

checks from his personal account to

codefendant Lola Thrower, the former

program administrator for Human

Immunodeficiency Virus (HIV) Services,

Arkansas Department of Health, a HUDand Health and Human Services (HHS)-

funded State organization; and fabricated

invoices and other documents to hide the

money transfers and personal checks to

Thrower. In addition, Lee Langston, former

executive director of Positive Voices (PV), a

nonprofit subgrantee of Federal funds

administered by HIV Services, was

sentenced to 3 months home confinement

and 3 years probation and ordered to pay

the Arkansas Department of Human

Services $15,427 in restitution. On October

4, 2005, Langston pled guilty to one count

of theft of Federal property. From May 2003

through March 2004, Langston admitted

taking approximately $16,000 from a PV

bank account, creating a false invoice, and

giving $2,000 to codefendant Thrower.

Langston kept the remaining funds,

approximately $14,000, for services he never

performed.

Richard Goyette, mayor of Chicopee,

MA, was indicted in U.S. District Court,

Springfield, MA, on two counts of extortion.

Goyette allegedly extorted two $5,000 cash

campaign contributions: one from a

developer holding a contract with

Chicopee’s Office of Economic Development

(ECD), a HUD funded entity, and the second

from a local towing company. In return for

the cash contributions, Goyette allegedly

promised the developer he would intercede

on his behalf in a planned ECD project and

promised the towing company continuation

of city contracts. Goyette was arrested on

November 1, 2005.

Copyright, 2006. The Republican - Springfield, MA. Reprinted with permission.
80 HUD’s Community Planning and Development Programs

Copyright, 2006. The Republican - Springfield, MA. Reprinted with permission.

Anthony M. Ardolino, former

Springfield City chief of staff, Chester J.

Ardolino, former Springfield police officer,

and Matthew D. Campagnari, a real estate

developer, were indicted in U.S. District

Court, Springfield, MA, on 16 counts of

conspiracy to defraud the U.S. Government

filing false Federal income tax returns, and

witness tampering. A fourth individual,

John J. Walsh, doing business as J. Walsh

and Sons Building and Remodeling, was

also charged with perjury and obstruction

of justice. Anthony Ardolino allegedly

attempted to steer HUD CDBG funds to the

Façade program, a program established

to renovate downtown Springfield

storefronts. Several bars owned by the

Ardolinos and Campagnari were included

in the storefront renovations. The

defendants were arrested on October 31,

2005, after the indictments were unsealed.

Theft/Embezzlement

Theft/Embezzlement Theft/Embezzlement

Chang Sheng Yu, a Chinese national and

resident of Queens, NY, was arrested and

indicted on eight counts of theft of

government funds, mail fraud, and

submission of false Social Security numbers

for his role in a scheme to defraud HUD and

Empire State Development Corporation

(ESDC) of $ 118,876 in Federal grant money.

ESDC is a HUD-funded nonprofit

established to provide assistance to

businesses in lower Manhattan after the

September 11, 2001, terrorist attacks. Sheng

Yu, president of American McKinley

Venture Management, Inc., allegedly

obtained a Business Recovery Grant (BRG)

and attempted to fraudulently obtain a

Small Firm Attraction and Retention

Grant (SFARG) through ESDC.

Jarmena To, a General Services

Administration (GSA) employee, pled guilty

in U.S. District Court, Southern District of

New York, New York, NY, to one count of

theft of government funds. To, indicted on

July 1, 2005, fraudulently obtained Lower

Manhattan Development Corporation

(LMDC) grant funds after subletting and

relocating from a LMDC qualified

apartment. LMDC, a HUD-funded

nonprofit, was created to assist in the

revitalization of lower Manhattan after the

September 2001 terrorist attacks.

Yvonne Grimes, former executive

director, Amistad Development Corporation

(ADC), a HUD-funded nonprofit, pled guilty

in Court of Common Pleas, Cuyahoga
HUD’s Community Planning and Development Programs 81

County, Cleveland, OH, to forgery and

theft. Grimes was sentenced to 2 years

probation and ordered to pay HUD $1,200

in restitution. Grimes prepared, signed, and

submitted a claim for a round-trip airline

ticket she did not use and expended ADC

funds to pay personal expenses.

Letitia Slack, a former employee of East

Saint Louis Community Development

(ESLCD), was sentenced in U.S. District

Court, Southern District of Illinois, East St.

Louis, IL, to 18 months in prison and

ordered to pay HUD $158,279 in restitution

and $41,588 in delinquent taxes. On

November 3, 2005, Slack pled guilty to an

information charging her with mail fraud

and tax evasion. Slack admitted she

embezzled $158,279 from ESLCD, a

nonprofit organization funded by HUD

through the HOME and CDBG programs.

From 2002 to 2005, Slack created false

vendor numbers and invoices to receive

checks for services and materials not

provided. Slack, using her personal

checking account, deposited and spent the

fictitious vendor payments.

Other Fraud/Crimes Other Fraud/Crimes Other Fraud/Crimes

Mhammad Aziz Abu-Shawish was

sentenced in U.S. District Court, Eastern

District of Wisconsin, Milwaukee, WI, to 3

years incarceration and 3 years supervised

release, ordered to pay HUD $75,000 in

restitution, and fined $1,000. On July 13,

2005, Abu-Shawish was found guilty of

submitting a fictitious HUD block grant

study and false documentation supporting

$30,000 in phony expenses to the City of

Milwaukee.

In a Civil Judgment filed in U.S. District

Court, New York, NY, Arthur Gregory

agreed to pay $36,500 to settle civil fraud

charges filed by the U.S. Government under

the False Claims Act. Gregory submitted

false lease documents and secured two Small

Business grants from the World Trade Center

Small Firm Attraction and Retention Grant

Program (SFARG), a HUD-funded nonprofit

organization created to redevelop lower

Manhattan after the September 11, 2001,

terrorist attacks.

James Thomas Jr., owner of Thomas

Wrecking, pled guilty to an Information filed

in U.S. District Court, Eastern District of

Missouri, St. Louis, MO, charging him with

one count of Federal income tax evasion.

Thomas admitted using his company as the

“front company” for Spiritas Wrecking to

satisfy the HUD-funded St. Louis

Community Development Authority’s

(CDA) regulations relating to minority

business participation in the renovation of

old St. Louis City Hospital. Thomas

funneled Spiritas Wrecking payroll checks

through his company to make it appear as if

a minority contractor was involved in the St.

Louis City Hospital project, as certified to

CDA. Thomas agreed to run Spiritas’ payroll

through his company in return for Spiritas

forgiving a debt owed by Thomas.

  

Chapter 6 Chapter 6

Hurricane Relief Oversight Hurricane Relief Oversight Hurricane Relief Oversight
84 Hurricane Relief Oversight

“I think it’s important to

remember why we’re here.

We’re here for one reason: to

help the citizens and

communities affected by

Hurricane Katrina. ... The

road to full recovery is long

and I expect that we will be

there every step of the way to

support the process that helps

the displaced families and

disaster-stricken communities

rebuild, recover, and reclaim

their lives.”

Remarks by Inspector General

Kenneth M. Donohue regarding

the hurricane-affected States

while in Biloxi, MI - March 3, 2006.

Introduction and Background Introduction and Background

Hurricanes Katrina, Rita, and Wilma

had a dramatic impact on HUD’s Gulf Coast

operations as well as residents, HUD

employees, and the business community.

The potential losses to HUD and its housing

and community development programs are

significant. OIG’s Offices of Audit and

Investigation continue to maintain a

presence in the Gulf Coast disaster area.

HUD OIG has established a base of

operations in New Orleans and has

established new offices in Baton Rouge, LA,

and Hattiesburg, MS. To accomplish its

goals, OIG will readdress its available assets

and will reallocate them as availability and

demand rise. HUD OIG foresees and

anticipates a continuing leadership role in

detecting and preventing fraud regarding

disaster recovery funding in the Gulf Coast

States and elsewhere.

The destruction and aftereffects of

Hurricanes Katrina, Wilma, and Rita will

present challenges to HUD OIG that will far

surpass the reconstruction of lower

Manhattan following the September 11

attack. HUD OIG’s continuing oversight of

the funds allocated to the Lower Manhattan

Redevelopment Corporation has become a

template on how to oversee funds allocated

to recovery from such disasters.

Consequently, the HUD OIG audit and

investigative staffs have started to provide

a continuing and comprehensive review of

the expenditure of funds and will stand

guard against those who would seek to

defraud the government.
Hurricane Relief Oversight 85

Audit

In the wake of the Gulf Coast disaster,

the HUD OIG Office of Audit has responded

quickly to establish an office for Hurricane

Katrina oversight to prepare for the long

process of recovery. The Office of Audit and

HUD are not generally first responders;

however, the Office of Audit has established

an office, developed an audit plan, and

begun reviews in the disaster areas. The

Office of Audit’s initial assignment was to

evaluate HUD’s use of real estate owned

(REO) properties to house disaster evacuees.

It also is performing audits of the more than

$17 million in contracts issued for disasterrelated procurement activities. These

reviews are timely and will assist in

establishing a presence and acting as a realtime deterrent to waste and abuse in HUD’s

activities. Below is a summary of the

ongoing Katrina audit-related activities.

HUD OIG, Office of Audit, Hurricane

Recovery Audit Oversight Division

 Has started audits of HUD’s use of

REO properties to house disaster

evacuees including management and

marketing contractors’ rehabilitation

cost billings.

 Is currently reviewing two

management and marketing

contractors in two States.

 Is identifying/analyzing all fund

drawdowns (usage) by PHAs in the

disaster areas for audit and

investigation followup.

 Has identified PHAs providing

KDHAP vouchers; is planning an

audit of the KDHAP voucher process/

matching review.

 Has reviewed all HUD waivers to

assure that statutory requirements are

not waived.

 Is monitoring/analyzing HUD

contracting efforts relating to disaster

recovery efforts as part of the U.S.

Department of Health and Human

Services (HHS) Contract Oversight

Task Force.

 Is working with OIG legal counsel to

gain access to FEMA data for

matching purposes.

 Is conducting an internal audit of the

HUD contracting process relating to disaster recovery.

 Is monitoring the FEMA mission

assignment activities and internal

controls.
86 Hurricane Relief Oversight

Investigations Investigations Investigations

The HUD OIG Office of Investigation

immediately responded to the HUD

challenges and role in rebuilding the Gulf

Coast by establishing the Hurricane Katrina

Fraud Task Force (HKFTF). This task force

works jointly with the Federal Bureau of

Investigation (FBI), the U.S. Department of

Justice (DOJ) Command Center in Baton

Rouge, LA and State investigative agencies

to investigate fraud in all HUD programs

affected by the hurricanes in the Gulf.

HKFTF is based in New Orleans with

personnel also assigned in Arlington and

Houston, TX; Baton Rouge, LA; and

Hattiesburg, MS.

To assist with the many oversight

responsibilities of an endeavor of this

magnitude, the Hurricane Recovery

Oversight Division (HROD) was also

established in the Office of Investigation

Headquarters. HROD is responsible for:

(1) liaison; (2) research, analysis and

recommendations; (3) monitoring, reporting

and dissemination; and (4) strategic

planning and implementation of Office of

Investigation directives associated with

disaster assistance and recovery.

The Office of Investigation has created

a far-reaching fraud prevention program

designed to (1) create a training course for

agents/auditors and program officials to

teach them to identify fraud in CPD/grant

programs; (2) sponsor fraud prevention

meetings between HUD OIG and the major

programs of HUD; and (3) sponsor fraud

prevention meetings between HUD OIG and

industry groups, the Mortgage Bankers

Association, the Public Housing Authorities

Directors Association, the National

Association of Housing and Redevelopment

Officials, private insurance companies,

multifamily owners, public housing

executive directors, State governments, and

economic development agencies. As part of

our fraud prevention program, HUD OIG

has created a suspicious activity report

(SAR) that will be given to HUD grantees,

subgrantees, and others associated with

delivering disaster funds. The SAR is a

method of informing HUD OIG of suspected

irregularities in the delivery of HUD

program money. OIG forensic auditors have

been assigned to review temporary housing

programs and FEMA payments to HUDassisted housing residents. OIG plans to use

forensic auditors to review all programs that

are not audited by the Office of Audit.

HUD OIG opened 18 cases during the

semiannual reporting period, ending March

31, 2006, which resulted in six indictments,

six arrests, and two convictions.

Hurricane-Related Benefit Hurricane-Related Benefit Hurricane-Related Benefit

Fraud

Carolyn Richard and George Davis III

were convicted by a Federal jury in

Harrisburg, PA, for providing false

information on their applications for

emergency housing through the Housing

Choice Voucher and public housing

programs. Richard and Davis, who

relocated to Columbia, PA, from New

Orleans, LA, following Hurricane Katrina,

applied for housing assistance with

Lancaster City Housing Authority (LCHA)

but failed to report their extensive criminal

histories, including Richard’s incarceration

in Louisiana and later release as a result of

Hurricane Katrina flooding.

Gilbert Gasice, a housing choice

voucher recipient, was indicted in U.S.

District Court, Eastern District of California,

Sacramento, CA, on two counts of mail and

wire fraud, and two counts of making false

statements. Gasice was arrested in

Georgetown, CA, after he allegedly schemed

to defraud the County of Sacramento, when

it was discovered that he claimed to have

been a victim of Hurricane Katrina and

received monetary and lodging aid from the

Red Cross and other charitable

organizations. As a part of his scheme,
Hurricane Relief Oversight 87

Gasice moved from his subsidized unit in

Sacramento, CA, and relocated to

Georgetown, CA, but failed to report his

move from the subsidized unit as required

and failed to live in the subsidized unit as

his sole residence. The loss to HUD is

approximately $6,000.

Jermine O. White, Stevie Lawson, and

Morris L. Singleton were arrested and

indicted in Baton Rouge, LA, for falsely

representing themselves as hurricane

evacuees displaced from public housing due

to Hurricane Katrina and using their status

as hurricane evacuees to receive FEMA

monetary assistance. The investigation

determined that White, Lawson, and

Singleton did not live in public housing

during the hurricanes and received benefits

to which they were not entitled.

Hurricane-Related OIG Hurricane-Related OIG

Hotline Hotline

During this reporting period, the

Hotline received and processed 81

complaints related to Hurricanes Katrina,

Rita, and Wilma.

Hurricane-Related Hurricane-Related

Outreach Outreach

In Gulfport, MS, Inspector General Ken

Donohue met with the Gulf Coast State

auditors whose States where damaged by

the Hurricanes of 2005. Assistant Inspector

General for Audit (AIGA) James Heist,

Deputy Assistant Inspector General for

Audit (DAIGA) Bob Gwin, and Deputy

Assistant Inspector General for

Investigation (DAIGI) – Inspections and

Evaluations John McCarty briefed the State

auditors from Florida, Alabama, Mississippi,

Louisiana, and Texas on HUD programs,

audit applications, and fraud prevention.

Mississippi State Auditor Phil Bryant

chaired the meeting.

In Baton Rouge, LA, Assistant Inspector

General for Investigation (AIGI) Joseph

Haban, DAIGI John McCarty, and Assistant

Special Agent in Charge (ASAC) Thomas

Luke of HKFTF briefed DOJ Command

Center members consisting of the U.S.

Attorneys from Louisiana and Mississippi

as well as FBI special agents. The Command

Center is directed by U.S. Attorney David

Dugas of the Middle District of Louisiana.

The briefing covered HUD programs

affected by the hurricanes and the

opportunity for fraud to be committed

within FHA single-family and multifamily

programs, CPD grants, and public housing.

Early coordination was established for

exchange of data, joint investigations, and

strategies of future initiatives.

AIGI Joseph Haban, DAIGI John

McCarty, and ASAC Thomas Luke met

the senior State management teams with

both the Mississippi Development

Authority and the Louisiana Recovery

Authority in Jackson, MS, and Baton

Rouge, LA, respectively, to discuss their

action plans for the use of HUD CDBG

in rebuilding their communities. They

discussed means by which to combat fraud

opportunities and audit weaknesses within

their plans. They agreed to develop a

proactive program integrity campaign

directed at homeowners, contractors, and

employees of the States.

Special Agent in Charge (SAC) Joseph

Clarke and HUD OIG special agents located

in New Orleans, LA, Atlanta, GA, and

Arlington, TX, met with HUD KDHAP

coordinators and FEMA Disaster Recovery

Centers. They presented fraud awareness

briefings and distributed HUD OIG Hotline

materials to their staffs.

DAIGI John McCarty and SAC Joseph

Clarke led the efforts of special agents and

other HUD OIG staff assigned to damage

assessment teams, who began at the water

line in New Orleans, LA, and photographed,

assessed, and documented hurricane-
88 Hurricane Relief Oversight

related damage to all HUD public housing

and multifamily projects in the States of

Louisiana and Mississippi.

