U.S. Department of Housing and Urban Development ... · 3 80% 3380% of stakeholders rate OIG...

Office of Inspector GeneralU.S. Department of Housing and Urban DevelopmentU.S. Department of Housing and Urban DevelopmentU.S. Department of Housing and Urban DevelopmentU.S. Department of Housing and Urban DevelopmentU.S. Department of Housing and Urban Development

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

Semiannual Reportto Congress

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Inspector General’s Message iii

Inspector General’s MessageInspector General’s MessageInspector General’s MessageInspector General’s MessageInspector General’s MessageIt is with great pride that I present the U.S. Department of

Housing and Urban Development (HUD) Office of InspectorGeneral (OIG) Semiannual Report to the Congress for the first halfof fiscal year 2006. In the time since our last report, HUD OIGemployees – auditors, agents, attorneys and support staff – havebeen hard at work on their assigned tasks. Whether it isHurricane disaster relief, single-family housing fraud, Section 8rental subsidy fraud, or any fraud against HUD programs oroperations, the HUD OIG is engaged and garnering results, forwhich we are justly proud.

During the reporting period, we had $304,049,725 in FundsPut to Better Use, Questioned Costs of $52,223,731 and $165,435,894 in Recoveries andReceivables. This is exceptional work by our staff that has resulted in significant positiveimpact on fraud and misuse of taxpayer dollars. I am grateful to the auditors, agents, andevaluators who worked so hard this year to achieve this milestone.

I direct your attention to our high profile audits and investigations. HUD OIG staffincreased and improved their cooperation and collaboration with the Department, and asa result, developed and implemented better and more effective audit recommendations.The HUD OIG Office of Investigation agents also enhanced their cooperation with theDepartment as a new source or indicator for new investigative avenues.

Our emphasis on the Section 8 Housing Choice Voucher program continues to be ahigh priority. Congress was clear that it wanted answers as to why the Section 8 programwas prone to fraud and waste. Our audit plan this year selected 15 programs at publichousing authorities. Although our audits found significant administrative non-complianceand improper payments, the living conditions of the residents was a greater concern. Weinspected 254 units at three authorities (San Juan, PR; Miami-Dade, FL; and Winston-Salem, NC.) We found 91 percent did not meet minimum housing quality standards, and39 percent of the failed units had serious deficiencies. Tenants lived in units that were notdecent, safe, nor sanitary. The Department shared our concern about these conditionsand agreed that housing assistance payments for units that did not meet standards had tostop.

All of this led us to a more efficient and effective HUD OIG, better at recoveringtaxpayer 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 theirtireless work in their struggle against waste, fraud, and abuse on the Nation’s housingand urban development programs.

Kenneth M. DonohueInspector General

iv Strategic Plan

Strategic PlanStrategic PlanStrategic PlanStrategic PlanStrategic PlanVisionVisionVisionVisionVision

We are a trusted and respected resource for HUD, Congress, and the Americanpublic in ensuring the integrity, efficiency, and effectiveness of HUDprograms and operations. We are committed to working jointly with

HUD management to achieve their goals.

MissionMissionMissionMissionMissionPromote the integrity, efficiency, and effectiveness of HUD programs andoperations to assist the Department in meeting its mission.Detect and prevent waste, fraud, and abuse.Seek administrative sanctions, civil recoveries and/or criminal prosecutionof those responsible for waste, fraud, and abuse in HUD programs andoperations.

Goal 1Goal 1Goal 1Goal 1Goal 1EffectivenessEffectivenessEffectivenessEffectivenessEffectiveness

Help HUD resolve its “MajorManagement Challenges”

by being a relevant andproblem-solving advisor toHUD and our Stakeholders.

Goal 2Goal 2Goal 2Goal 2Goal 2EfficiencyEfficiencyEfficiencyEfficiencyEfficiency

Maximize results andprovide responsive auditand investigative work

for mandated, requested,or self-initiated efforts.

Goal 3Goal 3Goal 3Goal 3Goal 3Our EmployeesOur EmployeesOur EmployeesOur EmployeesOur Employees

Become the “Employerof Choice” among

Offices of InspectorsGeneral.

Contribute to Improvingthe Integrity in SingleFamily InsurancePrograms.Contribute to a Reductionin Erroneous Payments inthe Rental AssistancePrograms.Contribute to ImprovingHUD’s Execution andAccountability of FiscalResponsibilities.Contribute to resolvingsignificant issues raisedor confronted by HUDand our Stakeholders.

ObjectivesObjectivesObjectivesObjectivesObjectivesAchieve a highestReturn on Investment(ROI) with availableresources.Provide qualityresults to customersin a timely manner.

Invest in people.Invest in theorganization.

Strategic Goals v

Strategic GoalsStrategic GoalsStrategic GoalsStrategic GoalsStrategic GoalsGoal 1 - EffectivenessGoal 1 - EffectivenessGoal 1 - EffectivenessGoal 1 - EffectivenessGoal 1 - Effectiveness

Objectives:Contribute to improving the integrity of single-family insurance programs.Contribute to a reduction in erroneous payments in the rental assistanceprograms.Contribute to improving HUD’s fiscal accountability.Contribute to resolving other significant issues raised or confronted by HUD and ourstakeholders.

Target As ofMarch

31, 2006Key Measurements

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

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

80% 80% of all audits conducted are targeted at areas of significant interest toeither HUD or OIG stakeholders.

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

66% 66% investigations referred for criminal, civil, or administrative action willfocus on FHA single-family mortgage fraud and Section 8 rental assistanceoverpayment.

Goal 2 - EfficiencyGoal 2 - EfficiencyGoal 2 - EfficiencyGoal 2 - EfficiencyGoal 2 - EfficiencyObjectives:

Maintain a high return on investment (ROI).Provide timely and quality results to customers.

Target As ofMarch


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

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

4/6Actionsper FTE

Regional investigative performance for regions without forensic auditorswill average 4 actions per FTE per year. Regions with forensic auditors willaverage 6 actions per FTE per year..

Goal 3- Employer of ChoiceGoal 3- Employer of ChoiceGoal 3- Employer of ChoiceGoal 3- Employer of ChoiceGoal 3- Employer of ChoiceObjectives:

Invest in people.Invest in the organization.

Target As ofMarch


Nov 06 Implement a leadership development program for succession planning.