In Jackson, MS, ASAC Thomas Luke,

SAC Larry Amaker, Supervisory Forensic

Auditor Windell Durant, and Senior Special

Agent Sandra Hackworth addressed

the Southeastern Affordable Housing

Management Association about issues

affecting multifamily development in the

Gulf Coast region and opportunities for

fraud associated with hurricane recovery

funding.

ASAC Thomas Luke and Supervisory

Forensic Auditor Windell Durant have

developed fraud prevention training and

scheduled presentations to the Mississippi

Development Authority’s homeowner

service centers, property appraisers, and

contract employees overseeing quality

control programs. Training seminars are

scheduled for Gautier, Gulfport, and Bay

St. Louis, MS.

AIGI Joseph Haban and DAIGI John

McCarty met with the Mortgage Bankers

Association in Washington, DC, to establish

fraud prevention training and fraudreporting protocols for disaster-related

matters.

ASAC Thomas Luke and SAC Larry

Amaker are working with Louisiana

Recovery Authority officials located in

Baton Rouge, LA, to establish lines of

communication and coordinate fraud

prevention efforts.
Hurricane Relief Oversight 89

Pictures of HUD OIG’s Hurricane Relief and Pictures of HUD OIG’s Hurricane Relief and

Recovery Efforts Recovery Efforts Recovery Efforts

HUD OIG special agents at Industrial Canal levee

breach.

HUD Inspector General Kenneth Donohue (center),

AIGI Joseph Haban, and DAIGI Lester Davis survey

damage at Abundance Development

HUD OIG special agents at the Industrial Canal

levee breach overlooking lower 9th Ward.

SAC Joseph Clarke organizing HUD OIG’s

Operation Hurricane Assessment in New Orleans,

LA.

HUD OIG special agents assessing damage in New

Orleans, LA.

HUD Inspector General Kenneth Donohue stands

below waterline viewing damage at Abundance

Development.
90 Hurricane Relief Oversight

Christopher Homes

AIGI Haban (left) and IG Donohue (right) outside of

the Housing Authority of New Orleans.

Malta Square

B.W. Cooper Extention

  
Chapter 7 Chapter 7 Chapter 7

Other Significant HUD Audits Other Significant HUD Audits Other Significant HUD Audits

and Investigations/OIG Hotline and Investigations/OIG Hotline and Investigations/OIG Hotline
92 Other Significant HUD Audits and Investigations/OIG Hotline

Audit

During this reporting period, the Office

of Inspector General (OIG) issued nine

internal reports involving areas of U.S.

Department of Housing and Urban

Development (HUD) operations that do not

fall under major HUD programs reported

in previous chapters.

OIG’s more significant audits are

discussed below.

Audit of HUD’s Financial Audit of HUD’s Financial Audit of HUD’s Financial

Statements Statements

HUD OIG audited HUD’s fiscal year

(FY) 2005 consolidated financial statements

in accordance with the Chief Financial

Officers Act of 1990, and the report on those

financial statements is included in HUD’s FY

2005 Performance and Accountability Report.

In OIG’s opinion, HUD’s FY 2005 financial

statements were presented fairly. In

conjunction with OIG’s audit of HUD’s FY

2005 financial statements, OIG also reported

on two material weaknesses related to

HUD’s need to

 Incorporate better risk factors and

monitoring tools into Federal Housing

Administration’s (FHA) single-family

insured mortgage program risk

analysis and liability estimation

process and

 Continue to improve its review over the

FHA credit reform estimation process.

OIG also reported on six reportable

conditions in internal controls related to the

need to

 Comply with Federal Financial

Management System requirements

and continue to enhance FHA’s

management of controls over its

portfolio of integrated insurance and

financial systems,

 Improve oversight and monitoring

of subsidy calculations and

intermediaries’ program performance,

 Further strengthen controls over

HUD’s computing environment,

 Improve personnel security practices

for access to the Department’s critical

financial systems,

 Improve processes for reviewing

obligation balances, and

 Improve controls for developing

estimates of budget authority required

for the Section 236 Interest Reduction

Program.

In addition, HUD did not substantially

comply with the Federal Financial

Management Improvement Act (FFMIA)

regarding system requirements. The audit

also identified more than $377 million in

excess obligations recorded in HUD’s

records, which represent funds that HUD

could put to better use. (Audit Report: 2006-

FO-0003)

Chart 7.1: Other Significant Audit Dollars Chart 7.1: Other Significant Audit Dollars

450,000,000

400,000,000

350,000,000

300,000,000

250,000,000

200,000,000

150,000,000

100,000,000

50,000,000

0

Questioned Costs Funds Put to Better Use
Other Significant HUD Audits and Investigations/OIG Hotline 93

Audit of the Process HUD Used to Audit of the Process HUD Used to

Award its FY 2004 Healthy Award its FY 2004 Healthy

Homes and Lead Hazard Control Homes and Lead Hazard Control Homes and Lead Hazard Control

Properly Properly

In response to a number of

congressional inquiries and complaints,

HUD OIG audited the process HUD used

to award its FY 2004 Healthy Homes and

Lead Hazard Control grants. The objective

of the audit was to determine whether the

grants were properly awarded.

HUD did not properly evaluate 34 of 72

successful applications reviewed,

representing $92.7 million of the $168

million (55 percent) awarded. HUD

improperly awarded eight grants for $20.5

million. OIG could not determine the

propriety of the remaining 26 grant

applications receiving $72.3 million because

the documents needed to support HUD’s

award decisions could not be provided. In

addition, HUD files pertaining to 54 of 55

applications (98 percent) reviewed for

applicants that did not receive funding did

not support the decision to reject the grant

applications. Of these 54 applicants, HUD

denied one applicant approximately

$365,700 in grant funds that it was eligible

to receive.

OIG recommended that HUD (1)

implement controls to ensure it properly

evaluates the grant applications and

supports all awards; (2) continue recovery

efforts or obtain a legal opinion to determine

whether it can pursue recovery of the $20.5

million in improperly awarded grants it

provided to eight applicants; (3) depending

on the legal opinion, obtain the necessary

documentation to support the award

decisions relating to 26 other applicants

receiving $72.3 million in grant funds and

recover the amounts it determines were

improperly awarded; and (4) review the

remaining 135 applications that did not

receive awards to ensure these applicants

were not denied awards they should have

received. (Audit Report: 2006-PH-0001)

HUD’s Information Security HUD’s Information Security

Program and Practices Program and Practices

HUD OIG performed an annual

independent evaluation of HUD’s

information security program and practices

as directed by the Federal Information

Security Management Act of 2002 (FISMA).

HUD has made significant efforts to

improve its system security program, but

continued progress is needed to fully

comply with Federal requirements. HUD

has appointed a chief information security

officer, revised its information security

policy, and completed certification and

accreditation for more than 90 percent of its

applications. However, the quality of the

underlying documents and the certification

and accreditation process vary by

application. While a number of

vulnerabilities have been corrected,

additional vulnerabilities, identified

through oversight activities, were not

corrected before accreditation.

HUD program officials and system

owners have not fully met their

responsibilities as specified in FISMA,

section 3544(a). Also, HUD has not fully

implemented an agencywide information

system security program as specified in

FISMA, section 3544(b). Improvements are

needed in maintaining an adequate system

inventory, categorizing security impact level

properly for information systems, providing

sufficient training to program officials and

contractor staff, and developing and testing

contingency plans. (Audit Report: 2006-DP0801)

HUD’s Financial System

HUD OIG audited certain components

of HUD’s financial system to determine
94 Other Significant HUD Audits and Investigations/OIG Hotline

whether it is capable of performing the cost

management function as defined in Joint

Financial Management Improvement

Program (JFMIP) publication JFMIP-SR-02-

01, “Core Financial System Requirements,”

dated November 2001.

HUD’s core financial systems (1) cannot

perform all of the mandatory cost

management functions specified in JFMIP

SR-02-01 and (2) cannot accumulate

nonfinancial data that would be needed to

internally calculate cost management

information. Without these capabilities,

HUD’s core financial system does not

provide all of the nonfinancial data elements

needed to support the integration of budget,

cost, and performance measures. This

information is obtained from sources that

include both automated and manual

processes, procedures, controls, data,

software, and support personnel that are not

integrated through a common database or

electronically interfaced with the core

financial system.

OIG recommended that HUD develop

compliant cost management functional

requirements that support the integration

of budget, cost, and performance measures

as part of the HUD Integrated Financial

Management Improvement Project.

While HUD disagreed with OIG’s

recommendation, OIG obtained

documentation from the Project that

includes mandatory functional

requirements for the accumulation of

nonfinancial data. (Audit Report: 2006-DP0001)

Security Configuration Security Configuration

Assessment of HUD’s Servers Assessment of HUD’s Servers

HUD OIG completed a security

configuration assessment of HUD’s servers

on which FHA financial applications reside.

The objective of the audit was to review user

access, security controls to files and

directories, and configuration of network

services of HUD’s Unix operating system.

HUD has generally implemented the

Unix operating system configuration

settings properly. However, weaknesses in

the configuration of network services still

exist, and user access and security controls

to files and directories are not sufficiently

tightened.

OIG’s report presents detailed results of

our assessment and appropriate

recommendations for corrective action that

will improve HUD’s overall security posture

through recommended configurations. OIG

has determined that the contents of this

report would not be appropriate for public

disclosure; therefore, it has limited its

distribution to selected HUD officials.

(Audit Report: 2006-DP-0002)

FHA Financial Statements FHA Financial Statements

Urbach, Kahn, and Werlin, LLP (UKW),

audited FHA’s financial statements for the

year ending September 30, 2005.

UKW concluded that FHA’s fiscal year

2005 principal financial statements were

presented fairly, in all material respects, in

conformity with accounting principles

generally accepted in the United States of

America.

 UKW’s consideration of internal control

over financial reporting resulted in the

following matters being identified as

reportable conditions and with respect to the

first two items, material weaknesses:

 FHA must incorporate better risk

factors and monitoring tools into its

single-family insured mortgage

program risk analysis and loan

liability estimation process.
Other Significant HUD Audits and Investigations/OIG Hotline 95

 FHA management must continue to

improve its review over the credit

reform estimation process.

 FHA must continue to enhance the

management of controls over its

portfolio of integrated insurance and

financial systems.

UKW found no reportable instances of

noncompliance with certain provisions of

applicable laws, regulations, contracts, and

grant agreements. (Audit Report: 2006-FO0002)

Audit of the Government Audit of the Government

National Mortgage Association’s National Mortgage Association’s

(Ginnie Mae) Financial (Ginnie Mae) Financial (Ginnie Mae) Financial

Statements Statements

HUD OIG audited the Government

National Mortgage Association’s (Ginnie

Mae) financial statements for FY 2005.

The financial statements present fairly

the financial position of Ginnie Mae in all

material respects. There were no material

weaknesses or reportable conditions in

Ginnie Mae’s internal controls or reportable

instances of noncompliance with laws,

regulations, and provisions or contracts.

(Audit Report: 2006-FO-0001)

Network Vulnerability Network Vulnerability

Assessment Assessment

HUD OIG completed a network

vulnerability assessment of HUD to evaluate

whether its network security systems,

including security controls and practices,

adequately protect the integrity,

confidentiality, and availability of data and

information from unauthorized access to its

systems through the performance of

penetration testing.

Although HUD has implemented

controls to protect its network from external

intruders, internal penetration testing

identified security configuration and

technical controls deficiencies.

OIG has determined that the contents

of this report would not be appropriate for

public disclosure; therefore, it has limited

its distribution to selected HUD officials.

(Audit Report: 2006-DP-0003)

Audit of HUD’s Information Audit of HUD’s Information

Security Program Compliance Security Program Compliance

with Federal Requirements with Federal Requirements

HUD OIG audited HUD’s information

security program compliance with Federal

requirements. OIG evaluated (1) the

adequacy of the categorization of HUD’s

major systems, (2) whether HUD’s Office of

the Chief Information Officer has developed

security policies and implemented and

monitored enterprisewide controls, and (3)

whether HUD program officials and system

owners have properly implemented

information security responsibilities

assigned to them.

HUD has made considerable progress

in implementing a comprehensive,

entitywide information system security

program. However, there are several

matters that require management attention:

(1) HUD’s program officials and system

owners have not properly categorized

HUD’s application systems and utilities,

which could result in unnecessary

expenditure of funds; (2) HUD’s Office of the

Chief Information Officer has not fully

implemented an effective entitywide

information security program; and (3)

HUD’s program officials and system owners

have not complied with security
96 Other Significant HUD Audits and Investigations/OIG Hotline

Investigation Investigation

During this reporting period, OIG

opened 19 investigation cases and closed 6

cases involving areas of HUD operations

that do not fall under specific program

categories. Judicial action taken on these

cases during the period included $30,685 in

investigative recoveries, three indictments/

informations, five arrests, and two

convictions/pleas/pretrial diversions.

Some of the investigations discussed in

this report were conducted by OIG, while

others were conducted jointly with Federal,

State, and local law enforcement agencies.

The results of OIG’s more significant

investigations are described below.

James Joyce, a HUD employee, was

indicted in U.S. District Court, District of

New Hampshire, Manchester, NH, on two

counts of possession of firearms and

dangerous weapons in Federal facilities.

Joyce allegedly carried a knife and firearm

into the HUD office at the Manchester

Federal building.

Toulu Thao, a HUD housing specialist,

was indicted in U.S. District Court, Eastern

District of California, Fresno, CA, on four

counts of false statements. Thao allegedly

received $125,000 from organizations doing

business with HUD but failed to disclose

income, business arrangements, and/or

business agreements he had with these

organizations on his Office of Government

Ethics (OGE) Form 450, “Confidential

Financial Disclosure.” Thao was arrested on

February 13, 2006.

OIG Hotline OIG Hotline

The HUD OIG Hotline is operational 5

days a week, Monday through Friday, from

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

by seven full-time OIG employees, who take

allegations of waste, fraud, abuse, or serious

mismanagement in HUD or in HUD-funded

programs from HUD employees,

contractors, and the public and coordinate

reviews with internal audit and investigative

units or with HUD program offices.

During this reporting period, the

Hotline received and processed 9,416

complaints – 73 percent received by

telephone, 22 percent by mail, and 5 percent

by e-mail. Every allegation received by the

Hotline is logged into a database and

tracked.

Of the complaints received, 1,270 were

related to the mission of the OIG and were

addressed as Hotline cases. Hotline cases

are referred to OIG’s Offices of Audit and

Investigation or to HUD program offices for

action and response. The following

illustration shows the distribution of Hotline

case referrals by percentage.

Hotline closed 918 cases this reporting

period. The closed Hotline cases included

146 substantiated allegations. The

substantiated allegations resulted in four

administrative sanctions against HUD

employees for personnel violations or

against investors for improprieties involved

in the purchase of a home. The Department

also took 142 corrective actions that resulted

in $82,697 in recoveries of losses and

$2,352,885 in HUD funding that could be put

to better use. The recoveries included an

unsupportable appraisal which resulted in

an overinsured FHA-insured mortgage.

Some of the funds that could be put to better

use were the result of cases in which tenants

improperly reported their incomes or family

composition to qualify for rental assistance.
Other Significant HUD Audits and Investigations/OIG Hotline 97

Chart 7.2: Hotline Cases Opened by Program Area

Public and Indian

Housing

67%

OIG Audit and

Investigation

9%

Multifamily

Housing

13%

Single-Family

Housing

6%

Other HUD

Offices

5%

Chart 7.4: Substantiated Cases by Type of Complaint Received by Hotline

Rental Fraud and

Improprieties

93%

Other

1%

Conflict of

Interest

2%

Mismanagement

2%

Owner/Occupant

Violations

2%

Chart 7.3: Hotline Dollar Impact from Program Offices : Hotline Dollar Impact from Program Offices

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0

Single-Family Housing Multifamily Housing Public and Indian Housing

Recoveries $82,697 Funds Put to Better Use $2,352,885

$27,284 $17,164

$357,633

$38,249

$1,995,252

  

Chapter 8 Chapter 8

Outreach Efforts Outreach Efforts Outreach Efforts
100 Outreach Efforts

To foster cooperative, informative, and

mutually beneficial relationships with

agencies and organizations whose intent is

to assist the accomplishment of the U.S.

Department of Housing and Urban

Development’s (HUD) mission, the Office of

Inspector General (OIG) participates in a

number of special outreach efforts. These

efforts, as described below, are in addition

to OIG’s regular coordination with Federal,

State, and local law enforcement agencies,

other OIGs, and various congressional

committees and subcommittees. During

these outreach efforts, OIG presented the

results of its audit and investigative work

and discussed its goals, objectives, and

provided information about its role and

function.

Assistant Inspector General for

Investigations (AIGI) R. Joseph Haban,

Assistant Special Agent in Charge (ASAC)

Robert Gale, and Special Agent (SA) Linda

Cisco attended a press conference headed

by Senator Barbara Mikulski in Baltimore,

MD. This press conference, used to

publicize the final report prepared by the

Baltimore City Flipping and Predatory

Lending (BCFPL) task force, announced that

Baltimore property flipping had dropped 77

percent since 1999. The BCFPL task force

focuses on five fronts in the war on flipping:

law enforcement, implementing regulatory

reforms, education and prevention efforts,

victims’ assistance, and rebuilding

neighborhoods. Since 2000, the U.S.