80% 80% of employees rate organization good or better.NEW

vi Audit Charts

Audit Reports Issued by ProgramAudit Reports Issued by ProgramAudit Reports Issued by ProgramAudit Reports Issued by ProgramAudit Reports Issued by Program

Public and IndianHousing

40%

Multifamily Housing13%

Single-FamilyHousing

25%

CommunityPlanning &

Development10%

Other12%

Monetary Benefits Identified by ProgramMonetary Benefits Identified by ProgramMonetary Benefits Identified by ProgramMonetary Benefits Identified by ProgramMonetary Benefits Identified by Program


6%Public & Indian

Housing18%

MultifamilyHousing

6%

CommunityPlanning

& Development6%

Other64%

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

450

400

350

300

250

200

150

100

50

0

$114

$36

$411

$40 $41

Public andIndian

Housing

MultifamilyHousing

Other CommunityPlanning &

Development


Investigation Charts vii

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


16% (115)

Public and Indian Housing65% (486)

Other/GNMA3% (19)

Community Planning& Development

6% (42)

MultifamilyHousing10% (74)

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

Other/GNMA0% ($30,685)

Public & IndianHousing

5% ($8,829,801)

MultifamilyHousing

2% ($3,931,894)

Community Planning &Development

5% ($8,205,359)


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 ListAcronyms ListAcronyms ListAcronyms ListAcronyms 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 ContentsTable of ContentsTable of ContentsTable of ContentsTable of ContentsChapter 1 - HUD’s Management and Performance Challenges 1

The HUD Office of Inspector General 2Major Issues Facing HUD 2

Chapter 2 - HUD’s Single Family Housing Programs 9Audits 10Investigations 18

Chapter 3 - HUD’s Public and Indian Housing Programs 33Audits 34Investigations 47

Chapter 4 - HUD’s Multifamily Housing Programs 61Audits 62Investigations 67

Chapter 5 - HUD’s Community Planning and Development Programs 71Audits 72Investigations 76

Chapter 6 - Hurricane Relief Oversight 83Chapter 7 - Other Significant Audits and Investigations/OIG Hotline 91

Audits 92Investigations 96OIG Hotline 96

Chapter 8 - Outreach Efforts 99Chapter 9 - Review of Policy Directives 107

Proposed Rules 108Proposed Notices 109Mortgagee Letter 110

Chapter 10 - Audit Resolution 115Delayed Actions 116Significant Management Decisions with Which the OIG Disagrees 119Federal Financial Management Improvement Act of 1996 121

Appendix 1 - Audit Reports Issued 123Appendix 2 - Tables 131

Table A - Audit Reports Issued Prior to Start Period with No ManagementDecision at March 31, 2006 132Table B - Significant Audit Reports Described in Previous Semiannual Reportsin Which Final Action Had Not Been Completed as of March 31, 2006 134Table C - Inspector General Issued Reports with Questioned and UnsupportedCosts at March 31, 2006 145Table D - Inspector General Issued Reports with Recommendations that FundsBe Put to Better Use at March 31, 2006 146Explanations 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, 107-122deficiencies relating to the administration of programs and operationsof the Department.

Section 5(a)(2)-description of recommendations for corrective action with respect 9-97to significant problems, abuses, and deficiencies.

Section 5(a)(3)-identification of each significant recommendation Appendix 2, Table Bdescribed in previous semiannual report on which corrective actionhas not been completed.

Section 5(a)(4)-summary of matters referred to prosecutive authorities 9-97and the prosecutions and convictions that have resulted.

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

Section 5(a)(6)-listing of each audit report completed during the Appendix 1reporting period, and for each report, where applicable, the totaldollar value of questioned and unsupported costs and the dollar value ofrecommendations that funds be put to better use.

Section 5(a)(7)-summary of each particularly significant report 9-97and the total dollar value of questioned and unsupported costs.

Section 5(a)(8)-statistical tables showing the total number of Appendix 2, Table Caudit reports and the total dollar value of questioned andunsupported costs.

Section 5(a)(9)-statistical tables showing the total number of audit Appendix 2, Table Dreports and the dollar value of recommendations that funds be putto better use by management.

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

Section 5(a)(11)-a description and explanation of the reasons for No Instancesany significant revised management decisions made during thereporting period.

Section 5(a)(12)-information concerning any significant management 119-121decision with which the Inspector General is in disagreement.

Section 5(a)(13)-the information described under section 05(b) of the 121Federal Financial Management Improvement Act of 1996.

Reporting RequirementsReporting RequirementsReporting RequirementsReporting RequirementsReporting Requirements

Chapter 1Chapter 1Chapter 1Chapter 1Chapter 1HUD’s ManagementHUD’s ManagementHUD’s ManagementHUD’s ManagementHUD’s Management

and Performance Challengesand Performance Challengesand Performance Challengesand Performance Challengesand Performance Challenges

2 HUD’s Management and Performance Challenges

The HUD Office ofThe HUD Office ofThe HUD Office ofThe HUD Office ofThe HUD Office ofInspector GeneralInspector GeneralInspector GeneralInspector GeneralInspector General

The U.S. Department of Housing andUrban Development (HUD) InspectorGeneral is one of the original 12 InspectorsGeneral authorized under the InspectorGeneral Act of 1978. Over the years, theOffice of Inspector General (OIG) has forgeda strong alliance with HUD personnel inrecommending ways to improvedepartmental operations and in prosecutingprogram abuses. OIG strives to make adifference in HUD’s performance andaccountability. OIG is committed to itsstatutory mission of detecting andpreventing fraud, waste, and abuse andpromoting the effectiveness and efficiencyof government operations. Whileorganizationally located within theDepartment, OIG operates independentlywith separate budgetary authority. Thisindependence allows for clear and objectivereporting to the Secretary and the Congress.OIG’s activities seek to

Promote efficiency and effectiveness inprograms and operations,

Detect and deter fraud and abuse,

Investigate allegations of misconductby HUD employees, and

Review and make recommendationsregarding existing and proposedlegislation and regulations affectingHUD.

The Executive Office and the Offices ofAudit, Investigation, Counsel, andManagement and Policy are located inHeadquarters. Also, the Offices of Audit andInvestigation have staff located in eightregions and numerous field offices.

Major Issues Facing HUDMajor Issues Facing HUDMajor Issues Facing HUDMajor Issues Facing HUDMajor Issues Facing HUD

The Department’s primary mission is toexpand housing opportunities for Americanfamilies seeking to better their quality of life.HUD seeks to accomplish this through awide variety of housing and communitydevelopment grant, subsidy, and loanprograms. HUD’s fiscal year (FY) 2006enacted budget is about $48 billion,including about $12 billion in emergencysupplemental appropriations to address theimpact of the hurricanes that devastated theGulf of Mexico coastal areas during 2005.Additionally, HUD assists families inobtaining housing by providing FederalHousing Administration (FHA) mortgageinsurance for single-family and multifamilyproperties. At the end of FY 2005, FHA’soutstanding mortgage insurance portfoliowas about $416 billion. The GovernmentNational Mortgage Association (GNMA),also known as Ginnie Mae, through itsmortgage-backed securities program, givesissuers access to capital markets through thepooling of federally insured loans.

With about 8,800 staff nationwide, HUDrelies upon numerous partners for theperformance and integrity of a large numberof diverse programs. Among these partnersare hundreds of cities that manage HUD’sCommunity Development Block Grant(CDBG) funds, hundreds of public housingauthorities that manage assisted housingfunds, thousands of HUD-approved lendersthat originate and service FHA-insuredloans, and hundreds of Ginnie Maemortgage-backed securities issuers thatprovide mortgage capital.

Achieving HUD’s mission continues tobe an ambitious challenge for its limitedstaff, given the agency’s diverse mission, thethousands of program intermediariesassisting the Department in this mission,and the millions of beneficiaries in itshousing programs. HUD’s managementproblems have for years kept it on theGovernment Accountability Office’s (GAO)

HUD’s Management and Performance Challenges 3

list of agencies with high-risk programs.HUD’s management team, GAO, and OIGshare the view that improvements in humancapital, acquisitions, and informationsystems are essential in removing HUDfrom its high-risk designation. Morespecifically, HUD must focus theseimprovements on rental housing assistanceprograms and single-family housingmortgage insurance programs, two areaswhere financial and programmatic exposureis the greatest. That HUD’s reportedmanagement challenges are included as partof the President’s Management Agenda(PMA) is indicative of HUD’s important rolein the Federal sector. HUD’s currentAdministration places a high priority oncorrecting those weaknesses that put HUDon GAO’s high-risk list.

As of December 2005, HUD’s PMAscoring status was “green” for three of thenine initiatives applicable to HUD. Thestatus of the six remaining initiatives arefour with a “yellow,” and two with a “red”score. Based upon a comprehensive set ofstandards, an agency is “green” if it meetsall of the standards for success, “yellow” ifit has achieved some but not all of thecriteria, and “red” if it has even one of thenumber of serious flaws. HUD’s mostnotable accomplishment during thissemiannual reporting period was to achievea “green” score for the E-Governmentinitiative. HUD’s baseline score forimproved financial performance remains at“red” because of one repeat and one newmaterial weakness reported in our audit ofHUD’s FY 2005 financial statements. Also,the Office of Management and Budget(OMB) established a new initiative for HUDin the area of “credit programmanagement,” and assigned a status scoreof “red.”

Each year in accordance with theReports Consolidated Act of 2000, HUD OIGis required to submit a statement to theSecretary with a summary assessment of themost serious challenges facing the

Department. OIG submitted its latestassessment on October 18, 2005. Thesereported challenges are the continued focusof our audit and investigative efforts. HUDis working to address these challenges andin some instances, has made significantprogress in correcting them. TheDepartment’s management challenges andcurrent efforts to address these challengesare as follows.

Financial Management Systems. SinceFY 1991, OIG has annually reported that thelack of an integrated financial system incompliance with all Federal FinancialManagement System requirements is aweakness in internal controls. While someprogress has been made, a number oflong-standing deficiencies remain. For thepast several years, OIG’s financial auditshave also reported weaknesses in internalcontrols and security over HUD’s generaldata processing operations and specificapplications. The effect of these weaknessesis that HUD cannot be reasonably assuredthat system information will remainconfidential, protected from loss, andavailable to those who need it withoutinterruption.

HUD has completed certification andaccreditation for 41 of its 44 financialmanagement systems. However, the qualityof the underlying documents and the actualcertification and accreditation processvaried by application. While a number ofvulnerabilities were closed, additionalvulnerabilities, identified through oversightactivities, were not corrected beforeaccreditation. In addition, certification andaccreditation of the general support systemson which these applications reside have notbeen completed and are ongoing.

The weaknesses noted in our FY 2005Consolidated Financial Audit relate to theneed to

Incorporate better risk factors andmonitoring tools into FHA’s single

family insured mortgage program riskanalysis and liability estimationprocess and

Continue to improve its review overthe FHA credit reform estimationprocess.

In prior years, OIG reported onweaknesses in HUD’s compliance withFederal Financial Management Systemrequirements, including the need to enhanceFHA’s management controls over itsportfolio of integrated insurance andfinancial systems. During the past severalyears, HUD has made progress inimplementing a new financial system atFHA and addressing most of the weaknessesthat OIG identified, including initiating avision statement for a departmentwidefully integrated financial system. Theseimprovements enabled OIG to conclude thatthe weakness in financial managementsystem requirements should be reclassifiedfrom a material weakness to a reportablecondition.

Departmentwide OrganizationalChanges and Human Capital Management.For many years, one of the Department’smajor challenges has been to effectivelymanage its limited staff resources toaccomplish its primary mission. In recentyears, the Department has contracted outnumerous functions essential to theaccomplishment of its overall mission, inpart due to staffing issues. Many of theweaknesses facing HUD, particularly thoseconcerning HUD’s oversight of programrecipients, are exacerbated by HUD’sresource management shortcomings.Accordingly, OIG considers it critical for theDepartment to address these shortcomingsthrough the successful completion ofongoing plans. To operate effectively andhold individuals responsible forperformance, HUD needs to know that it hasthe right number of staff with the properskills in the right positions.

To address its human capital needs andrespond to the PMA, HUD developed acomprehensive Five-Year Strategic HumanCapital Management Plan that identifiesthree strategic goals for human capital:

Mission-focused agency to alignemployees and work to support HUD’smission;

High quality workforce, whichrecruits, develops, manages, andretains a diverse workforce; and

Effective succession planning toensure retirees over the next 5 years aresucceeded by qualified employees.

The human capital management plan isthe Department’s primary tool for advancingits human capital transformation. Toensure HUD maintains progress towardaccomplishing the goals outlined in its5-year strategy, HUD tracks progress againstthe interim milestones biweekly. In line withits strategic plan, HUD has increased itsfocus on human capital managementthrough a variety of initiatives.