Attorney’s Office, District of Maryland, has

sought criminal charges against 104

defendants who participated in mortgage

fraud within Baltimore City and Prince

Georges County. The results include 100

convictions and four acquittals. Senator

Paul Sarbanes, Congressman Elijah

Cummings, and U.S. Attorney Rod

Rosenstein were also in attendance.

Regional Inspector General for Audit

(RIGA) Joan Hobbs of Los Angeles, CA,

spoke at the Northern California/Nevada

Chapter of the National Association of

Housing and Redevelopment Officials

(NAHRO) on February 5, 2006. Ms. Hobbs

was a member of a three-person panel to

discuss housing oversight by the board

of commissioners. Approximately 20

commissioners attended the session,

which included a discussion regarding

the growing amount of fraud being detected

in housing authorities.

RIGA Frank Baca, Assistant Regional

Inspector General (ARIG) Will Nixon, and

Senior Auditor Beth Howard gave a

presentation on Single Family Mortgage

Fraud to the Oklahoma City, OK,

Greater Metropolitan Title Association.

Approximately 425 realtors and title

company representatives attended the

meeting. Other speakers included officials

from the Federal Bureau of Investigation

(FBI) and First Fidelity Bank.

Special Agent in Charge (SAC) Robert

Brickley, ASAC Rene Febles, and Senior

Special Agent (SSA) Daniel Ellis participated

in two presentations at Penn Del Associated

Housing Management Association’s

(AHMA) annual seminar in Lancaster, PA.

SAC Brickley described HUD OIG’s

investigative process and procedures to

follow when documenting files and referring

matters for investigation. ASAC Febles and

SSA Ellis participated in a HUD Multifamily

Rental Housing Integrity Improvement

Project (RHIIP) workshop to promote

cooperative working relationships among

HUD, HUD OIG, and rental housing owners

and/or managers.

SAC Peter Emerzian, ASAC Diane

DeChellis, ASAC Maureen Nelting, and SA

Jessica Piecuch participated in a

Massachusetts Anti-Gang Conference

sponsored by the Massachusetts U.S.

Attorney’s Office in Boston, MA. Keynote

speakers included the Massachusetts

lieutenant governor, current and former

Boston police commissioners, and

representatives from various Federal law

enforcement agencies in Washington, DC.
Outreach Efforts 101

SAC Peter Emerzian discussing HUD OIG’s

relocation program

SAC Emerzian, a panelist addressing victim

intimidation, discussed HUD OIG’s

relocation program. More than 300

members representing Massachusetts’ local,

State, and Federal law enforcement and

prosecutive agencies attended the

conference.

SAC James Beaudette and ASAC Lori

Chan provided an overview of HUD OIG

and mortgage fraud schemes to

approximately 35 Institute of Appraisers,

Northwest regional members in San

Francisco, CA. After the presentation, SAC

Beaudette and ASAC Chan hosted a

question and answer forum.

 SAC Robert Brickley presented HUD

OIG’s background, mission, and role in

criminal investigations at the Maryland

Chapter Appraisal Institute meeting held in

Atlantic City, NJ. SAC Brickley illustrated

Federal Housing Administration (FHA)

fraud and predatory lending schemes,

explained specific FHA violations, described

civil and administrative remedies, and

expanded on appraisers’ responsibilities to

report wrongdoing. Approximately 30

individuals attended.

SAC Barry McLaughlin hosted the

quarterly Northern Illinois Real Estate

Fraud Working Group meeting in Chicago,

IL. This group, created by SAC McLaughlin

in conjunction with other agencies,

discussed current schemes affecting the real

estate industry and ways to coordinate

efforts to prevent duplication when

investigating fraud. Keynote speakers at the

meeting included representatives from the

City of Chicago Division of Housing and

United States Attorney’s Office. The

Working Group is comprised of

representatives from HUD, the State of

Illinois/Division of Banks and Real Estate,

the Internal Revenue Service (IRS), Fannie

Mae, the Financial Crimes Enforcement

Network (FINCEN), the HUD Quality

Assurance Division, the Illinois Attorney

General’s Office, the FBI, Freddie Mac, the

Chicago Police Department, the Cook

County States Attorney’s Office, the U.S.

Postal Inspection (USPIS), and the United

States Trustee’s Office.

SAC James Beaudette, ASAC Lori Chan,

and SA Jason Constantine offered an

overview of HUD OIG, information on

rental assistance initiatives, a presentation

entitled “Trends in Housing Fraud,” and

case studies to Federal and local fraud

investigators in Seattle, WA. Those in

attendance included special agents from the

Social Security Administration (SSA) OIG,

the Washington Department of Social and

Health Services, and investigators assigned

to housing authorities.

ASAC Larry Amaker and SA Michael

Wagenhauser spoke at the National

Affordable Housing Management

Association (NAHMA), Mid Atlantic

Region, annual conference in Richmond,

VA. ASAC Amaker and SA Wagenhauser

explained HUD OIG’s mission and ways in

which NAHMA can assist with identifying,

investigating, and prosecuting rental

assistance fraud in multifamily housing.

ASAC Amaker and SA Wagenhauser also

presented an overview of HUD OIG’s

fugitive felon and RHIIP initiatives.

Approximately 250 individual attended the

conference.
102 Outreach Efforts

ASAC Ray Espinosa participated in

Northern Illinois University’s Criminal

Justice Career Fair in Dekalb, IL. ASAC

Espinosa, along with representatives from

the U. S. Secret Service and FBI, provided a

presentation describing career and

internship opportunities with various law

enforcement agencies.

ASAC Brad Geary, along with

representatives from the FBI, the U.S.

Department of Veterans Affairs (VA) OIG,

and a private security firm, participated in

a panel discussion at a REO MAC

conference in New York City, NY. REO

MAC is a national organization specializing

in the purchase of HUD real estate owned

(REO) properties. More than 50 people

attended a breakout session discussing

various schemes and frauds affecting the

real estate industry. SSA Kevin McBride

from HUD OIG Headquarters also attended.

ASAC Brad Geary presented a fraud

awareness briefing at the Appraisal Institute

in Chicago, IL. ASAC Geary discussed

fraud schemes affecting HUD and the real

estate trade, along with newly implemented

changes in FHA underwriting and their

impact on the appraisal industry. More than

30 appraisers attended the meeting.

Assistant Regional Inspector General

for Audit (ARIGA) Tom Towers and ASAC

George Dobrovic presented an overview of

current OIG goals and initiatives to HUD

employees at the Detroit, MI, field office.

The presentation also focused on how OIG

can be a resource to supplement their

detection of fraud, waste, and abuse.

ARIGAs Tanya Schulze and Vince

Mussetter gave a presentation to the

California State University, Los Angeles,

CA, Accounting Society. In response to their

request, ARIGAs Schulze and Mussetter

gave a presentation to about 30 students on

the background of HUD and OIG’s mission,

organization, and responsibilities. ARIGA

Mussetter also discussed some recent audit

results to illustrate the nature of OIG’s work.

The ARIGAs also talked about the

environment and culture of OIG and career

opportunities in the auditing field.

ARIGA Ed Schmidt, along with SAs

Jason Constantine and Charles Grace, gave

a presentation describing the functions of

HUD OIG to a group of newer employees at

the HUD regional office in Seattle, WA. The

presentation was part of HUD’s world

training program in the HUD Seattle

regional office. ARIGA Schmidt described

HUD OIG’s statutory missions, how HUD

OIG is organized, the divisions and

responsibilities between the Offices of Audit

and Investigation, areas of audit work, and

the audit reporting process. SAs

Constantine and Grace explained the work

of the Office of Investigation.

ARIGA Ron Farrell and Auditor Kim

Toler, Region 5, participated in Cleveland

State University’s 27th Annual Spring Career

Fair in Cleveland, OH, on March 3, 2006,

along with more than 150 other employers.

Mr. Farrell and Ms. Toler spoke with more

than 100 students about OIG’s mission and

the benefits of pursuing a student volunteer

position/career with HUD OIG. They

accepted resumes from students interested

in a student volunteer position with HUD

OIG/Audit in Columbus, OH, or Detroit, MI.

ARIGA Fred Smith spoke to the Beta

Alpha Phi accounting association at the

University of Northern Colorado in Denver,

CO. ARIGA Smith presented HUD’s

mission statement and strategic goals and

discussed ways in which OIG interacts with

HUD to accomplish its mission and goals.

ARIGA Smith also discussed HUD’s mission

of increasing home ownership, supporting

community development, and increasing

access to affordable housing free from

discrimination, as well as the benefits of a

career in the Federal Government. ARIGA

Smith fielded questions from the

approximately 20 student and professors in

the audience.
Outreach Efforts 103

ASAC Michael Wilson provided an

overview of HUD OIG and single-family

fraud schemes at the Appraisal Institute in

Dallas, TX. ASAC Wilson described

common criminal schemes and presented

case studies of single-family fraud

investigations. Approximately 30 members

of the Appraisal Institute attended.

ASACs Brad Geary and Ray Espinosa

provided a presentation on the role and

relationship of HUD OIG and Joint

Terrorism Task Force (JTTF) investigations

at the Anti-Terrorism Advisory Committee

meeting sponsored by U. S. Attorney Patrick

Fitzgerald and the Chicago Office of the FBI

in Chicago, IL. In addition to discussing

HUD’s four major program areas and frauds

associated with each, current JTTF/HUD

OIG investigations from Detroit,

Milwaukee, and Indianapolis were

presented to the 75 law enforcement

attendees.

ASAC Lori Chan presented HUD OIG

initiatives at a Law Enforcement Database

Seminar hosted by the Northern District of

California U.S. Marshal’s Service (USMS)

and Western Regional Inspector General

Council in Oakland, CA. ASAC Chan

responded to inquiries during a question

and answer session. Approximately 150

individuals representing about 50 State,

county, and local law enforcement agencies

attended.

ASAC Herschell Harvell, Jr., and SA

David Carter attended the Southern

California Housing Authority Manager’s

Association (SCHAMA) meeting at

Riverside County Housing Authority,

Riverside, CA. ASAC Harvell presented

HUD OIG’s mission and strategies for an

effective alliance between housing

authorities and HUD OIG and provided an

overview of HUD OIG’s Sex Offender and

Fugitive Felon initiatives and U.S. Postal

Service (USPS) OIG iiitiatives. SA Carter

provided a brief overview of Section 8

program fraud, “Red Flag” fraud indicators,

and various schemes used by criminals.

ASAC Harvell and SA Carter responded to

questions and encouraged reporting or

contacting HUD OIG with waste, fraud,

and/or abuse issues involving any HUD

program.

SAs Gary Diers and Kris Kanakares

addressed the 2005 Annual Kansas NAHRO

convention held in Topeka, KS. SAs Diers

and Kanakares presented an overview of

successful fraud investigations in the Great

Plains Region. Approximately 50 public and

assisted housing professionals attended this

seminar.

SAs Jason Constantine and Charles

Grace presented HUD OIG’s role regarding

Seattle Housing Authority (SHA) crime and

fraud at a conference held at the King

County Police Academy, Burien, WA. Those

in attendance included representatives from

the Seattle Police Community Policing

Division, Seattle Police Patrol Division, and

Seattle City Prosecutors Office. SAs

Constantine and Grace responded to

questions and provided information on

referring SHA crimes to HUD OIG.

SA Heather Yanello provided

information on property flipping and

mortgage fraud at the Suspicious Activity

Reports (SAR) training seminar hosted by

members of the Western New York SAR

review team in Buffalo, NY. SAR review

team members include personnel from the

U.S. Attorney’s Office, IRS Criminal

Investigation Division (CID), New York

State Attorney General’s Office of the

Inspector General, and U.S. Secret Service.

The SAR training covered general guidelines

in preparing SARs, SAR legal requirements

established by FINCEN, and information on

property flipping and mortgage fraud. SA

Yanello also discussed mortgage fraud as a

financial crime, how mortgage fraud relates

to the Bank Secrecy Act, and a property

flipping scheme shown on the HBO

series “The Sopranos.” Approximately 100

bank compliance and bank investigators
104 Outreach Efforts

attended this training in person and via

teleconferencing.

SAs Donald Varner and Brian Caldwell

presented information on fraud scemes to

45 senior appraisers at the Appraisal

Institute for Region IX in Atlanta, GA. An

extensive question and answer forum

followed the presentation.

SA Louis Mancini attended a U.S.

Department of Justice (DOJ)-sponsored

conference in Philadelphia, PA, to exchange

ideas and best practices for the DOJsponsored Public Housing Safety Initiatives

(PHSI) under development in major US

metropolitan areas. The purpose of the

conference was to facilitate continuity and

cooperation among all agencies

participating in the various PHSI with

regard to law enforcement, community

building, and crime prevention. The

Philadelphia PHSI includes HUD OIG,

USMS, the Bureau of Alcohol, Tobacco, and

Firearms (ATF), the Drug Enforcement

Administration (DEA), and the Philadelphia

Police Department.

SA David Carranza provided an

overview of HUD OIG’s mission, structure,

and resources to police officers and

detectives from the Ventura, CA, Police

Department, Narcotics and Investigations

Division, Crimes Suppression Team. SA

Carranza also discussed HUD OIG’s

authority in the Fugitive Felon, Sexual

Offender, and Rental Assistance initiatives,

along with the need for networking and

information sharing to achieve common

goals. In addition to SA Carranza, the

Ventura Housing Authority’s deputy

director and housing manager provided

information and answered questions

relating to housing eligibility, narcotic and

violent crimes leading to terminations,

sexual offender policies, and annual

certifications and inspections of tenants and

their housing units.

SAs Keith Fong and Eric Huhtala

presented an overview of HUD OIG’s

mission and role in investigating and

prosecuting fraud to 25 attendees at a

Sacramento County District Attorney’s

Office training seminar in Sacramento, CA.

The audience included investigators from

the Sacramento County Department of

Human Assistance, Investigations Division,

along with Child Action, Inc., a nonprofit

contractor for Sacramento County child

assistance programs. Information on

detecting, preventing, and reporting fraud

was also provided by SAs Fong and Huhtala.

A Weed and Seed Panel, comprised of

Donna Schulz, Law Enforcement

Coordinator Manager and William Daniels,

Law Enforcement Coordinator, U.S.

Attorney’s Office; Delores McLaughlin,

Brevard County Weed and Seed

Coordinator; and ASAC Timothy Mowery,

HUD OIG, made individual presentations

for the Public Housing Authorities Directors

Association (PHADA) during the 2006

PHADA National Conference in St.

Petersburg, FL. ASAC Mowery’s

presentation reflected HUD OIG’s effort to

identify and remove sexual offenders,

fugitive felons, and HUD program

participants committing illicit drug offenses

from HUD-funded programs. Conference

attendees were advised on how local and

national HUD OIG initiatives compliment

the overall objective of the Weed and Seed

Program, a HUD-funded DOJ-administered

program.

On October 5, 2005, Senior Auditor

Anthony Anderson and Auditor Lanre

Iwayemi represented OIG at a career fair at

Southern Illinois University in

Edwardsville, IL. Anthony and Lanre met

with students during the event, offering

information about OIG and explaining how

OIG hires employees and where it currently

has openings. They collected about a dozen

resumes and, as requested by the students,

forwarded two of the resumes to the Region

III Office of Audit and two to the Region VII

Office of Investigation.
Outreach Efforts 105

SA Joshua Stockman gave a

presentation to the Identity Theft

Investigators of Arizona (IDTIA) at the

Maricopa County Sheriff ’s Training

Auditorium in Phoenix, AZ. SA Stockman’s

presentation focused on HUD OIG’s

mortgage and rental assistance fraud

initiatives and included examples of

successful HUD OIG investigations in the

Phoenix metropolitan area. Approximately

75 representatives from varied law

enforcement agencies, including the

Maricopa County Sheriff’s Office, the

Arizona Department of Public Safety, USPIS,

the Social Security Administration OIG, the

Maricopa County Attorney’s Office, the

Arizona Attorney General’s Office, and

police departments from Phoenix, Mesa,

and Chandler, attended. SA Stockman

responded to questions relating to HUD

rental assistance programs, FHA mortgage

insurance, and the Real Estate Settlement

Procedures Act (RESPA).

SA James Carrieres gave presentations

to the San Diego, CA, Appraisal Institute

and Phoneix, AZ, Appraisals, a private

group of residential appraisers. SA

Carrieres presentations included an

overview of HUD OIG and successful

single-family fraud cases prosecuted in

Arizona. Approximately 110 appraisers

attended these events.

ASAC Brad Geary, along with a

representative from the United States

Trustee’s Office, Northern District of Illinois,

provided three break-out presentations at a

Bankruptcy Fraud Training seminar held at

Department of Justice National Advocacy

Center, Columbia, SC. The presentations

focused on the relationship between singlefamily loan fraud and fraud within the

bankruptcy courts. Those attending

included Federal agents, assistant United

States attorney’s, and trial attorneys from

United States Trustee’s offices throughout

the country.

SA Scott Savedow discussed fraudulent

schemes and the impact and consequences

of loan origination fraud on the FHA to the

Mortgage Bankers Association during their

two-day Fraud Detection seminar in Miami,

FL. Approximately 40 bank and mortgage

company executives attended the seminar.

SA Charles Grace presented the

Inspector General’s role in HUD programs

at the Association of Oregon Housing

Authorities (AOHA) biannual meeting, held

at the Portland Housing Authority in

Portland, OR. The attendees included

Oregon housing authorities executive

directors and an Oregon State lobbyist from

Salem, OR. SA Grace responded to

questions involving Section 8 tenant/

landlord fraud, prosecutorial advice, fraud

indicators, budgetary items, and contact

information and advised AOHA members

of HUD OIG’s active pursuit of fraud

investigations.

ARIGA Fred Smith spoke to the Beta

Alpha Phi accounting association at the

University of Northern Colorado, Greeley,

CO. ARIGA Smith discussed HUD’s

mission statement and strategic goals and

how OIG interacts with HUD to accomplish

its mission and goals. ARIGA Smith

discussed how OIG accomplishes its

mission by conducting independent and

objective audits, investigations, and other

activities relevant to the HUD mission and

how OIG keeps the Secretary of HUD,

Congress, and the American public fully and

currently informed.

SA Neil McMullen met with members

of the Hill Street Community Association

(HSCA) in Inglewood, CA. HSCA members

include homeowners and landlords who

participate in the Inglewood Housing

Authority’s (IHA) rental assistance program

by providing housing for Section 8

recipients. SA McMullen provided an

overview of HUD OIG’s mission and

authority, described ways in which HSCA

members may assist IHA in preventing
106 Outreach Efforts

Section 8 fraud, and explained HUD OIG’s

successful partnership with the Inglewood

Police Department in addressing gang and

drug activity through Section 8

fraud prosecutions. Both SA McMullen

and Inglewood Police Department

representatives emphasized the importance

of community involvement in reducing

violent criminal activity in subsidized

housing.

SA Malinda Antonik presented HUD

OIG’s mission and role in preserving the

integrity of the HUD-funded programs at

the Florida Association of Homes for the

Aging’s (FAHA) 2006 Legislative Workshop

in Tallahassee, FL. Topics discussed

included HUD OIG’s efforts to identify and

eliminate fraudulent schemes in HUD’s

Rental Assistance, Fugitive Felon, Missing

Children, FHA, and Hurricane Relief

programs. Approximately 35 FAHA

members attended.

SA James Carrieres met with members

of the Hispanic Association of Real Estate

Professionals and provided an overview

of HUD OIG’s mission, HUD’s FHA

programs, and successful single-family

fraud prosecutions in Phoenix, AZ.

Approximately 100 real estate agents,

appraisers, loan officers, and escrow officers

attended.

HUD Newark Field Office Director,

Diane Johnson, presented the Newark, NJ,

HUD OIG Office of Investigation with a

certificate of appreciation in recognition of

the “blue ribbon service” provided to HUD

clients in New Jersey.

  
Chapter 9 Chapter 9

Policy Directives Policy Directives Policy Directives
108 Policy Directives

Reviewing and making

recommendations on legislation,

regulations, and policy issues is a critical

part of the Office of Inspector General’s

(OIG) responsibilities under the Inspector

General Act. During this 6-month

reporting period, OIG reviewed 120 policy

notices. This chapter highlights some of

OIG’s recommendations on these

notices as well as other policy directives.

Proposed Rules Proposed Rules Proposed Rules

HUD’s Proposed Interim Rule for HUD’s Proposed Interim Rule for

Project-Based Voucher Rents for Project-Based Voucher Rents for

Units Receiving Low-Income Units Receiving Low-Income

Housing Tax Credits--24 CFR

Part 983 Part 983

This rule relates to project-based

vouchers in low-income housing tax credit

projects. HUD OIG did not concur with the

proposed interim rule since it did not

allow for a comment period before

implementation and also because it did not

provide support for the proposed action.

The Department was reviewing OIG’s

comments at the end of this semiannual

reporting period.

Housing Opportunities for Housing Opportunities for

Persons with Aids Persons with Aids

This rule is proposed for the Housing

Opportunities for Persons with Aids

(HOPWA) program. OIG commented

because the proposed rule change does not

address several requirements that the

Inspector General believes are important.

The Department is incorporating OIG

changes but has not published the proposed

rule as of the end of this semiannual

reporting period.

Use of Capital and Operating Use of Capital and Operating

Funds for Financing Activities Funds for Financing Activities

Conversion of Developments from

Public Stock: Methodology for Public Stock: Methodology for

Comparing Costs of Public Comparing Costs of Public

Housing and Tenant-Based Housing and Tenant-Based

Assistance Assistance

Public Housing Capital Fund Public Housing Capital Fund

The following information about the

above three subject draft rules was included

in the March 31, 2005, Semiannual Report to

Congress, and HUD has not reached a final

decision. Therefore, OIG is repeating the

issues in this report.

For the three subject draft rules, the

Office of Public and Indian Housing (PIH)

has not conducted a risk assessment. The

Appropriations Act mandates that a risk

assessment be conducted on each program.

The Department policy and handbooks

provide the method for meeting the

statutory requirement relating to a risk

assessment and provide that a risk

assessment must be completed before

issuing a rule. Additionally, HUD OIG has

communicated other issues on each draft

rule and cannot concur in the proposed rules

until the issues are addressed.

For the conversion of developments

from public stock, HUD incorporated OIG

comments and issued its final rule on March

21, 2006, to become effective April 20, 2006.

The Department is still considering OIG’s

comments on the other two rules.
Policy Directives 109

Revision to the Public Housing Revision to the Public Housing

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

Rule)

The proposed final rule amends the

regulations of the Public Housing Operating

Fund program to provide a new formula for

distributing operating subsidies to public

housing agencies and to establish

requirements for housing agencies to

convert to asset management. Annually,

about $3 billion in operating subsidies is

disbursed through the formula. OMB

identified the draft rule as being

economically significant.

OIG provided the following comments

to PIH concerning the proposed rule.

Executive Order 12898 requires HUD to

identify and address human health and

environmental effects of its policies,

programs, and activities on minority

populations and low-income populations.

Additionally, it requires HUD to collect,

maintain, and analyze information assessing

environmental and human health risks

borne by populations identified by race,

national origin, or income. This is important

to ensure that nonassisted low-income

families are not adversely affected by the

placement of assisted families.

The Department issued the “Regulatory

Impact Analysis of Revisions to the

Operating Fund Program,” subject to OMB

Circular A-4. It specified the proposed need

for the formula as required by the circular.

However, its discussion on the different

alternative approaches to the proposed rule

did not comply with the circular regarding

the enforcement methods, different degrees

of stringency, different requirements for

different geographic regions, performance

standards, market versus direct controls,

and informational measures rather than

regulations. Also, its cost-benefit analysis

did not comply with the circular regarding

baseline comparisons, cost savings, final

outcomes, and quality of life issues.

The United States Housing Act of 1937

as amended states that to ensure the

accuracy of any housing agency

certification, HUD is authorized to require

an independent auditor to substantiate each

certification submitted by the agency and

withhold assistance to pay for the review.

The statutory requirement extends beyond

the single audit compliance supplement

scope and will generate a separate

procurement for an attestation engagement.

The draft rule does not provide the

organizational element accountable for

procuring this attestation engagement, the

indicators identifying the need for the

attestation engagement, and the

requirement for withholding funds.

Further, the United States Housing Act

of 1937 as amended states that the formula

should provide an incentive to encourage

housing authorities to facilitate increases in

earned income by families in occupancy and

the incentive may be used only to benefit

low-income housing or residents of the

agency. The draft rule does not provide for

control measures to ensure the benefits

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

agency.

The Office of Public and Indian Housing

revised the draft rule and is currently

issuing additional guidance to clear the

remainder of our comments.

Proposed Notices Proposed Notices Proposed Notices

Project-Based Voucher Units Project-Based Voucher Units

with Low-Income Housing Tax with Low-Income Housing Tax

Credit Allocations Credit Allocations

The HUD draft notice was to supersede

Notice PIH 2002-22 and add requirements

for public housing agencies to cap rent
110 Policy Directives

amounts under the project-based voucher

program for units receiving low-income

housing tax credits so as not to exceed the

tax credit rent based on the project-based

final rule effective November 14, 2005. It

also addressed applicability based on the

effective date of the rule.

OIG commented that the notice was not

clear in its language on the applicability as

well as all of the terminology included in

the notice. Also the notice incorrectly stated

in the subject line and purpose that it

applied to project-based and tenant-based

programs.

Based on OIG’s comments, HUD

eliminated confusing and unnecessary

wording and issued an amendment to

Notice PIH 2002-22 rather than superseding

the notice. The language regarding

applicability was clarified to ensure the new

final rule requirements are only applied to

projects selected after the effective date of

the final rule.

Using HOME Tenant-Based Using HOME Tenant-Based

Assistance to Mitigate Assistance to Mitigate

Displacement Displacement

The OIG did not concur with HUD’s

draft notice for using HOME Investment

Partnership funds to mitigate the

displacement of low-income tenants who

are losing their monthly housing choice

voucher rental subsidy because the local

housing authority must terminate housing

assistance payments contracts with the

tenants’ landlords due to insufficient

subsidy funds.

OIG did not concur with the proposed

notice for the following reasons:

The HOME Investment Partnership Act

states funds may not be used to provide

tenant-based rental assistance or extend or

renew tenant-based assistance under

Section 8 of the United States Housing Act

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

effectively extending the vouchers and is

contrary to the provision on prohibiting

funding for the Section 8 program in the

statute.

The Appropriation Acts for both fiscal

years (FY) 2004 and 2005 state that no part

of the appropriation shall be available for

any program, project, or activity in excess

of amounts set forth in the budget estimates

submitted to Congress. HUD estimated in

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

families. The notice does not provide a

control measure for limiting tenant-based

assistance to 13,335 families and obtaining

compliance with the Appropriation Acts.

Executive Order 12898 requires HUD to

identify and address human health and

environmental effects of its policies,

programs, and activities on minority

populations and low-income populations

and to collect, maintain, and analyze

information assessing environmental and

human health risks borne by populations

identified by race, national origin, or income.

The draft notice does not specify the

reporting methodology to obtain compliance

with this executive order.

HUD regulations state that it is the

policy of the Department to provide for

public participation in rule making with

respect to all HUD programs and functions,

including matters that relate to grants, even

though such matters would not otherwise

be subject to rule making by law or executive

policy. Therefore, HUD publishes notices of

proposed rule making in the Federal

Register and gives interested persons an

opportunity to participate in the rule making

through submission of written data and

arguments. Rules are defined as all or part

of any HUD statement of general or

particular applicability and future effect

designed to (1) implement, interpret, or

prescribe law or policy or (2) describe HUD’s

organization or its procedure or practice
Policy Directives 111

requirements. Rule making is defined as the

process for considering and formulating the

issuance, modification, or repeal of a rule.

In OIG’s opinion, this draft notice meets the

standard as a rule and should be published

in the Federal Register for comment.

The Department decided not to issue the

proposed notice based on OIG’s comments.

Establishment of Amnesty Establishment of Amnesty

Program at Public Housing Program at Public Housing

Agencies Resulting from

Inspections of Family Income Inspections of Family Income

The OIG reported on this issue in the

March 31, 2005, Semiannual Report to

Congress, and HUD had not reached a final

decision as of that date.

The draft Notice PIH 2004 provides

requirements to housing agencies that plan

to offer tenants amnesty as a result of the

Upfront Income Verification System

detecting a difference between the tenants’

claim of income and the income reported by

their employers or agencies providing

income assistance. The Department

initiated the Upfront Income Verification

System to reduce subsidy errors resulting

from tenants underreporting or not

reporting their income.

OIG did not concur with this draft

notice because it inappropriately empowers

housing agencies to decide who will be

prosecuted. The U.S. Code states that the

Attorney General of the United States is

responsible for deciding who will be

prosecuted for a Federal offense. In the

Tenth Amendment to the United States

Constitution, the determination on who will

be prosecuted under State law is reserved

to State authorities.

OIG has investigated numerous cases

involving tenants who falsely reported their

incomes. These investigations resulted in

successful prosecutions or other remedial

actions. OIG has pending investigations

involving tenants who have defrauded PIH

assistance programs. The draft notice

threatens to jeopardize current

investigations and to undermine the fairness

of past convictions.

The Office of Public and Indian Housing

decided not to issue the draft notice based

on OIG’s comments.

 Mortgagee Letters Mortgagee Letters Mortgagee Letters

Special Authority for Use of Deed Special Authority for Use of Deed

in Lieu of Foreclosure to Assist in Lieu of Foreclosure to Assist

Victims of Hurricanes Victims of Hurricanes

HUD drafted a mortgagee letter to make

it easier for mortgagees to accept voluntary

conveyances of property from borrowers in

those cases in which, due to storm damage,

the home is not habitable and will not be

restored. The proposed change included a

$5,000 incentive payment to the borrower or

mortgagee, as applicable, to complete a

deed-in-lieu agreement. OIG commented

that the $5,000 payment constituted an

enhanced entitlement and an unexpected

windfall to the borrowers but at a cost to

HUD that simply increased claim losses

without a material corresponding benefit.

HUD believes this cost is more than offset

by a decrease in the interest and other costs

that would be payable in an insurance claim

if the loans foreclose. OIG recommended

that the deed-in-lieu transactions be tracked

so that the Department could evaluate the

participation levels and borrower eligibility.

It is not known if the Department will

monitor the transactions. The proposed

letter was published May 3, 2006, after the

end of this semiannual period as Mortgagee

Letter 2006-10.
112 Policy Directives

Expanded Streamline (K) Limited Expanded Streamline (K) Limited

Repair Program

HUD drafted a mortgagee letter to

modify documentation and control

requirements over 203(k) Rehabilitation

Mortgage loans, an acknowledged higher

risk Federal Housing Administration (FHA)

insurance program. The proposed change

eliminated the $5,000 repair minimum and

raised the maximum to $35,000. OIG

commented that financing as much

as $35,000 of “minor repairs” could

expose unwary borrowers to problems

associated with past program abuses and

recommended that the Department require

a final inspection of the work when repair

costs exceeded $15,000.

HUD agreed and included the

inspection requirement when it published

Mortgagee Letter 2005-50, dated December

29, 2005.

Tax-Exempt Status for Nonprofit Tax-Exempt Status for Nonprofit

Downpayment Gift Providers Downpayment Gift Providers

HUD drafted a mortgagee letter

regarding nonprofit “downpayment

assistance providers”. OIG nonconcurred.

The Department was reviewing OIG’s

nonconcurring comments at the end of the

semiannual reporting period.

Special Authority for Use of

Special Authority for Use of Special Authority for Use of

Partial Claims and Loan Partial Claims and Loan

Modifications to Assist Victims of Modifications to Assist Victims of Modifications to Assist Victims of

Hurricane Katrina Hurricane Katrina

HUD drafted a mortgagee letter to

provide financial relief to victims of

Hurricane Katrina who owned FHAfinanced homes. The mortgagee letter

would allow lenders to advance up to 12

months of principal, interest, taxes, and

insurance and file a partial claim for the

amount of the advance. Homeowners would

be required to sign a repayment agreement.

OIG commented that the agreement

should be securitized through a promissory

note or other appropriate instrument and

recorded as a lien against the property.

Without a lien, recovery of the advance

would not occur as a distribution from the

closing of a future property sale, and the

agreement would not provide a strong and

enforceable legal document in seeking

repayment directly from the borrower.

The Department addressed our issues

and published this proposal under

Mortgagee Letter 2005-46 on December 1,

2005.

Late Request for Endorsement Late Request for Endorsement

Procedures/Certification Procedures/Certification

Eliminated, Proposed Mortgagee Eliminated, Proposed Mortgagee

Letter

HUD drafted a mortgagee letter to

remove the certification requirement from

FHA’s late endorsement procedures. HUD

believes the certification requirement does

not materially contribute to reducing

insurance risk.

OIG nonconcurred because the

certification is a critical document in

supporting and enforcing departmental

remedies for noncompliance, and, therefore,

OIG disagrees with its proposed

elimination. OIG has done significant

testing of “late endorsement” compliance by

major direct endorsement lenders as part of

its audit focus on FHA single-family lending

practices beginning in 2004. OIG found that

lenders certified full compliance and

eligibility for FHA insurance, when some

loans were not eligible because the

borrowers were in arrears on their mortgage

payments. OIG recommended that HUD

take appropriate remedies to reduce
noncompliance, including loan

indemnifications and Program Fraud Civil

Remedies Act recoveries. It remains a

concern because these ineligible lateendorsed loans were early defaults that were

subsequently endorsed for insurance.