To address staffing imbalances andother human capital challenges, theDepartment has most recently embarked onan “optimal organization study” to ensureHUD is positioned to provide maximumservice to its constituents. The focus of thestudy is to develop a vision for the future byassessing what HUD’s work will be, howHUD should be organized to carry out thework, and the required skills in relation tofull-time employees (FTE) and trainingefforts. The final product for this effort isscheduled during the third quarter of thefiscal year.

HUD continued to implement its Five-Year Strategic Human Capital ManagementPlan, with results that are enabling it torecruit, develop, manage, and retain a high-performance workforce that is capable ofeffectively supporting HUD’s mission.


FHA Single-Family Origination. FHA’ssingle-family insurance programs enablemillions of first-time, minority, low-incomeelderly, and other underserved householdsto realize the benefits of homeownership.HUD manages about $368 billion in single-family insured mortgages. Effectivemanagement of this high-risk portfoliorepresents a continuing challenge for theDepartment. The PMA has committed HUDto tackling long-standing managementproblems that expose FHA homebuyers tofraudulent practices.

HUD has taken a number of actions toreduce risks to homebuyers including thefollowing:

Established an automated systemscontrol to preclude the predatorylending practice of “property flipping”on FHA-insured loans;

Established an “appraiser watch”process, wherein appraisers with poorperformance records are automaticallytargeted for monitoring anddisqualification from programparticipation if they violate FHAstandards;

Established an automated under-writing system, the Technology Opento Approved Lenders (TOTAL)Scorecard to increase lender efficiencythrough more consistent, objectiveevaluations of the credit worthiness ofborrowers; and

Initiated a process for the electronicverification of Social Security numbersto further reduce fraud in FHAapplications.

While the GAO and OIG havereported improved monitoring of lenderunderwriting and default tracking andexpanded loss mitigation to help reducemortgage foreclosures, HUD needs to

further strengthen lender accountability andtake strong enforcement actions againstprogram abusers that victimize first-timeand minority homebuyers.

In support of HUD and the PMA, OIG’sStrategic Plan for FY 2006 gives priority todetecting and preventing fraud in FHAmortgage lending through targeted auditsand investigations. OIG’s audits targetlenders with high default rates. The detailedtesting focuses on mortgage loans thatdefaulted and resulted in FHA insurancelosses. Results from these audits have notedsignificant lender underwriting deficiencies,prohibited late endorsed loans, inadequatequality controls, and other operationalirregularities. OIG’s recommendations havesought monetary recoveries through loanindemnifications exceeding $159.7 million,loss reimbursements of more than $10.2million, and appropriate civil remedies.During the current semiannual reportingperiod, OIG completed 31 external audits ofFHA-approved mortgage lenders as well asthree internal audits of single-familyprogram activities. Additionally, OIG’sinvestigative workload in single-familyfraud prevention continues to growdramatically. During the current semiannualperiod, OIG opened 115 investigative casesand closed 261 cases in the single-familyhousing program area, resulting in 255indictments, 288 arrests, and 111convictions/pleas/pretrial conversions.

OIG’s audit of FHA’s FY 2005 financialstatements also reported a need to

Incorporate better risk factors andmonitoring tools into its single-familyinsured mortgage program riskanalysis and loan liability estimationprocess,

Continue improvement in the reviewover the credit reform estimationprocess, and


Continue enhancement ofmanagement controls over theportfolio of integrated insurance andfinancial systems.

OIG has tailored its audit andinvestigation techniques to complement thisneed, to support HUD managementimprovements, and to provide an addeddeterrence to mortgage fraud. OIGdeveloped a comprehensive training coursefor its staffs on auditing single-familylenders and conducting single-family fraudinvestigations. To date, 154 auditors and 150investigators have completed the single-family training courses.

Public and Assisted Housing ProgramAdministration. HUD provides housingassistance funds under various grant andsubsidy programs to public housingagencies and multifamily project owners.These intermediaries, in turn, providehousing assistance to benefit primarily low-income households. The Office of Public andIndian Housing (PIH) and the Office ofHousing monitor these intermediaries’administration of the assisted housingprograms.

Accurate and timely information abouthouseholds participating in HUD housingprograms is necessary to allow HUD tomonitor the effectiveness of the program,assess agency compliance with regulations,and analyze the impacts of proposedprogram changes. The level of reporting is acriterion for housing agencies’ performancein both the Public Housing AssessmentSystem and the Section 8 ManagementAssessment Program. HUD’s goal is toobtain 85 percent reporting of tenant datainto the system.

HUD’s ability to effectively monitorhousing agencies and assisted multifamilyprojects continues to present challenges inachieving the intended statutory purposesof the housing assistance funds. Theseweaknesses have been reported for a

number of years in OIG’s annual audits ofHUD’s financial statements. However, HUDhas demonstrated significant progress inaddressing weaknesses impacting theaccuracy of payments made under theseprograms. Most notably, HUD was the firstagency to receive a “green” baseline goalscore on the PMA “eliminating improperpayments” initiative and has maintainedthis score.

The estimate of erroneous paymentsthat HUD reports in its Performance andAccountability Report relates to HUD’sinability to ensure or verify the accuracy ofsubsidy payments being determined andpaid to assisted households. HUD hassurpassed interim goals for reducing the FY2000 estimated $2 billion in net annual rentalhousing assistance overpayments. HUD’sinterim goals were for a 15 percent reductionin FY 2003, 30 percent reduction in FY 2004,and 50 percent reduction in FY 2005. Thesegoals were established based on the FY 2000estimates of improper payments attributedto both housing administrator errors insubsidy determinations and tenantunderreporting of income upon whichbenefits are based.

Although 60 percent of all subsidydeterminations were found to be in error in2000, that number declined to 41 percent inFY 2003 and 34 Percent in FY 2004. Thebaseline estimate of gross annual improperpayments has been reduced from $3.2 billionin 2000 to $1.6 billion in 2003 and $1.2 billionin 2004.

Paralleling HUD efforts, OIG’sinvestigative and audit focus concentrateson fraudulent practices and the lack ofcompliance with the Section 8 programstatute and requirements. To comply with acongressional request, OIG conducted 21external audits of the Section 8 HousingChoice Voucher program during the currentsemiannual reporting period. These externalaudits addressed whether housing agenciesare correctly calculating subsidy amounts,


correctly determining family income,complying with housing qualitystandards, fully using authorizedvouchers, and implementing controls toprevent duplicative and fraudulenthousing assistance payments. OIG’srecommendations for these auditsquestioned costs of more than $5 million andidentified more than $63 million that couldbe put to better use.