The Department issued Mortgagee

Letter 2005-23, which modified late

endorsement procedures but retained a

certification requirement.

  

Policy Directives 113

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

Mortgages Mortgages

OIG reported on premium pricing on

FHA-insured mortgages in the March 31,

2005, Semiannual Report to Congress, and

HUD had not reached a final decision.

Department action on the proposed

letter was still pending at the end of this

semiannual reporting period.

Chapter 10 Chapter 10

Audit Resolution Audit Resolution Audit Resolution
116 Audit Resolution

In the audit resolution process, Office

of Inspector General (OIG) and U.S.

Department of Housing and Urban

Development (HUD) management agree

upon the needed actions and timeframes for

resolving audit recommendations. Through

this process, OIG hopes to achieve

measurable improvements in HUD

programs and operations. The overall

responsibility for assuring that the agreedupon changes are implemented rests with

HUD managers. This chapter describes

significant pending issues for which

resolution action has been delayed. It also

contains a status report on HUD’s

implementation of the Federal Financial

Management Improvement Act of 1996

(FFMIA). In addition to this chapter on audit

resolution, see appendix 2, table A, “Audit

Reports Issued before Start of Period with

No Management Decision as of March 31,

2006,” and table B, “Significant Audit

Reports Described in Previous Semiannual

Reports in Which Final Action Had Not Been

Completed as of March 31, 2006.”

Delayed Actions Delayed Actions Delayed Actions

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

1995 Financial Statements 1995 Financial Statements

First issued June 30 1992. HUD has been

preparing consolidated financial statements

under the requirements of the Chief

Financial Officers Act for 15 years beginning

with fiscal year (FY) 1991. Various internal

control weaknesses have been reported in

these audits. As a result of the FY 2005

financial audit process, OIG reported HUD’s

need to (1) incorporate better risk factors and

monitoring tools into the Federal Housing

Administration’s (FHA) single-family

insured mortgage program risk analysis and

liability estimation process and (2) improve

FHA’s management review of the credit

reform estimation process. Corrective action

plans to resolve these issues have final action

targeted by the end of calendar year 2006.

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

1995 Financial Statements 1995 Financial Statements

First issued March 27, 1992. FHA has

prepared financial statements for 15 years

under the Chief Financial Officers Act,

beginning with FY 1991. The audit of FHA’s

FY 2005 financial statements discussed

FHA’s need to improve its review of the

credit reform estimation process as a

material weakness. The finding revealed that

FHA management did not adequately

review the underlying data supporting the

assumptions in the estimation cash flow or

functionality models. This resulted in

material errors in the FHA mark-to-market

loan loss reserve and the liability for loan

guarantee subsidy re-estimates. The audit

continues to recognize that FHA needs to (1)

improve its information technology

(primarily accounting and financial

management systems) to more effectively

support FHA’s business and budget

processes and (2) continue to improve early

warning and loss prevention for singlefamily insured mortgages through more

emphasis on monitoring lender

underwriting and more effective use of loan

portfolio risk assessment tools. A weakness

reported since the FY 1992 financial

statement audit relates to the need for FHA

to more effectively manage controls over its

information systems’ general and

application level security controls. FHA’s

latest action plan continues to report

progress toward resolving these remaining

long-standing issues, with final actions

targeted over the next 3 years.

Guild Mortgage Company DBA, Guild Mortgage Company DBA, Guild Mortgage Company DBA,

Residential Mortgage Bankers, Residential Mortgage Bankers, Residential Mortgage Bankers,

Nonsupervised Direct Endorser - Nonsupervised Direct Endorser -

Downey, CA

Issued July 9, 2004. Guild Mortgage

Company (Guild) allowed predatory

lending practices, a prohibited net branch

arrangement, and did not always follow
Audit Resolution 117

prudent lending practices. Guild allowed its

branch, Residential Mortgage Bankers, to

charge excessive fees for underwriting and

processing, as well as allowing loan discount

points and premium rate pricing for which

the interest rates were not reduced and the

borrowers did not receive any value or

services for the charges. In addition,

Residential Mortgage Bankers was

established as an independent mortgage

corporation originating FHA loans without

meeting HUD’s application and asset

requirements. Guild also failed to establish

appropriate loan processing and

underwriting controls to ensure HUD

requirements were followed during the loan

origination process. OIG recommended that

Guild (1) be referred to the Mortgagee

Review Board and assessed civil money

penalties for engaging in predatory lending

practices, (2) be required to review and

analyze all FHA loans originated by

Residential Mortgage Bankers in which loan

discount points were charged and there was

no interest rate reduction, (3) make refunds

as required by HUD regulations, (4) repay

HUD losses totaling more than $811,000,

and (5) indemnify the remaining loans

amounting to more than $159 million.

OIG received a management decision,

dated November 8, 2004, which included a

decision for recommendation 1C, which

states that a written legal opinion would be

requested from the Office of General

Counsel regarding loan discount points and

premium rate pricing. A legal opinion, dated

December 7, 2004, from the Office of General

Counsel only addressed the issue of

premium rate, pricing but the opinion went

on to state that issues regarding discount

points would be addressed by the Office of

Real Estate Settlement Procedures Act/

Office of Land Sales. HUD, however, closed

the recommendation on February 7, 2005,

as having been satisfied. On March 29, 2005,

OIG reopened this recommendation and

issued a memorandum to the Assistant

Secretary for Housing, explaining that the

original recommendation had not been fully

satisfied and giving HUD 30 days to provide

an action plan. On June 8, 2005, we received

a response from the General Deputy

Assistant Secretary for Housing-Deputy

Federal Housing Administration

Commissioner stating that the Office of

Housing did not agree that loans with

discount point charges, in which there was

no interest rate reduction, were a HUD or

Real Estate Settlement Procedures Act

requirement. Further, the memorandum

stated that the Real Estate Settlement

Procedures Act Office would provide the

official written confirmation response on its

decision regarding this issue by June 30,

2005.

In November 2005, OIG received the

referenced legal opinion, dated November

3, 2005, whose subject line was – Availability

of Enforcement Action Under RESPA Based

on Discount Points Charged in Above-Par

Loans. The opinion memorandum

concluded that Guild’s charging of discount

points in these transactions is contrary to

HUD’s regulations and statements of policy

interpreting Section 8(b) of RESPA. It also

noted that the statute of limitations expired

before our audit and several appellate courts

have questioned aspects of HUD’s

interpretation of Section 8(b). The opinion

also concluded there may be a violation of

Section 4 of RESPA if the disclosures

provided did not accurately describe the

function of the discount points. OIG’s

conclusion, as described in the audit report,

was that the fees labeled as discount points

were actually unearned fees disguised as

discount points on the HUD-1 Settlement

Statements. As a result, neither the Good

Faith Estimates nor the HUD-1 Settlement

Statements accurately described the

function of the fees labeled as discount

points that went to the lender as additional

compensation instead of providing interest

rate deductions to the borrowers.

In a letter, dated December 22, 2005,

OIG asked the Assistant Secretary for

Housing to refer the lender to the Mortgagee
118 Audit Resolution

Review Board for civil money penalties for

the violations cited for the loans in question,

and we are still awaiting a reply. OIG

followed up with more correspondence on

February 8, 2006, with notification that none

of the targeted action dates have been met

for the recommendations in the July 9, 2004,

audit report. As of March 31, 2006, none of

the borrowers have received refunds and no

civil money penalties have been assessed to

the lender. The maximum civil money

penalty assessment is $6,500 per violation

up to a limit of $1.25 million for all violations

committed during any 1-year period.

(Report No. 2004-LA-1005)

United States Veterans Initiative, United States Veterans Initiative, United States Veterans Initiative,

Inc. - Supportive Housing Inc. - Supportive Housing

Program Grantee - Inglewood,

Program Grantee - Inglewood, Program Grantee - Inglewood,

CA

Issued September 27, 2004. United

States Veterans Initiative, Inc. – Supportive

Housing Program Grantee

Issued September 27, 2004. Contrary to

Federal regulations and grant requirements,

U.S. Veterans Initiative was unable to

support that it met cash matching funds

requirements for any of the $7,222,590 in

Supportive Housing Program (SHP) grant

funds expended during the audit period.

U.S. Veterans Initiative also spent at least

$633,348 in SHP funds for ineligible

($498,248) and unsupported ($135,100)

salaries and other expenses. We also found

that U.S. Veterans Initiative did not

administer its SHP grants in accordance

with requirements because it failed to (1)

develop an adequate financial management

system, (2) comply with procurement and

contract administration requirements, (3)

establish and implement indirect cost rates

as required, and (4) close out expired grants.

OIG recommended that HUD require U.S.

Veterans Initiative and/or its continuums

Los Angeles Homeless Services Authority

and City of Long Beach to (1) repay HUD

from nonfederal funds for the $6,589,242 in

SHP grant expenditures that did not have

the required matching funds unless it can

provide the supporting documentation, (2)

comply with Federal requirements in

carrying out its SHP grant activities, (3)

reimburse the SHP grants and/or repay

HUD from nonfederal funds for the $633,348

in ineligible and unsupported expenses, (4)

revise U.S. Veterans Initiative’s financial

management system, (5) competitively

procure the services in the business services

agreement, (6) develop and/or update the

indirect cost rates, and (7) submit financial

closeout reports for expired grants.

On April 4, 2005, the Deputy Secretary

made final management decisions1

 for this

audit and the Office Community Planning

and Development (CPD) agreed to complete

final actions by March 17, 2006. As part of

the management decision for finding 1, CPD

agreed to contact the U.S. Department of

Labor (DOL), the U.S Department of

Veterans Affairs (VA), and Americorp to

determine whether their funds can be used

as match for the SHP. If the funds can be

used, CPD agreed to request a legal opinion

from HUD’s Office of General Counsel

(OGC) regarding (1) the definition of

“budget line item” and (2) whether match

may be applied project to project or used

based on budget line item or must be applied

to the lower accounting level. If the funds

cannot be used as match, $1,254,570 will be

disallowed. With regard to finding 2, CPD

agreed to request a legal opinion from OGC

to determine whether approval can be

granted after the fact for expenditures that

were not included as budget line items but

were SHP eligible. Regarding finding 3,

CPD agreed to suspend the processing of

1

 In our Semiannual Report to the Congress covering the period October 1, 2004, through March 31,

2005, we reported our disagreement with the Deputy Secretary’s final management decision on this

audit.
Audit Resolution 119

any new grant agreements until the audit

issues have been resolved. The Deputy

Secretary also determined that grant

renewals, subsequent to those awarded

under the 2004 Continuum of Care

competition, will not be funded until

management decisions from the audit are

resolved. Final action was scheduled to be

completed for findings 1 and 2 by January

4, 2006, and for finding 3 by March 17, 2006.

On February 7, 2006, CPD sent a

memorandum to provide a status update

and request revisions to the management

decisions and attached a December 19, 2005,

legal opinion from OGC. With regard to

finding 1, CPD had not yet determined

whether funds from DOL, VA, and

Americorp could be used as match for the

SHP. CPD explained that it had received

inconsistent responses from the agencies;

therefore, on December 13, 2005, it had

requested opinions from the agencies’

counsels and is currently waiting for their

responses. CPD requested an extension

until June 30, 2006, to complete final action.

With regard to finding 2, OGC ruled that

CPD could grant approval for grant

expenditures that were not included as

budget line items but were SHP eligible.

Based on this opinion, CPD requested a

revised management decision to revise the

disallowed amounts and request our

concurrence to allow U.S. veterans to repay

the disallowed costs through (1) a

repayment plan, (2) recovery through offsets

on active grants, and (3) recovery through

property in lieu of cash. On finding 3, CPD

requested concurrence to close the

recommendation based on the receipt of the

OGC legal opinion.

On February 22, 2006, OIG responded

to CPD’s memorandum and advised that for

finding 1, OIG cannot extend the final action

target date since there was no change in the

management decision. Therefore, final

action is considered past due after March

31, 2006. With regard to finding 2, OIG

requested supporting documentation to

determine the appropriateness of the course

of action for these recommendations. In

addition, OIG advised CPD to obtain a

written legal opinion from OGC to

determine the allowability of the debt

repayment proposal to allow some of the

debt to repaid with payment in kind to a

third party grantee and whether such

payments in kind, in the absence of a

reduction by an equal amount of HUD’s

liability to the third party grantee, constitute

an augmentation of HUD’s appropriation or

violation of the HUD Reform Act.

Regarding finding 3, we advised that the

management decision required all the audit

issues to be resolved before the corrective

action can be considered complete.

Therefore, final action was past due as of

March 31, 2006. (Report No. 2004-LA-1008)

Significant Management Significant Management Significant Management

Decision with Which the Decision with Which the

OIG Disagrees OIG Disagrees OIG Disagrees

Section 5(a)(12) of the Inspector General

Act, as amended, requires that OIG report

information concerning any significant

management decisions with which OIG is

in disagreement. During the current

reporting period, OIG disagreed with

significant management decisions for one

audits.

Idaho Housing and Finance Idaho Housing and Finance

Association - Boise, ID

Issued September 16, 2005. Idaho Housing

and Finance (Idaho Housing), Boise, ID, did

not follow Federal regulations and HUD

guidelines when it allowed 10 project

owners to prepay project mortgages.

According to the Housing Assistance

Payment (HAP) contracts for these projects,

the prepayment of the projects’ permanent

financing cancels the HAP contracts.

However, Idaho Housing did not enforce the

HAP contract termination, causing HUD to
120 Audit Resolution

pay more than $8.5 million in rent subsidies

in excess of fair market rents.

OIG found no documentation showing

Idaho Housing informed HUD of the

prepayments for 7 of the 10 projects it

reviewed. As a result, Idaho Housing did

not give HUD the opportunity to offer any

options regarding the rent subsidies. Idaho

Housing’s failure to notify HUD of these

prepayments is a violation of HUD

regulations at 24 CFR 883.307(b)(2) and a

breach of its annual contributions contract,

which requires compliance with the U.S.

Housing Act of 1937 and all applicable

regulations and requirements.

OIG recommended that HUD require

Idaho Housing to reimburse HUD for the

$8.5 million in excessive subsidy payments

for the projects without valid HAP contracts.

OIG also recommended that HUD

renegotiate the terminated HAP contracts

with the owners and Idaho Housing, taking

into consideration the projects’ condition

and fair market rents. The Office of

Multifamily Housing disagreed with both

recommendations. Subsequently, OIG held

discussions with the Deputy Assistant

Secretary for Multifamily Housing to

discuss issues relating to HUD’s policy on

extending HAP contracts upon contract

termination due to prepayment.

Regarding the issue of prepaid projects,

the Office of Multifamily Housing stated

that HUD’s practice since 2002 is to offer

owners who contact HUD the options of (1)

extending the term of the HAP contract to

the originally scheduled maturity date of the

permanent financing, (2) renewing the HAP

contract under the provisions of the

Multifamily Assisted Housing Reform Act

(MAHRA), or (3) opting out of the Section 8

program. According to the Office of

Multifamily Housing, it would have allowed

the HAP contract extensions using existing

terms if Idaho Housing had (1) recognized

the termination provision at the time of the

refinancing and (2) sought and received, on

behalf of the owners, HUD’s written

approval to prepay.

OIG believes the Office of Multifamily

Housing’s policy of allowing the owners of

noninsured subsidized projects to

unilaterally choose one of the three options

does not protect HUD’s interests and comply

with amendments made to Section 524 of

MAHRA, effective September 30, 2001.

The HAP contract termination for the 10

projects in OIG’s report is covered under

MAHRA Sections 524(b)(1) and 524 (b)(2).

Therefore, by statute, HUD can only offer

the HAP renewal option stated in Section

524(b)(1). Due to the application of an

annual adjustment factor through March

1995, the 10 prepaid Idaho Housing projects

in OIG’s report had subsidized rents that

were as much as 191 percent of applicable

fair market rents. OIG estimates that HUD

would save more than $1.3 million in excess

section 8 subsidy payments over the next

year if it renegotiated the HAP contracts in

conformance with MAHRA.

Initially, OIG agreed to modify its two

recommendations and eliminate $8.5 million

in ineligible costs if the Office of Multifamily

Housing would commit to changing its

policy of allowing project owners to

unilaterally choose the option of extending

HAP contracts that terminated due to

prepayment. OIG stated that any new policy

must be in conformance with the applicable

provisions of MAHRA. On March 14, 2006,

the Assistant Inspector General for Audit

referred the issue to the Assistant Secretary

for Housing because OIG could not reach

an agreement with the Office of Multifamily

Housing on the two recommendations

within established timeframes.