Administering ProgramsAdministering ProgramsAdministering ProgramsAdministering ProgramsAdministering ProgramsDirected Toward Victims ofDirected Toward Victims ofDirected Toward Victims ofDirected Toward Victims ofDirected Toward Victims ofHurricanes Katrina, Rita, andHurricanes Katrina, Rita, andHurricanes Katrina, Rita, andHurricanes Katrina, Rita, andHurricanes Katrina, Rita, andWilmaWilmaWilmaWilmaWilma

In the aftermath of Hurricanes Katrina,Rita, and Wilma, the operations of HUDhave been thoroughly tested in the GulfCoast area and have created extraordinarychallenges for the residents, HUDemployees, and the business community.The potential losses to HUD and its housingand community development programs aresignificant.

Congress estimates that damage toresidential structures will range from $17 to$33 billion. In the Presidentially DeclaredDisaster Areas (PDDA), HUD’s FHA single-family insurance fund insured more than328,000 mortgages having an unpaidprincipal balance of $23 billion. Thehurricanes affected 79 Ginnie Mae issuers,causing GNMA to assess a $500 million riskof loss to its investment portfolio. FHA’smultifamily program in the PDDA insured859 properties with an amortized principalbalance of $3 billion. Assets of HUD’s publichousing authorities (PHA) programsuffered tremendous damage, affecting bothproperty structures and housing of almost102,000 families. The Housing Authority ofNew Orleans (HANO) received a $21.8million grant from the public housingcapital fund reserve for the cost and repairof its public housing inventory before a full

assessment could be performed. HUD’sOffice of Community Development (CPD)plans to reprogram existing funds of $380million for the disaster areas. To expeditethe process, CPD issued numerous waiversto streamline its grant programs includingHome Investment Partnership program(HOME), Emergency Shelter Grants, andCDBG.

HUD’s response to Hurricanes Katrinaand Rita falls into three separate categories:(1) use of existing appropriations on theground just before hurricane impact, (2) newappropriations for hurricane relief, and (3)Federal Emergency Management Agency(FEMA) funds administered by HUD insupport of mission-critical assignments.HUD was provided $1.525 million to providepersonnel to assist FEMA as part of thehousing task force in Baton Rouge. HUD isadministering the Katrina Disaster HousingAssistance Program (KDHAP), which waspreviously funded to a level of $79 millionand has received new appropriations of $390million in housing vouchers for familiesdisplaced by Rita and Katrina, and HUD hasreceived new appropriations of $11.5 billionin emergency CDBG funds for recoveryexpenses associated with Hurricanes Ritaand Katrina. HUD is preparing toadminister the new funds, which will begrants made directly to the five Gulf Statesimpacted by the hurricanes. The Governorsof Louisiana, Mississippi, Alabama, Florida,and Texas, respectively, have identified theappropriate State agency to receive thefunds and are submitting plans to HUDdetailing how the block grant funds will beused.

See Chapter 6 of this Semiannual Reportfor further information on the challengesHUD faces in responding to these disastersalong with HUD OIG’s efforts to prevent anddetect fraud and provide audit coveragefor the billions of dollars HUD isadministering to aid in the recovery.


Chapter 2Chapter 2Chapter 2Chapter 2Chapter 2HUD’s Single-FamilyHUD’s Single-FamilyHUD’s Single-FamilyHUD’s Single-FamilyHUD’s Single-Family

Housing ProgramsHousing ProgramsHousing ProgramsHousing ProgramsHousing Programs

The America’s Mortgage’s LaPlacebranch manager formed an identity-of-interest company, Imagine Foundation andprovided prohibited gifts to borrowers.Imagine Foundation provided $400,000 ingift funds to 73 America’s Mortgageborrowers. The Internal Revenue Service(IRS) denied Imagine Foundation’sapplication for nonprofit status because itdid not meet nonprofit requirements.According to the IRS, America’s Mortgage’sowner served on the board of ImagineFoundation. Under HUD requirements, thegifts should be considered as inducementsto purchase, requiring the sales price to bereduced dollar for dollar in determining themaximum mortgage amount. Therefore,HUD overinsured 73 FHA loans totalingmore than $7.6 million.

Additionally, America’s Mortgage didnot originate and process loans inaccordance with HUD’s regulations, nor didits quality control plan meet HUD’sregulations, further putting FHA-insuredloans at risk.

OIG recommended that HUD requireAmerica’s Mortgage to write down the loansfor the $400,000 in inappropriate gifts byImagine Foundation, indemnify 73 loanstotaling $6.9 million, and reimburse HUD$300,000 for claims paid on four loans.Further, HUD should take administrativeaction as appropriate, including debarmentand civil monetary penalties, against thepresident and board of Imagine Foundation.America’s Mortgage should develop andimplement a quality control plan thatcomplies with HUD’s requirements beforeit is allowed to underwrite additional loans.(Audit Report: 2006-FW-1006)

HUD OIG audited BSM Financial LPbecause of an unusually high ratio ofdefaults in HUD’s San Antonio, TX,jurisdiction. The objective was to determinewhether BSM followed HUD loanorigination requirements for the 51 loansselected for review.

10 HUD’s Single-Family Housing Programs

The Federal Housing Administration’s(FHA) single-family programs providemortgage insurance to mortgage lendersthat, in turn, provide financing to enableindividuals and families to purchase,rehabilitate, and construct a home.

AuditsAuditsAuditsAuditsAuditsDuring this reporting period, the Office

of Inspector General (OIG) issued19 external audit reports in the single-family housing program area. These reportsdisclosed more than $7 million inquestioned costs and more than $33 millionin recommendations that funds be putto better use. OIG reviewed 19 FHAsingle-family mortgage lenders.

Mortgagees, LoanMortgagees, LoanMortgagees, LoanMortgagees, LoanMortgagees, LoanCorrespondents, and DirectCorrespondents, and DirectCorrespondents, and DirectCorrespondents, and DirectCorrespondents, and DirectEndorsement LendersEndorsement LendersEndorsement LendersEndorsement LendersEndorsement Lenders

The U.S. Department of Housing andUrban Development (HUD) OIG auditedAmerica’s Mortgage Resource, Inc., ofMetairie, LA, a lender approved to originateloans under HUD’s single-family mortgageinsurance program. OIG selected America’sMortgage because of its high default rate.The objectives were to determine whetherAmerica’s Mortgage followed HUDorigination requirements and implementeda quality control plan in accordance withHUD requirements.