On March 31, 2006, the Inspector

General received a memorandum from the

Deputy Secretary stating that he agreed with

the Office of Housing’s proposed

management decision. This decision states

that the Office of Housing will not require
Audit Resolution 121

Idaho Housing to reimburse HUD for the

excessive subsidy payments and renegotiate

the subsidy contracts with the 10 project

owners. OIG disagrees with the Deputy

Secretary’s management decision and

question HUD’s reluctance to commit to

changing its policy on prepaid, noninsured

multifamily housing projects to conform to

MAHRA. OIG has asked for a formal Office

of General Counsel legal opinion on this

issue. (Report No. 2005-SE-1008)

Federal Financial Federal Financial Federal Financial

Management Management Management

Improvement Act of 1996 Improvement Act of 1996

FFMIA requires that HUD implement

a remediation plan that will bring

financial systems into compliance with

Federal Financial Management System

requirements within 3 years or obtain Office

of Management and Budget concurrence if

more time is needed. FFMIA requires OIG

to report in its semiannual reports to the

Congress instances and reasons when an

agency has not met the intermediate target

dates established in its mediation plan

required by FFMIA. In April 1998, HUD

determined that 38 of its systems were not

in substantial compliance with FFMIA. At

the end of 2005, the Department continued

to report that 2 of its 44 financial

management systems were not in

substantial compliance with FFMIA. These

two systems are Loan Accounting

System(LAS), and Facilities Integrated

Resources Management System (FIRMS).

HUD is in the process of replacing LAS with

a commercial off-the-shelf software package

in the second quarter of 2006. HUD

reported FIRMS as noncompliant in its

2005 self-assessment.

  

Appendix 1 Appendix 1 Appendix 1

Audit Reports Issued Audit Reports Issued Audit Reports Issued
124 Audit Reports Issued

Internal Reports Internal Reports Internal Reports

11 Audit Reports 11 Audit Reports

Chief Financial Officer (2 Reports)

2006-DP-0001 HUD Compliance with Joint Financial Management Improvement

Program, Core Financial System Requirements for Cost Management,

10/07/2005.

2006-FO-0003 Additional Details to Supplement Our Reports on HUD’s FY 2005

and 2004 Financial Statements, 11/15/2005. Better Use: $377,593,323.

Chief Information Officer (4 Reports)

2006-DP-0002 Security Configuration of FHA Unix Operating System, 10/31/2005.

2006-DP-0003 Vulnerability Assessment of HUD’s Computer Network, 01/31/2006.

2006-DP-0004 Review of HUD’s Information Security Program, 02/14/2006.

Better Use: $9,980,000.

2006-DP-0801 OIG Response to Questions From the OMB Under the Federal

Information System Management Act of 2002, 10/04/2005.

Government National Mortgage Association (1 Report)

2006-FO-0001 GNMA Financial Statements for FY 2005 and 2004, 11/07/2005.

Housing (2 Reports)

2006-FO-0002 FHA Financial Statements for FY 2005 and 2004, 11/07/2005.

2006-KC-0001 The HUD Office of Affordable Housing Preservation Appropriately

Approved the Mark-to-Market Eligibility and Exception Rents, and

Assessed the Physical Condition of Evergreen Terrace I, Joliet, IL,

02/09/2006.

Lead Hazard Control (1 Report)

2006-PH-0001 HUD Did Not Properly Award FY 2004 Healthy Homes and Lead

Hazard Control Grants, 12/07/2005. Questioned: $3,000,000; Better

Use: $20,496,000.

Public and Indian Housing (1 Report)

2006-CH-0001 Real Estate Assessment Center’s Physical Condition Assessment Was

Compromised, Washington, DC, 11/30/2005.
Audit Reports Issued 125

External Reports External Reports External Reports

66 Audit Reports 66 Audit Reports

Community Planning and Development (8 Reports)

2006-BO-1001 The Division of Grants Management, City of Hartford, CT, Paid

$1,039,296 for Ineligible CDBG Activities, 10/07/2005. Questioned:

$981,461; Unsupported: $85,581; Better Use: $1,127,861.

2006-BO-1003 The City of Malden Working to Ensure Appropriate Use of CDBG and

HOME Program Administrative Funds, Malden, MA, 01/23/2006.

2006-CH-1001 HUD’s Interest in More Than $220,000 in Economic Development

Initiative-Special Purpose Grant Funds Awarded to the City of St.

Ignace, MI, Was Not Secured, 11/10/2005. Better Use: $223,537.

2006-CH-1003 HUD’s Interest in $47,668 in Economic Development Initiative-Special

Purpose Grant Funds Awarded to the City of Rhinelander, WI, Was Not

Secured, 12/05/2005. Better Use: $47,668.

2006-CH-1006 Northstar Community Development Corporation Inappropriately Used

More Than $120,000 in Economic Development Initiative-Special

Purpose Grant Funds and HUD’s Interest in More Than $180,000 in

Grant Funds Was Not Secured, Detroit, MI, 12/30/2005. Questioned:

$125,342; Unsupported: $1,970; Better Use: $184,871.

2006-LA-1009 Fontana Native American Indian Center Did Not Adequately Administer

Its Supportive Housing Program Grant, Fontana, CA, 03/03/2006.

Questioned: $194,541; Unsupported: $55,776.

2006-NY-1002 WomenRising, Inc., Did Not Always Comply with HUD’s Supportive

Housing Program, Jersey City, NJ, 01/31/2006. Questioned: $94,759;

Unsupported: $94,759.

2006-NY-1006 Lower Manhattan Development Corporation, CDBG Disaster Recovery

Assistance Fund, New York, NY, 03/31/2006. Questioned: $266,802.

Housing (28 Reports)

2006-AT-1003 Certified Home Loans of Florida Did Not Always Comply with FHA

Requirements, Miami, FL, 01/12/2006. Questioned: $728,479; Better

Use: $660,699.

2006-BO-1004 Mount Saint Francis Health Center, Providence, RI, 03/03/2006.

Questioned: $4,402,305; Unsupported: $2,743,728.

2006-BO-1006 Coventry Health Center, Providence, RI, 03/28/2006. Questioned:

$1,858,100; Unsupported: $992,979.

2006-CH-1002 The General Partner of The Sanctuary of Geneva, OH, Improperly

Used More Than $43,000 in Project Funds, 11/17/2005. Questioned:

$43,484; Unsupported: $5,475.

2006-CH-1004 Trustcorp Mortgage Company, Non-Supervised Lender, Substantially

Complied with Requirements Regarding Late Requests for Endorsements

and Underwriting of Loans, South Bend, IN, 12/22/2005. Questioned:

$2,889; Better Use: $102,02.

2006-CH-1007 Huntington National Bank, Supervised Lender, Generally Complied

with Requirements Regarding Submission of Late Requests for

Endorsement and Underwriting of Loans, Columbus, OH, 03/15/

2006. Questioned: $1,325; Better Use: $2,702,616.
2006-CH-1008 US Bank NA, Supervised Lender, Did Not Always Comply with HUD’s

Requirements Regarding Late Requests for Endorsements and

Underwriting of Loans, Minneapolis, MN, 03/31/2006. Questioned:

$584,252; Unsupported: $129,686; Better Use: $2,957,090.

2006-DE-1001 First Magnus Financial Corporation Did Not Follow HUD Requirements

in Underwriting 31 Insured Loans, Denver, CO, 12/20/2005. Questioned:

$873,455; Unsupported: $638,618; Better Use: $1,936,792.

2006-DE-1002 American Title Services Did Not Comply with Contract Terms for

Closing Sales of HUD Homes, Greenwood Village, CO, 02/01/2006.

Questioned: $6,858.

2006-FW-1004 K Hovnanian American Mortgage, LLC, Violated Underwriting

Requirements and Did Not Meet All Quality Control or Branch

Requirements, Plano, TX, 01/26/2006. Questioned: $608,333; Better Use:

$736,517.

2006-FW-1006 America’s Mortgage Resource, Inc., Branch Manager Formed an

Identity-of-Interest Entity That Provided Gift Funds; and Did Not

Always Meet HUD Loan Origination and Quality Control Plan

Requirements, Metairie, LA, 03/28/2006. Questioned: $708,258; Better

Use: $6,904,509.

2006-FW-1007 BSM Financial LP Originated Loans on Overvalued Properties to Less

Than Creditworthy Borrowers, Putting Borrowers and HUD at Risk,

Allen, TX, 03/31/2006. Questioned: $1,989,588; Better Use: $3,084,886.

2006-KC-1002 First Magnus Financial Corporation Did Not Follow HUD Regulations

When Underwriting 23 FHA Loans, Overland Park, KS, 12/12/2005.

Questioned: $221,337; Better Use: $2,429,604.

2006-KC-1004 Major Mortgage Improperly Submitted Late Requests for Endorsement

of FHA Loans, Cheyenne, WY, 01/20/2006. Questioned: $168,054;

Unsupported: $132,562; Better Use: $1,098,180.

2006-KC-1005 Matrix Financial Services Corporation’s St. Louis Branch Did Not

Properly Underwrite and/or Close 40 FHA Loans, St. Louis, MO,

01/31/2006. Questioned: $234,122; Unsupported: $58,147; Better Use:

$2,630,627.

2006-KC-1007 American Lending Group Did Not Properly Originate 9 Loans and Did

Not Have Adequate Quality Control Procedures, St. Peters, MO,

03/15/2006. Questioned: $416,555; Unsupported: $364,198; Better Use:

$646,907.

2006-LA-1001 Ryland Mortgage Company Did Not Follow HUD Requirements in the

Origination of Insured Loans, Tempe, AZ, 10/31/2005. Questioned:

$89,741; Better Use: $2,730,099.

2006-LA-1003 The Owners of The Avenue Misused More Than $32,000 in Project Funds,

San Francisco, CA, 12/07/2005. Questioned: $32,851.

2006-LA-1005 The Villas at Camelback Crossing - Phase I Used Project Funds Totaling

$1,039,034 for Ineligible or Undocumented Costs, Glendale, AZ,

12/13/2005. Questioned: $1,039,034; Unsupported: $165,051.

2006-LA-1006 The Villas at Camelback Crossing - Phase II Used Project Funds Totaling

$1,008,215 for Ineligible or Undocumented Costs, Glendale, AZ,

12/13/2005. Questioned: $1,008,215; Unsupported: $182,595.

126 Audit Reports Issued
2006-LA-1007 The Villas at Augusta Ranch Used Project Funds Totaling $965,316 for

Ineligible or Undocumented Costs, Mesa, AZ, 12/13/2005. Better Use:

$17,710,686.

2006-LA-1010 The Owner and Agent of Holiday Apartments, LA PRO 30, and Two

Worlds II Mismanaged Project Finances and Operations, Los Angeles,

CA, 03/03/2006. Questioned: $3,097,469; Unsupported: $719,899; Better

Use: $1,246,866.

2006-NY-1001 United Mortgage Corporation Did Not Always Comply with HUD/

FHA Loan Origination Requirements, Hauppauge, NY, 11/18/2005.

Questioned: $154,921; Better Use: $2,666,050.

2006-PH-1004 Homestead Funding Corp. Issued and Submitted for Endorsement Loans

with an Increased Risk of Defaults and Claims, Allentown, PA,

12/02/2005. Questioned: $175,594; Unsupported: $175,594; Better Use:

$95,107.

2006-PH-1006 Allied Mortgage Group Issued and Submitted for Endorsement Loans

with an Increased Risk of Defaults and Claims, Bala Cynwyd, PA,

02/08/2006. Questioned: $205,164; Unsupported: $204,153; Better Use:

$595,418.

2006-PH-1007 The Loan Origination Process and Quality Control Plan of American

Mortgage, Inc., Did Not Comply with HUD Regulations and

Requirements, Cherry Hill, NJ, 02/15/2006. Questioned: $4,589; Better

Use: $1,632,468.

2006-PH-1008 1st Preference Mortgage Corporation, York, PA, and Greenbelt, MD,

Did Not Originate All FHA Loans in Accordance with HUD

Requirements, York, PA, 03/23/2006.

2006-SE-1001 Idaho Housing and Finance Association Did Not Monitor Subsidized

Multifamily Projects in Accordance with Regulations or Its Annual

Contributions Contract with HUD, Boise, ID, 01/26/2006. Questioned:

$4,050,085; Unsupported: $182,264; Better Use: $357,986.

Public and Indian Housing (30 Reports)

2006-AT-1001 Miami Dade Housing Agency Did Not Ensure Section 8 Assisted Units

Met Housing Quality Standards, Miami, FL, 12/21/2005. Questioned:

$7,300; Better Use: $25,971,988.

2006-AT-1002 The Housing Authority of the City of Prichard’s Controls over the Sale

of Affordable Housing Units, Use of Sales Proceeds, and Expenditure

of Low-Income Funds Were Inadequate, Prichard, AL, 01/11/2006.

Better Use: $15,444,527.

2006-AT-1004 The Housing Authority of the City of Prichard Did Not Ensure Section

8 Subsidy Payments Were for Eligible Units, Tenants, and Landlords,

Prichard, AL, 01/13/2006. Questioned: $325,374; Better Use: $14,625,468.

2006-AT-1005 The Housing Authority of the City of Winston-Salem Did Not Ensure

Section 8 Assisted Units Were Decent, Safe, and Sanitary, WinstonSalem, NC, 01/18/2006. Better Use: $6,435,360.

2006-AT-1006 The Municipality of San Juan Housing Authority Did Not Ensure

Section 8 Assisted Units Were Decent, Safe, and Sanitary, San Juan, PR,

02/23/2006. Better Use: $5,834,496.

2006-AT-1007 The Housing Authority of the City of Winston-Salem Used More Than

$4.9 Million in Operating Subsidies for Other Programs, WinstonSalem, NC, 03/30/2006. Questioned: $4,976,616; Better Use: $475,000.

Audit Reports Issued 127
128 Audit Reports Issued

2006-BO-1002 Review of Worcester Housing Authority Identified $1.9 million of Its

Public Housing Operating Funds Used for Non-Program Purposes,

Worcester, MA, 11/29/2005. Questioned: $1,943,662; Better Use:

$1,011,733.

2006-BO-1005 Hartford Housing Authority Had Housing Choice Voucher Program

Deficiencies Resulting in More Than $2.6 Million in Costs Exceptions,

Hartford, CT, 03/10/2006. Questioned: $1,715,809; Better Use: $960,332.

2006-CH-1005 Fairfield Metropolitan Housing Authority Used Annual Contributions

Contract Funds for Development Activities Outside Its Annual

Contributions Contract, Lancaster, OH, 12/30/2005. Questioned:

$543,483.

2006-DE-1003 The Housing Authority of the City and County of Denver Properly

Assigned Section 8 Voucher Sizes But Made Errors on Nine Vouchers,

Denver, CO, 03/15/2006. Better Use: $26,683.

2006-FW-1001 The Fort Worth Housing Authority Did Not Properly Apply Its Section

8 Subsidy Size Standards for Existing Tenants, Fort Worth, TX,

10/21/2005. Questioned: $180,618; Unsupported: $174,667; Better Use:

$2,646,373.

2006-FW-1002 Baytown Housing Authority Improperly Advanced, Transferred, and

Encumbered Its Public Housing Funds, Baytown, TX, 12/13/2005.

Questioned: $2,030,233; Unsupported: $1,237,873; Better Use: $5,956,761.

2006-FW-1003 Palacios Housing Authority Did Not Fully Comply with HUD’s

Standards, Palacios, TX, 12/22/2005. Better Use: $44,657.

2006-FW-1005 Albuquerque Housing Services Generally Complied with HUD’s

Standards, Albuquerque, NM, 02/16/2006.

2006-KC-1001 The Columbia Housing Authority Is Unnecessarily Paying Housing

Choice Voucher Program Funds for Overhoused Tenants, Columbia,

MO, 11/30/2005. Questioned: $216,352; Better Use: $300,276.

2006-KC-1003 The Omaha Housing Authority of Omaha, NE, Does Not Have

Adequate Controls Over Its Housing Quality Standards Process and

Tenant Eligibility Verification Procedures, Omaha, NE, 01/12/2006.

Questioned: $58,511.

2006-KC-1006 The Housing Authority of Kansas City Unnecessarily Paid Housing

Choice Voucher Program Funds for Overhoused Tenants, Kansas City,

MO, 03/03/2006. Questioned: $30,946; Better Use: $73,692.

2006-KC-1008 Housing Authority of St. Joseph Overhoused 16 Tenants Under the

Section 8 Housing Choice Voucher Program, St. Joseph, MO, 03/30/

2006. Questioned: $20,108; Better Use: $54,036.

2006-LA-1002 The Housing Authority of the City of Los Angeles Did Not Adequately

Determine and Support Section 8 Rents, Los Angeles, CA, 11/07/2005.

Questioned: $186,881; Unsupported: $186,881.

2006-LA-1004 Inglewood Housing Authority Did Not Adequately Administer Its

Section 8 Housing Choice Voucher Program, Inglewood, CA, 12/07/

2005. Better Use: $975,833.

2006-LA-1008 Housing Authority of the City of Los Angeles, CA, Did Not Adequately

Administer and Maintain Its Section 8 Waiting List, 03/01/2006.
Audit Reports Issued 129

2006-NY-1003 The Housing Authority of the City of Newark’s Controls Over Bond

Financing Activities, Obtaining Supporting Documentation, and Legal

Settlements Require Improvement, Newark, NJ, 02/14/2006.

Questioned: $7,228,933; Unsupported: $7,228,933; Better Use:

$3,560,123.

2006-NY-1004 Mount Vernon Urban Renewal Agency, Section 8 Housing Choice

Voucher Program Has Administrative and Financial Management

Weaknesses, Mount Vernon, NY, 02/16/2006. Questioned: $1,893,134;

Unsupported: $699,934; Better Use: $4,868,715.

2006-NY-1005 Utica Municipal Housing Authority, Operational and Administrative

Weaknesses Have Resulted in Unsupported and Ineligible

Expenditures, Utica, NY, 02/21/2006. Questioned: $758,087;

Unsupported: $237,957; Better Use: $33,150.

2006-PH-1001 The Alexandria Redevelopment and Housing Authority Improperly

Used Section 8 Funds to Support Its Other Programs, Alexandria, VA,

10/04/2005. Questioned: $462,214; Better Use: $462,214.

2006-PH-1002 The Suffolk Redevelopment and Housing Authority Did Not Always

Follow HUD Requirements in Its Section 8 and Low-Rent Programs,

Suffolk, VA, 10/17/2005. Questioned: $5,127.

2006-PH-1003 The Franklin Redevelopment and Housing Authority Did Not

Adequately Administer Its Section 8 Program, Franklin, VA, 11/30/

2005. Questioned: $9,662; Better Use: $1,520.

2006-PH-1005 The Housing Authority of the County of Butler Used HUD Assets

Improperly to Develop and Support Its Nonfederal Entities, Butler,

PA, 01/10/2006. Questioned: $205,875; Unsupported: $205,875; Better

Use: $973,982.

2006-PH-1009 The Housing Authority of the City of Annapolis Did Not Adequately

Administer Its Section 8 Waiting List, Annapolis, MD, 03/23/2006.

2006-SE-1002 Northeast Washington Housing Solutions Improperly Administered

Housing Choice Vouchers, Spokane, WA, 02/27/2006. Questioned:

$460,319; Unsupported: $460,319.

  

Appendix 2 Appendix 2

Tables
132 Tables

Table A Table A

Audit Reports Issued Prior to Start of Period with No

Management Decision at March 31, 2006

* Significant Audit Reports Described in Previous Semiannual Reports

Report Number Reason for Lack of Issue Date/Target

& Title Management Decision for Management

 Decision

2005-FW-1010 Broad

Street Mortgage

Company,

Subsidiary of

Fieldstone Mortgage

Company,

San Antonio, TX

Management decision has not been

reached on one of the three reported

recommendations. The Inspector General

referred the issue to the Deputy Secretary in

January 2006 because agreement could not be

reached with the Office of Housing. The

recommendation relates to concerns that we

have with this particular mortgagee’s loan

origination practices as they relate to the use

of downpayment assistance from sellerfunded nonprofit organizations. The

concerns we have with these downpayment

assistance transactions have been

long-standing and are consistent with

concerns reported by others, including the

Government Accountability Office.

Moreover, we have other mortgagee audit

reports that have been issued or are in

process that have similar issues with sellers

increasing the original sales price to cover

the buyer’s required downpayment and the

nonprofit downpayment assistance

provider’s fee. The Office of Housing has

taken the position that, based on a 1998

legal opinion, if the gift of downpayment

assistance is made by the nonprofit entity to

the buyer before closing, and the seller’s

contribution to the nonprofit entity occurs

after the closing, then the buyer has not

received funds that can be traced to the

seller’s contribution. The OIG believes that

HUD should establish specific standards

regarding a borrower’s investments in the

mortgaged property when a gift is provided

by a nonprofit organization. As a result of

the impasse, we have asked the Deputy

Secretary to provide a final management

decision.

05/26/2005

11/22/2005
Tables 133

Report Number Reason for Lack of Issue Date/Target

& Title Management Decision for Management

 Decision

2005-NY-1008 Lower

Manhattan

Development

Corporation,

Community

Development Block

Grant Program

Disaster Assistance

Fund

New York, NY

Management decision has not been

reached on one of the four reported

recommendations. On March 31, 2006,

the General Deputy Assistant Secretary

for Community Planning and Development

indicated that he agreed with the audit

recommendation that the auditee consider

additional action to recover $6 million in

outstanding receivables from recipients of

the Residential Grant Program. However,

he did not agree that this amount should

be shown as “funds to be put to better use”

in our report. OIG maintains that while the

auditee may not be able to collect this

entire amount from the recipients, any

amounts collected by the auditee would

represent amounts that would be available

for other eligible program purposes.

Accordingly, we believe that some amount

should be recorded as “funds to be put to

better use.” The Inspector General referred

the issue to the Assistant Secretary,

Community Planning and Development,

on April 7, 2006.

09/27/2005

03/26/2006
Table B Table B

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

Had Not Been Completed as of March 31, 2006

Report Report Title Issue Decision Final

Number Date Date Action

1997-CH-1010 Major Mortgage Corporation, 09/17/1997 01/06/1998 10/15/2006

Section 203(K) Rehabilitation

Home Mortgage Insurance

Program, Livonia, MI

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

2001-FO-0002 FHA, FY 2000 Financial 03/01/2001 07/24/2001 12/21/2006

Statements

2001-FO-0003 HUD FY 2000 Financial 03/01/2001 07/18/2001 12/31/2006

Statements

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

Commission, Hope VI Program

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

Single-Family Program

2002-FO-0002 FHA, FY 2001 and 2000 02/22/2002 05/30/2002 12/31/2006

Financial Statements

2002-FO-0003 HUD, Financial Statements 02/27/2002 08/16/2002 11/15/2006

FY 2001 and 2000

2002-PH-1001 Williamsport, PA, CDBG 03/19/2002 08/27/2002 09/01/2006

and HOME Investment

Partnership Programs

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

Council, Inc.