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

50,000,00040,000,00035,000,00030,000,00025,000,00020,000,00015,000,00010,000,000

5,000,0000

Questioned Costs Funds Put to Better Use

HUD’s Single-Family Housing Programs 11

OIG recommended that HUD takeappropriate administrative action againstMajor Mortgage for not following HUDrequirements and placing the insurancefund at unnecessary risk. At a minimum,the actions taken should include requiringMajor Mortgage to indemnify improperlysubmitted loans currently insured andreimburse HUD for known and future losseson foreclosed properties. (Audit Report:2006-KC-1004)

HUD OIG audited Ryland MortgageCompany’s loan origination activities for itsTempe, AZ, branch office. OIG selected theRyland branch in response to a request fromHUD’s Santa Ana Homeownership CenterQuality Assurance Division. The objectiveswere to determine whether Ryland acted ina prudent manner and complied with HUDregulations, procedures, and instructions inits approval of FHA-insured mortgages andwhether it adequately implemented itsquality control plan.

Ryland did not comply with HUDrequirements and regulations in originating23 of the 24 loans we reviewed. The 23 loanstotaling more than $3 million had multipleorigination deficiencies that should haveprecluded their approval. In addition,Ryland did not adequately implement itsquality control plan. As a result, HUDremains at a risk of loss on 20 of the loans,valued at $2.7 million, and incurred otheractual losses of more than $85,000.

OIG recommended that HUD takeappropriate administrative action againstRyland by seeking recovery for 14 of theloans totaling more than $85,000 in partialclaims, loan modification, specialforbearance, and inflated sales prices;seeking indemnification of more than $2.7million against future losses on 20 loans; andrequiring Ryland to reimburse a borrowerfor $4,000 in unallowable fees. (AuditReport: 2006-LA-1001)

Forty-seven percent of BSM’s defaultsinvolved one seller, who owned 50 percentof the lender. OIG reviewed 51 of thedefaulted loans that involved this seller. Thelender approved mortgages on overvaluedproperties because the lender allowed anidentity-of-interest seller to add ineligibleand unsupported costs to the homeconstruction costs and inadequatelyreviewed the appraisals. Also, the lenderdid not adequately document analyses ofborrowers’ credit. Further, the lender’sprocessing had technical deficiencies.Consequently, HUD and the borrowersunnecessarily incurred increased risksthrough higher insurance exposure andhigher mortgage payments as evidenced bythe borrowers defaulting on theirmortgages.

OIG recommended that HUD requirethe lender to reimburse the insurance fundalmost $2 million for foreclosure lossesincurred on 19 loans, buy down 28 loans by$320,000 for the amounts added to the loans,and after the buydown, reamortize andindemnify HUD for the more than $2.7million remaining balance on these 28 loans.In addition, OIG recommended that HUDensure the lender implements adequateprocedures to originate loans in accordancewith HUD requirements. (Audit Report:2006-FW-1007)

HUD OIG audited Major Mortgage ofCheyenne, WY, a lender. OIG selectedMajor Mortgage because of its high rate oflate requests for endorsement. The objectiveof the audit was to determine whetherMajor Mortgage complied with HUDrequirements when submitting late requestsfor endorsement.

Of the 1,814 late requests forendorsement, 51 loans did not comply withHUD requirements and, therefore, shouldnot have been endorsed. These loansincreased the risk to the FHA insurance fundby $5.6 million and caused HUD to incurrelated claims and losses.

HUD OIG audited United MortgageCorporation, Hauppauge, NY, a lenderapproved under HUD’s single-family directendorsement program. The objectives of theaudit were to determine whether UnitedMortgage complied with HUD regulationsin the origination of FHA loans anddeveloped and implemented a qualitycontrol plan that complied with HUDrequirements.

United Mortgage did not follow HUDrequirements in the approval of 13 loansvalued at more than $1.7 million, resultingin an unnecessary risk to the FHA insurancefund. It also did not follow HUDrequirements when evaluating borrowersrelated to an additional seven loansreviewed. As a result, mortgagesamounting to more than $1 million wereapproved for unqualified borrowers,causing HUD to assume an unnecessaryinsurance risk.

OIG recommended that HUD requireUnited Mortgage to reimburse HUD for theloss incurred from claims and fees paid onone loan amounting to approximately$155,000 and indemnify HUD for more than$1.6 million against future losses on the 12loans currently insured with materialunderwriting deficiencies. OIG furtherrecommended that HUD require UnitedMortgage to indemnify the seven activeloans valued at approximately $1 million ifHUD determines the loans should not havebeen approved. (Audit Report: 2006-NY-1001)

HUD OIG reviewed 65 FHA loanssponsored by the St. Louis, MO, branch ofMatrix Financial Services Corporation todetermine whether Matrix properlyunderwrote and closed the loans forendorsement. OIG selected Matrix becausemore than 18 percent of the loans closed in2003 defaulted within 2 years.

OIG found that Matrix did not properlyunderwrite 32 loans with original mortgageamounts totaling nearly $3.3 million. In

addition, Matrix charged excessive,unsupported, and/or unallowable closingfees totaling almost $8,000 on 13 loans.

OIG recommended that HUD requireMatrix to reimburse losses for propertiesthat have defaulted and indemnify those notdefaulted on all improperly underwrittenloans. Also, HUD should require Matrix tobuy down the principal balance of the 13loans not properly closed. (Audit Report:2006-KC-1005)

HUD OIG audited US Bank NA ofMinneapolis, MN, a lender approved tooriginate, underwrite, and submit insuranceendorsement requests under HUD’s single-family direct endorsement program. OIGselected US Bank for audit because of itshigh late endorsement rate. The objectiveswere to determine whether US Bankcomplied with HUD’s regulations,procedures, and instructions in thesubmission of insurance endorsementrequests and in the underwriting of FHAloans.

US Bank did not always comply withHUD’s requirements regarding late requestsfor insurance endorsement. It improperlysubmitted 67 (1.52 percent) late requests forendorsement out of 4,406 loans tested. Theloans were either delinquent or otherwisedid not meet HUD’s then requirement of sixmonthly consecutive timely payments afterdelinquency but before submission to HUD.US Bank also incorrectly certified that boththe mortgage and escrow accounts for sixloans and the escrow accounts for taxes,hazard insurance, and mortgage insurancepremiums for 14 loans were current.