2002-AT-1002 Housing Authority of the City 07/03/2002 10/31/2002 04/30/2010

of Tupelo, MS, Housing

Programs Operations

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

Office of Housing Section 232

Nursing Home Program

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

Low Rent Housing Program,

Cash & Procurement Controls

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

Education Fund, Outreach and

Training Assistance Grant and

Public Entity Grant,

Albuquerque, NM

134 Tables
Tables 135

Report Report Title Issue Decision Final

Number Date Date Action

2002-PH-1004 Tenants’ Action Group of 09/30/2002 03/31/2003 03/29/2007

Philadelphia, PA, Outreach and

Training Assistance Grant

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

Outreach and Training

Assistance Grant Number

FFOT0020MD, Baltimore, MD

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

Outreach and Training

Assistance Grant Number

FFOT98012MD, Baltimore, MD

2002-SF-1006 Legal Aid Society of Honolulu, 09/30/2002 03/31/2003 03/29/2007

HI, Outreach and Training

Assistance Grant

2003-SE-1002 Tenants Union, Seattle, WA, 12/02/2002 03/31/2003 03/29/2007

Outreach and Training Assistance

Grant and Intermediary Training

Assistance Grant

2003-AT-1001 Northwestern Regional Housing 01/09/2003 06/02/2003 10/01/2006

Authority, Public Housing

Programs, Boone, NC

2003-FO-0002 FHA, FY 2002 and 2001 01/21/2003 05/22/2003 12/31/2006

Financial Statements

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

of Morgan City, LA, Low-Rent

Program

2003-AT-1003 Faifield, AL, Housing Authority, 03/24/2003 07/22/2003 10/01/2006

Housing Programs

2003-NY-1003 Empire State Development 03/25/2003 07/16/2003 06/30/2006

Corporation, CDBG Disaster

Assistance Funds, New York, NY

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

Housing Authority, Public

Housing Program

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

Housing Assistance

Restructuring’s Oversight of

the Sec 514 Program Activities

2003-BO-1003 City Of Bridgeport, CT, Home 05/16/2003 09/16/2003 07/31/2006

Investment Partnership Program

2003-CH-1017 Housing Continuum, Inc., 06/13/2003 10/10/2003 Note 1

Homebuyers Assistance

Program, Geneva, IL
136 Tables

Report Report Title Issue Decision Final

Number Date Date Action

2003-AO-0002 HUD Training Academy 07/15/2003 10/24/2003 Note 1

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

Corporation, CDBG Disaster

Assistance Funds, New York, NY

2003-BO-1002 Family Living Adult Care 11/04/2003 03/04/2004 09/30/2006

Center, Biddeford and Saco, ME

2004-KC-1001 East Meyer Community 11/24/2003 03/29/2004 04/14/2006

Association, Kansas City, MO

2004-CH-1001 Kankakee, IL, County Housing 11/26/2003 03/24/2004 Note 2

Authority, Section 8 Housing

Program

2004-DP-0001 FY 2003 Review of Information 12/01/2003 05/28/2004 12/31/2006

Systems Controls in Support

of the Financial Statements Audit

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

Authority, Capital Fund

Program

2004-FO-0003 HUD Financial Statements 12/19/2003 07/20/2004 11/15/2006

FY 2003 and 2002

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

Development Activities

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

City of Cuthbert, GA,

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

Lead-Based Paint Hazard

Reduction Grants

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

the Tenant Rental Assistance

Certification System

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

Section 108 Loan Program,

Jazzland Theme Park

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

Administration, San Juan, PR

2004-LA-1003 Homewide Lending 05/19/2004 09/01/2004 10/15/2006

Corporation, Nonsupervised

Mortgagee, Los Angeles, CA

2004-SE-1004 Seattle, WA, Housing Authority, 05/21/2004 09/20/2004 04/30/2006

MTW Demonstration Program

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

CDBG Program
Tables 137

Report Report Title Issue Decision Final

Number Date Date Action

2004-PH-1008 Safe Haven Outreach Ministry, 06/03/2004 08/31/2004 06/02/2006

Inc., Washington, DC

2004-FW-1007 City of New Orleans, LA, 06/22/2004 09/20/2004 04/15/2006

Desire Community Housing

Corporation

2004-LA-1005 Guild Mortgage Company DBA, 07/09/2004 11/06/2004 Note 2

Residential Mortgage Bankers,

San Diego, CA

2004-AT-0002 Effectiveness of the 07/12/2004 12/13/2004 12/31/2006

Departmental Enforcement

Center

2004-KC-1003 Wells Fargo Home Mortgage, 07/16/2004 10/08/2004 Note 2

Nonsupervised Direct

Endorsement Lender,

Des Moines, IA

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

of Durham, NC

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

236/Section 8, Multifamily

Housing Review, Pittsburgh, PA

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

Multifamily Equity Skimming,

Shaker Heights, OH

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

Mortgagee, Bellevue, WA

2004-CH-1008 Cornerstone Mortgage Group, 09/10/2004 01/05/2005 Note 2

Limited Nonsupervised Loan

Correspondent, Inverness, IL

2004-PH-1012 Mortgage America Bankers, LLC, 09/10/2004 01/06/2005 03/31/2007

Nonsupervised Loan

Correspondent, Kensington, MD

2004-NY-1004 Lower Manhattan Development 09/15/2004 01/12/2005 06/30/2006

Corporation, CDBG Disaster

Assistance Funds, New York, NY

2004-FW-1009 Mays Property Management, Inc., 09/17/2004 02/23/2005 Note 2

Multifamily Management Agent,

Little Rock, AR

2004-LA-1007 Housing Authority of Maricopa 09/22/2004 01/14/2005 Note 2

County, Phoenix, AZ

2004-LA-1008 United States Veterans Initiative, 09/27/2004 03/31/2005 Note 2

Inc., Inglewood, CA
138 Tables

Report Report Title Issue Decision Final

Number Date Date Action

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

Corporation, Single-Family

Direct Endorsement Mortgagee,

Salt Lake City, UT

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

Mortgage, Did Not Follow FHA

Requirements, St. Charles, MO

2005-BO-1001 Waterbury Housing Authority, 10/31/2004 02/09/2005 12/31/2006

Selected Programs, Waterbury, CT

2005-DP-0001 FY 2004 Review of Information 10/19/2004 02/16/2005 08/30/2006

Systems Controls in Support of

the Financial Statements Audit

2005-SE-1001 Tulalip Tribes Housing 10/21/2004 02/02/2005 06/30/2006

Authority Cannot Account for

Grant Funds, Marysville, WA

2005-FW-1801 Highland Meadows Apartments, 11/02/2004 02/24/2005 Note 2

Dallas, TX

2005-LA-1801 The Carmichael Rehabilitation 11/04/2004 01/27/2005 Note 2

Center, Carmichael, CA

2005-FW-1001 City of New Orleans, Section 108 11/05/2004 03/02/2005 04/15/2006

Program, Louisiana ArtWorks,

New Orleans, LA

2005-FO-0002 FHA’s Financial Statements for 11/15/2004 11/15/2004 12/31/2006

FY 2004 and 2003

2005-AT-1004 Housing Authority of the City 11/19/2004 03/15/2005 03/15/2015

of Durham, NC

2005-CH-1003 Royal Oak Township Housing 11/29/2004 03/29/2005 10/31/2006

Commission, Public Housing

Program, Ferndale, MI

2005-PH-1003 The Town of Clifton, Single- 12/21/2004 04/19/2005 04/19/2006

Family Property Disposition

Discount Sales Program, Clifton, VA

2005-PH-1004 Corrective Action Verification 12/21/2004 04/20/2005 04/30/2007

Review of the Housing Authority

of Baltimore, MD, Section 8

Certificate and Voucher Programs,

Audit Report No. 2001-PH-1003

2005-CH-1004 Lakewood Care Center, 12/22/2004 10/07/2005 12/31/2006

Multifamily Equity Skimming,

Milwaukee, WI
Tables 139

Report Report Title Issue Decision Final

Number Date Date Action

2005-CH-1801 RVA Properties Inc., 12/22/2004 12/26/2004 06/30/2006

Multifamily Equity Skimming,

Farmington Hills, MI

2005-CH-1005 Wood Hills Assisted Living 01/12/2005 10/07/2005 12/31/2006

Facility, Multifamily Equity

Skimming, Kalamazoo, MI

2005-LA-1805 Housing Authority of the City of 01/21/2005 04/05/2005 10/05/2006

Los Angeles, CA

2005-NY-1802 Arlington Arms, Jersey City, NJ 01/21/2005 04/11/2005 04/11/2006

2005-KC-1003 Leader Mortgage Company, 01/25/2005 04/08/2005 Note 2

Did Not Follow HUD

Requirements When Processing

Loans, Lenexa, KS

2005-AT-1005 Pan American Financial 01/27/2005 05/17/2005 05/31/2006

Corporation, Nonsupervised

Direct Endorsement Lender,

Guaynabo, PR

2005-FW-1004 American Property Financial, 01/28/2005 05/27/2005 05/31/2006

Nonsupervised Loan

Correspondent, San Antonio, TX

2005-SE-1003 Oregon Housing and 02/09/2005 05/27/2005 05/01/2006

Community Services, Salem, OR

2005-AT-1006 The Jefferson County Housing 02/24/2005 05/31/2005 04/23/2006

Authority, Birmingham, AL

2005-FW-1005 New Orleans African-American 02/25/2005 05/12/2005 04/15/2006

Museum Mismanaged its CDBG

and Did Not Comply with its

Grant Agreements, New Orleans, LA

2005-DE-1002 Boulder County Housing 03/09/2005 06/29/2005 12/31/2010

Authority, Boulder, CO

2005-PH-1007 Lehigh County Housing 03/09/2005 05/02/2005 01/30/2017

Authority Could Not Support

All Costs and Used HUD Funds

to Support its Nonfederal Entities,

Emmaus, PA

2005-LA-1002 Housing Authority of Maricopa 03/14/2005 07/11/2005 08/31/2007

County, Mixed Finance

Development Activities,

Phoenix, AZ

2005-AT-1007 Interstate Financial Mortgage 03/15/2005 08/04/2005 07/31/2006

Group Corporation, Nonsupervised

Direct Endorsement Lender,

Miami, FL
140 Tables

Report Report Title Issue Decision Final

Number Date Date Action

2005-PH-1008 The Housing Authority of the 03/24/2005 07/13/2005 12/31/2006

City of Pittsburgh Did Not

Effectively Implement its MTW

Demonstration Program,

Pittsburgh, PA

2005-AT-1008 Trust America Mortgage, Inc., 03/25/2005 07/25/2005 04/30/2006

Nonsupervised Direct Endorsement

Lender, Cape Coral, FL

2005-CH-1007 RBC Mortgage Company, 03/29/2005 08/05/2005 04/06/2007

Nonsupervised Mortgagee,

Houston, TX

2005-PH-1001 Criteria Governing Local 03/29/2005 07/27/2005 01/02/2007

Government Participation in

HUD’s Single-Family Property

Disposition Discount Sales Program

2005-CH-1010 Kankakee County Housing 04/08/2005 08/05/2005 05/10/2006

Authority, Low-Rent Housing

Program, Kankakee, IL

2005-FW-1008 City of New Orleans, Did Not 04/08/2005 05/26/2005 04/15/2006

Contribute Approximately $3.6

Million in HOME Funds,

New Orleans, LA

2005-PH-1009 Richmond Development and 04/08/2005 07/28/2005 10/31/2006

Housing Authority Did Not

Always Properly Use HUD

Funds, Richmond, VA

2005-SE-0001 Design and Implementation 04/12/2005 04/12/2005 04/12/2006

of the Public Housing/Section 8

MTW Demonstration Program

2005-AT-1009 The Housing Authority of 04/21/2005 08/09/2005 04/30/2006

Fulton County, Atlanta, GA

2005-BO-1003 Milford Housing Authority, 04/25/2005 10/07/2005 12/31/2006

Selected Programs, Milford, CT

2005-DE-1003 Citywide Home Loans, 05/04/2005 09/01/2005 08/31/2006

Salt Lake City, UT

2005-DE-1004 Aspen Home Loans, American 05/06/2005 08/31/2005 06/30/2006

Fork, UT

2005-DE-0001 HUD’s Control Over FHA Claims 05/12/2005 09/09/2005 04/30/2006

Payments

2005-LA-1003 First Source Financial USA, 05/12/2005 09/08/2005 11/30/2006

Henderson, WV
Tables 141

Report Report Title Issue Decision Final

Number Date Date Action

2005-KC-1006 Corinthian Mortgage 05/13/2005 09/09/2005 09/30/2006

Corporation Did Not Always

Comply with FHA Requirements,

Mission, KS

2005-NY-1005 The Housing Authority of the 05/26/2005 09/23/2005 12/31/2006

City of Newark, Bond Financing

Activities and Section 8 Housing

Choice Voucher Administrative Fee

Reserves, Newark, NJ

2005-CH-1011 Stark Metropolitan Housing 05/31/2005 08/31/2005 05/10/2006

Authority, Nonprofit Development

Activities, Canton, OH

2005-PH-1012 The Lycoming County Housing 06/06/2005 07/12/2005 06/01/2006

Authority Risked HUD Assets

for the Benefit of Its Affiliated

Nonfederal Entity,

Williamsport, PA

2005-AT-1010 The Chattanooga Housing 06/09/2005 10/06/2005 06/30/2006

Authority Did Not Ensure

Section 8 Assisted Units Were

Decent, Safe, and Sanitary,

Chattanooga, TN

2005-AT-1011 The Housing Authority of 06/27/2005 10/24/2005 06/27/2006

High Point Did Not Properly

Procure Goods and Services,

High Point, NC

2005-AT-1012 Crossville Housing Authority 07/06/2005 10/31/2005 10/31/2008

Improperly Used Public Housing

Funds for Other Activities,

Crossville, TN

2005-LA-1005 Housing Authority of the City 07/11/2005 09/09/2005 05/31/2006

of Inglewood, CA

2005-FW-1012 The Housing Authority of the 07/20/2005 10/05/2005 05/31/2006

City of Houston Did Not Follow

Its Section 8 Abatement and

Termination Policies and

Procedures, Houston, TX

2005-LA-1006 Maricopa Home Consortium 07/28/2005 11/22/2005 08/31/2007

Home Program, Mesa, AZ

2005-BO-1004 Housing Choice Voucher and 03/09/2005 06/29/2005 12/31/2010

Low-Income Public Housing

Program Deficiencies at the

Bridgeport Housing Authority

Resulted in $3.8 Million in

Questioned Costs, Bridgeport, CT
142 Tables

Report Report Title Issue Decision Final

Number Date Date Action

2005-PH-1013 Review of the Commonwealth 07/29/2005 11/22/2005 11/21/2006

of Pennsylvania’s HOME

Investment Partnership Program,

Harrisburg, PA

2005-PH-1014 Review of the McKeesport 07/29/2005 11/21/2005 11/01/2006

Housing Authority’s Section 8

and Public Housing Programs,

McKeesport, PA

2005-CH-1012 Savanna Trace Apartments, 08/04/2005 12/28/2005 12/28/2006

Multifamily Equity Skimming,

Kalamazoo, MI

2005-CH-1013 Ivan Woods Senior Apartments, 08/05/2005 12/28/2005 12/28/2006

Multifamily Equity Skimming,

Lansing, MI

2005-CH-1014 Kankakee County Housing 08/05/2005 12/28/2005 04/30/2006

Authority’s Low-Rent Unit

Conditions, Kankakee, IL

2005-NY-1006 Syracuse Housing Authority, 08/10/2005 09/20/2005 05/31/2006

Section 8 Housing Choice

Voucher Program, Syracuse, NY

2005-LA-1007 KB Home Mortgage Company, 08/12/2005 12/09/2005 12/31/2006

Las Vegas, NV

2005-BO-1005 Inappropriate Use of Federal 08/31/2005 12/29/2005 07/30/2006

Funds Led to $3.5 Million

Deficit in HUD Programs

Administered by Fall River

Housing Authority, Fall River, MA

2005-BO-1006 The Hartford Housing Authority 09/06/2005 01/03/2005 06/30/2006

Improperly Used $3.7 Million

in Public Housing Operating

Subsidies for Its State and Other

Federal Programs, Hartford, CT

2005-LA-1009 Housing Authority of the City 09/07/2005 11/29/2005 07/01/2006

of Inglewood, Housing Quality

Standards, Inglewood, CA

2005-LA-0001 Single-Family Preforeclosure 09/13/2005 01/10/2005 09/30/2006

Sale Program

2005-AT-1013 Corporacion Para el Fomento 09/15/2005 01/11/2005 11/30/2006

Economico de la Ciudad Capital

Did Not Administer Its Independent

Capital Fund in Accordance with

HUD Requirements, San Juan, PR
Tables 143

Report Report Title Issue Decision Final

Number Date Date Action

2005-AT-1014 National City Mortgage 09/15/2005 11/14/2005 10/31/2006

Company Did Not Comply

with FHA Requirements,

Miamisburg, OH

2005-DE-1005 The Housing Authority of the 09/16/2005 11/22/2005 12/31/2006

County of Salt Lake Adequately

Controlled Occupancy Functions

but Inappropriately Loaned

Funds, Salt Lake, UT

2005-NY-1007 Security Atlantic Mortgage 09/16/2005 01/13/2006 01/31/2007

Company, Inc. Did Not Always

Comply with HUD/FHA Loan

Origination Requirements,

Edison, NJ

2005-SE-1007 City Bank, Puyallup, WA 09/16/2005 12/20/2005 06/30/2006

2005-SE-1008 Idaho Housing and Finance 09/16/2005 12/13/2005 Note 3

Association, Boise, ID

2005-FW-1017 Allied Home Mortgage 09/22/2005 01/05/2006 06/30/2006

Corporation Did Not Follow

HUD Requirements When

Processing Four Loans,

Houston, TX

2005-CH-1017 Flint Housing Commission, 09/23/2005 01/20/2006 01/20/2016

Section 8 Housing Program,

Flint, MI

2005-LA-1010 First Magnus Financial 09/23/2005 01/19/2006 09/23/2006

Corporation, Las Vegas, NV

2005-BO-1007 Fairfield Financial Mortgage 09/26/2005 01/20/2006 09/30/2006

Group, Inc., Did Not Always

Comply with FHA Requirements,

Danbury, CT

2005-LA-1011 KB Home Mortgage Company 09/26/2005 01/23/2006 01/15/2007

Did Not Follow HUD

Requirements When Originating

Insured Loans, Phoenix, AZ

2005-FW-1018 The Housing Authority of the 09/27/2005 01/24/2006 09/15/2006

City of Houston Violated HUD

Regulations Concerning Section 8

Housing Choice Voucher Tenants

and Units, Houston, TX

2005-FW-1019 Wells Fargo Did Not Follow 09/28/2005 01/05/2006 06/30/2006

HUD Requirements When

Processing 10 Loans,

Des Moines, IA
144 Tables

Report Report Title Issue Decision Final

Number Date Date Action

2005-NY-1009 Golden First Mortgage 09/28/2005 01/20/2006 10/15/2006

Corporation, Nonsupervised

Direct Endorsement Lender,

Great Neck, NY

2005-AT-1015 The Municipality of San Juan 09/29/2005 01/12/2006 12/29/2006

Housing Authority Did Not

Properly Administer Its Section 8

Housing Choice Voucher Program,

San Juan, PR

2005-CH-1020 Housing Authority of the City 09/29/2005 01/25/1006 12/31/2052

of Gary, Section 8 Housing

Program, Gary, IN

2005-BO-0002 HUD Did Not Conduct a 09/30/2005 12/20/2005 10/01/2006

Front-End Risk Assessment

and, Therefore, Fully Implement

Controls for the Public Housing

Mortgages and Security Interest

Program

2005-KC-1009 Washington Mutual Bank Did 09/30/2005 01/11/2006 09/30/2006

Not Follow HUD Regulations

When Underwriting Six Loans,

Seattle, WA

NOTES:

1 Management did not meet the

target date. Target date is over

1 year old.

2 Management did not meet the

target date. Target date is

under 1 year old.

3 No Management decision.

REPORTS EXCLUDED FROM TABLE:

28 audits under repayment plans

32 where HUD management cannot

complete final action since recommended

action is pending formal judicial review,

investigation, or legislative solution
Tables 145

Table C Table C

Inspector General Issued Report with Questioned and

Unsupported Costs at March 31, 2006

(Thousands)

Report s Number of Questioned Unsupported

Audit Reports Costs Costs

A1 For which no management 41 52,969 16,871

decision had been made by the

commencement of the reporting

period

A2 For which litigation, legislation, 10 18,568 8,135

or investigation was pending at

the commencement of the

reporting period

A3 For which additional costs were - 1,485 0

added to reports in beginning

inventory

A4 For which costs were added to 2 111 0

noncost reports

B1 Which were issued during the 53 50,627 17,365

reporting period

B2 Which were reopened during the 0 0 0

reporting period

 Subtotals (A + B) 106 123,760 42,371

C For which a management 571 58,627 16,022

decision was made during the

reporting period

(1) Dollar value of disallowed costs

 Due HUD 292 11,810 2,428

 Due program participants 30 27,675 11,402

(2) Dollar value of costs not 153 19,142 2,192

 disallowed

D For which management decision 10 19,113 9,667

had been made not to determine

costs until completion of litigation,

legislation, or investigation 

E For which no management 39 46,020 16,682

decision had been made by <113>4 <46,012>4 <16,682>4

the end of the reporting period 

1 36 audit reports also contain recommendations with funds to be put to better use.

2 4 audit reports also contain recommendations with funds due program participants.

3 13 audit reports also contain recommendations with funds agreed to by management.

4 The figures in brackets represent data at the recommendation level as compared to the report level.

 See Explanations of Tables C and D.
Table D Table D

Inspector General Issued Report with Recommendations That Funds Be

Put to Better Use at March 31, 2006

(Thousands)

Report s Number of Dollar Value

 Audit Reports

A1 For which no management decision had been 41 184,495

made by the commencement of the reporting

period

A2 For which litigation, legislation, or investigation 5 15,102

was pending at the commencement of the

reporting period

A3 For which additional costs were added to reports - 73,025

in beginning inventory

A4 For which costs were added to noncost reports 0 0

B1 Which were issued during the reporting period 49 553,315

B2 Which were reopened during the reporting period 0 0

 Subtotals (A + B) 95 825,937

C For which a management decision was made 521

 549,804

during the reporting period

(1) Dollar value of recommendations that were

 agreed to by management

 Due HUD 20 401,982

 Due program participants 26 125,484

(2) Dollar value of recommendations that were 142

 22,338

 not agreed to by management

D For which management decision had been made 7 105,692

not to determine costs until completion of

litigation, legislation, or investigation

E For which no management decision had been 36 170,441

made by the end of the reporting period <65>3 <168,413>3

1 36 audit reports also contain recommendations with questioned costs.

2 8 audit reports also contain recommendations with funds due program participants.

3 The figures in brackets represent data at the recommendation level as compared to the report level.

 See Explanations of Tables C and D.

146 Tables
Tables 147

Explanations of Tables C and D Explanations of Tables C and D

The Inspector General Act Amendments of 1988 require Inspectors General and agency

heads to report cost data on management decisions and final actions on audit reports. The

current method of reporting at the “report” level rather than at the individual audit

“recommendation” level results in misleading reporting of cost data. Under the Act, an

audit “report” does not have a management decision or final action until all questioned

cost items or other recommendations have a management decision or final action. Under

these circumstances, the use of the “report” based rather than the “recommendation”

based method of reporting distorts the actual agency efforts to resolve and complete action

on audit recommendations. For example, certain cost items or recommendations could

have a management decision and repayment (final action) in a short period of time. Other

cost items or nonmonetary recommendation issues in the same audit report may be more

complex, requiring a longer period of time for management’s decision or final action.

Although management may have taken timely action on all but one of many

recommendations in an audit report, the current “all or nothing” reporting format does

not take recognition of their efforts.

The closing inventory for items with no management decision on Tables C and D

(Line E) reflects figures at the report level as well as the recommendation level.

  

HUD OIG Operations HUD OIG Operations HUD OIG Operations

Telephone Listing Telephone Listing Telephone Listing
150 HUD OIG Operations Telephone Listing

Office of Audit Office of Audit Office of Audit

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

Region 1 Boston, MA 617-994-8380

Hartford, CT 860-240-4800

Region2 New York, NY 212-264-4174

Albany, NY 518-464-4200

Buffalo, NY 716-551-5755

Newark, NJ 973-622-7900

Region 3 Philadelphia, PA 215-656-3401

Baltimore, MD 410-962-2520

Pittsburgh, PA 412-644-6372

Richmond, VA 804-771-2100

Region 4 Atlanta, GA 404-331-3369

Miami, FL 305-536-5387

Greensboro, NC 336-547-4001

Jacksonville, FL 904-232-1226

Knoxville, TN 865-545-4369

San Juan, PR 787-766-5202

Region 5 Chicago, IL 312-353-7832

Columbus, OH 614-469-5745

Detroit, MI 313-226-6190

Region 6 Fort Worth, TX 817-978-9309

Houston, TX 713-718-3199

Oklahoma City, OK 405-609-8606

San Antonio, TX 210-475-6895

Regions 7/8 Kansas City, KS 913-551-5870

St. Louis, MO 314-539-6339

Denver, CO 303-672-5452

Regions 9/10 Los Angeles, CA 312-894-8016

Phoenix, AZ 602-379-7243

San Francisco, CA 415-489-6400

Seattle, WA 206-220-5360

Hurricane Recovery Oversight 504-589-7267
HUD OIG Operations Telephone Listing 151

Office of Investigation Office of Investigation

Headquarters Office of Investigation, Washington, DC 202-708-0390

Region 1 Boston, MA 617-994-8450

Hartford, CT 860-240-4800

Manchester, NH 603-666-7988

Region 2 New York, NY 212-264-8062

Buffalo, NY 716-551-5755

Newark, NJ 973-622-7900

Region 3 Philadelphia, PA 215-656-3410

Baltimore, MD 410-962-4502

Pittsburgh, PA 412-644-6598

Richmond, VA 804-771-2100

Region 4 Atlanta, GA 404-331-3359

Miami, FL 305-536-3087

Greensboro, NC 336-547-4000

Nashville, TN 615-736-7000

San Juan, PR 787-766-5868

Tampa, FL 813-228-2026

Region 5 Chicago, IL 312-353-4196

Cleveland, OH 216-522-4421

Columbus, OH 614-469-6677

Detroit, MI 313-226-6280

Indianapolis, IN 317-226-5427

Minneapolis-St. Paul, MN 612-370-3130

Region 6 Arlington, TX 817-652-6980

Houston, TX 713-718-3197

Little Rock, AR 501-324-5409

Oklahoma City, OK 405-609-8601

San Antonio, TX 210-475-6822

Region 7/8 Kansas City, KS 913-551-5866

St. Louis, MO 314-539-6559

Denver, CO 303-672-5350

Billings, MT 406-247-4080

Salt Lake City, UT 801-524-6090

Region 9/10 Los Angeles, CA 213-894-0219

San Francisco, CA 415-489-6683

Phoenix, AZ 602-379-7251

Sacramento, CA 916-930-5693

Las Vegas, NV 702-366-2144

Seattle, WA 206-220-5380

Hurricane Recovery Oversight 202-708-0390

Report fraud, waste, and mismanagement

 in HUD programs and operations by:

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

Faxing the OIG Hotline: 202-708-4829

Sending written information to:

Department of Housing and Urban Development

Inspector General Hotline (GFI)

451 7th Street, SW

Washington, DC 20410

Emailing the OIG Hotline: hotline@hudoig.gov

Internet:

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

All information is confidential,

and you may remain anonymous.
Semiannual Report to Congress Semiannual Report to Congress

Ocober 1, 2005 through March 31, 2006 Ocober 1, 2005 through March 31, 2006

www.hud.gov/offices/oig www.hud.gov/offices/oig

No. 55 HUD-2006-03-OIG