Further, US Bank inappropriatelyunderwrote 13 loans out of 28 loans reviewedthat went to claim. Deficiencies includedunallowable amounts when determining thedebt for six streamline refinanced loans;missing, outdated, or inadequatedocumentation required to supportborrower income for seven purchase loans;and understatement of the borrowers’


expenses for three loans. For the 13 loansreviewed, US Bank incorrectly certified theintegrity of the data supplied by otherlenders used to determine the quality andinsurance eligibility of one loan andincorrectly certified that due diligence wasused in underwriting the remaining 12loans. These improperly submitted andinappropriately underwritten loansincreased the risk to HUD’s FHA insurancefund.

OIG recommended that HUD requireUS Bank to indemnify HUD for any futurelosses on 14 loans with a total mortgagevalue of more than $1.5 million, reimburseHUD nearly $455,000 for the actual losses itincurred on 14 loans, and indemnify HUDfor any future losses from more than$129,000 in claims paid on three loans oncethe properties are sold. OIG furtherrecommended that HUD implementadequate procedures and controls toaddress the deficiencies cited in this report.OIG also recommended that HUD takeappropriate action against US Bank forviolating the requirements in effect at thetime when it submitted 18 loans with amortgage value of more than $2 millionwithout the proper 6-month paymenthistories. In addition, OIG recommendedthat HUD determine legal sufficiency topursue remedies under the Program FraudCivil Remedies Act against US Bank and/orits principals for the incorrect certificationscited in this audit report. (Audit Report:2006-CH-1008)

HUD OIG reviewed 45 FHA loansunderwritten by the Overland Park, KS,branch office of First Magnus FinancialCorporation to determine whether FirstMagnus followed HUD regulations inunderwriting the loans.

Of the 45 loans reviewed, 23 containedmaterial deficiencies that affected theinsurability of the loans. Materialdeficiencies included unsupported incomeand assets, questionable gift funds,underreported liabilities, and questionable

employment and credit histories. As aresult, HUD’s insurance fund is at increasedrisk in connection with loans totaling morethan $2.2 million.

OIG recommended that HUD takeappropriate administrative action againstFirst Magnus for not following HUDrequirements, including requiring FirstMagnus to indemnify 21 loans with originalmortgage amounts of more than $2 millionand to indemnify HUD for future losses ontwo properties not yet sold, for which HUDpaid claims totaling more than $221,000.(Audit Report: 2006-KC-1002)

HUD OIG audited Huntington NationalBank of Columbus, OH, a lender approvedto originate, underwrite, and submitinsurance endorsement requests underHUD’s single-family direct endorsementprogram. OIG selected Huntington for auditbecause of its high late endorsement rate.The objectives were to determine whetherHuntington complied with HUD’sregulations, procedures, and instructions inthe submission of insurance endorsementrequests and underwriting of FHA loans.

Huntington generally complied withHUD’s requirements on late requests forinsurance endorsement; however, itimproperly submitted 20 late requests forendorsement out of 761 loans tested. Theloans were either delinquent or otherwisedid not meet HUD’s then requirement of sixmonthly consecutive timely payments afterdelinquency but before submission to HUD.Huntington also incorrectly certified that allpayments due were made by the borrowersbefore or within the month due for 12 loans.

Further, Huntington generallycomplied with HUD’s underwritingrequirements. However, it underwrote twoFHA loans that later defaulted due tooverstated income, understated liabilities,and a lack of valid compensating factors toapprove the two loans. Huntington alsocharged excessive and/or unallowable feeson five loans and incorrectly certified that


due diligence was used in underwriting 5of the 32 loans reviewed.

OIG recommended that HUD requireHuntington to indemnify HUD for anyfuture losses on 14 loans improperlysubmitted for endorsement with a totalmortgage value of more than $1.4 millionand take appropriate action againstHuntington for violating the requirementson two loans with a mortgage value of nearly$178,000. OIG also recommended that HUDrequire Huntington to indemnify HUD forany future losses on two defaulted loanswith a total mortgage value of more than$228,000 that were inappropriatelyunderwritten, require Huntington toreimburse the borrowers or HUD asappropriate more than $1,300 in excessiveand/or unallowable fees charged on fiveloans, and implement adequate proceduresand controls to address the deficienciescited. In addition, OIG recommended thatHUD pursue sanctions under the ProgramFraud Civil Remedies Act. (Audit Report:2006-CH-1007)

HUD OIG audited Certified HomeLoans of Florida, Inc., in Miami, FL, a lenderapproved by HUD to originate andunderwrite loans under HUD’s single-family mortgage insurance program. OIGselected Certified for review because of riskfactors associated with defaulted loans. Theaudit objectives were to determine whetherCertified complied with HUD regulations,procedures, and instructions in theorigination and underwriting of FHA-insured single-family mortgages andimplemented its quality control plan asrequired.

Certified did not follow HUDrequirements when underwriting 14 loanstotaling more than $1.8 million. It approvedthe loans based on inaccurate employment,income, and gift information and otherdeficient and/or unverified documentation.In addition, it did not fully implement itsquality control plan and did not conduct therequired number of quality control reviews.

Its quality control plan did not include allrequired elements as prescribed by HUD.

OIG recommended that HUD requireCertified to indemnify HUD against futurelosses on four loans totaling more than$660,000 and to reimburse HUD for a loss ofmore than $728,000 for claims paid for fiveloans. OIG further recommended that HUDtake appropriate measures to ensure thatCertified conducts required quality controlreviews and its written quality control plancomplies with HUD requirements. Finally,OIG recommended that HUD takeadministrative action, as appropriate, up toand including civil monetary penalties.(Audit Report: 2006-AT-1003)

HUD OIG audited American Mortgage,Inc., of Cherry Hill, NJ, a lender approvedto originate FHA single-family mortgageloans, on the recommendation of HUDofficials because it had a high default rate.The objectives were to determine whetherAmerican complied with HUD regulations,procedures, and instructions in theorigination of FHA loans and whetherAmerican’s quality control plan, asimplemented, met HUD requirements.

For 15 of the 23 loans reviewed,American did not exercise due diligence inits review of assets and liabilities or resolveinconsistencies in calculations, signatures,and Social Security numbers. Further,American could not locate three case filesand charged ineligible fees of more than$4,500 on nine loans. In addition, American’squality control plan and the correspondingcontractor agreement for quality controlreviews did not contain requirements toidentify patterns of early defaults andcommonalities among loan originationparticipants, and the contractor did notperform required on-site branch reviews.

OIG recommended that HUD consideradministrative action against American,including indemnification on 15 loansvalued at more than $1.6 million; require thatAmerican refund ineligible fees; and require


American to develop written internal loanorigination procedures to more closelymonitor its loan origination process. OIGalso recommended that HUD requireAmerican to revise its quality control planto include reviews for patterns andcommonalities among the loan originationparticipants and ensure the contractorperforms on-site branch reviews. (AuditReport: 2006-PH-1007)

HUD OIG audited the Plano, TX,branch office of K Hovnanian AmericanMortgage Company, LLC, because of itshigh defaults, specifically defaults involvingloans with one specific underwriter and onespecific appraiser. The audit objectives wereto determine whether K Hovnanianfollowed HUD origination requirements,complied with HUD branch requirementsin its Plano office, and implemented aquality control plan according to HUDrequirements.

K Hovnanian violated HUDunderwriting, branch, and quality controlrequirements. As a result, it increased therisk to the insurance fund for fiveimproperly underwritten loans with anoriginal loan amount of more than $1.3million and overcharged borrowers morethan $31,000.

OIG recommended that HUD requireK Hovnanian to indemnify the five loans,reimburse losses on the four loans that hadsignificant underwriting deficiencies, andreimburse borrowers for unallowableclosing costs. OIG also recommended thatHUD require K Hovnanian to comply withHUD’s quality control and branchrequirements. (Audit Report: 2006-FW-1004)

HUD OIG audited the FHA loanorigination process of American LendingGroup in St. Peters, MO, because if its highdefault rate. The objectives of the audit wereto determine whether American LendingGroup properly originated FHA loans,properly submitted late requests for

endorsement, and implemented adequatequality control procedures.

American Lending Group did notproperly originate eight loans, improperlysubmitted one loan for late insuranceendorsement, and did not implementadequate quality control procedures.

OIG recommended that HUD requireAmerican Lending Group to indemnifyHUD for current and future losses due toimproperly originated and late endorsedloans and implement changes to its qualitycontrol procedures. (Audit Report: 2006-KC-1007)

HUD OIG audited Allied MortgageGroup of Bala Cynwyd, PA, a lenderapproved to originate loans insured underHUD’s single-family mortgage program,because its default rate was above thenational average. The audit objective wasto determine whether Allied complied withHUD regulations, procedures, andinstructions in the origination of loans.

Of the 28 loans reviewed, Allied did notfully comply with HUD requirements for 10loans valued at $799,571. It did not exercisedue diligence in the review of assets andliabilities, ensure all borrowers met theminimum investment requirement, andverify rental history. In addition, Alliedcharged more than $1,200 for ineligiblecommitment fees and overcharges for creditreports on 11 loans. Further, Allied did notestablish and implement a quality controlplan in accordance with HUD regulations,and the reviews performed by the contractorhired by Allied did not address all HUD-required elements.

OIG recommended that HUD requireAllied to indemnify seven loans totalingalmost $600,000 and reimburse HUD morethan $200,000 on three loans that went intodefault, require Allied to develop internalprocedures to more closely monitor itsunderwriting procedures, require Allied toreimburse borrowers the balance of


approximately $1,000 that it erroneouslycharged them, and require Allied to reviseand implement its quality control plan tocomply with HUD requirements. (AuditReport: 2006-PH-1006)

HUD OIG audited the Allentown, PA,branch of Homestead Funding Corporation,a lender approved to originate mortgageloans under HUD’s single-family directendorsement program. OIG selectedHomestead because of its high default rate,and it was recommended by HUD. Theobjective was to determine whetherHomestead complied with HUD’sregulations, procedures, and instructions inthe origination of loans.

Of the 11 loans OIG selected for review,Homestead did not fully comply withrequirements for four of the loans valued atmore than $270,000. Homestead did notexercise due diligence in the review of assetsand accepted faxed documents fromrealtors. These deficiencies contributed toan increased risk for HUD’s insurance fund.In addition, Homestead did not complete itsquality control reviews in a timely manner.

OIG recommended that HUD requireHomestead to indemnify HUD on two loansit issued contrary to HUD’s loan originationprocedures and on two loans that went intodefault, causing HUD to pay a claim.Further, OIG recommended thatHomestead develop internal procedures tomore closely monitor its underwritingprocedures and ensure that required qualitycontrol reviews are completed within HUD’srequired timeframe. (Audit Report: 2006-PH-1004)

HUD OIG audited the York, PA, andGreenbelt, MD, branch offices of 1st

Preference Mortgage Corporation, a lenderapproved to originate single-familymortgage loans. OIG selected these branchoffices because their average default rateswere above the States’ average default rates.The audit objective was to determine

whether 1st Preference acted in a prudentmanner and complied with HUDregulations, procedures, and instructions inthe origination of loans.

Of the loans selected for review, 1st

Preference’s York, PA, and Greenbelt, MD,branch offices did not originate 38 percentof them in accordance with HUD’s loanorigination requirements. The branchoffices did not fully comply with HUDrequirements for six loans valued at$561,506. 1st Preference did not exercise duediligence in the review of assets and giftsobtained during the loan closing process.These deficiencies contributed to anincreased risk to the FHA insurance fund.In addition, 1st Preference did not completequality control reviews or site reviews ofits branch offices in a timely manner ordocument the review of loans that went intoearly default. As a result, 1st Preference didnot identify or correct problems withaccuracy, validity, and completeness of itsloan origination in a timely manner.

OIG recommended that HUD require 1st

Preference to indemnify HUD forthe loans that defaulted. OIG alsorecommended that HUD require 1st

Preference to develop internal procedures tomore closely monitor its origination andunderwriting procedures and strengthen itsinternal control procedures to ensurereviews are completed in a timely mannerand reviews of the branch offices anddefaulted loans are documented. (AuditReport: 2006-PH-1008)

HUD OIG reviewed 51 FHA loansunderwritten by First Magnus FinancialCorporation’s Denver, CO, branch office.OIG selected First Magnus for audit becauseof its high default rate. The objective was todetermine whether First Magnus followedHUD requirements in underwriting theloans.

Of the 51 loans reviewed, 32 requiredfull underwriting and 19 were streamline


refinances. Twelve of the fully underwrittenloans contained significant underwritingdeficiencies. OIG also found 21 files hadoverinsured mortgages and unallowablefees. As a result, First Magnus placed HUD’sinsurance fund at risk for more than $1.6million by not properly underwriting 12loans, overinsured mortgages in the amountof approximately $10,000, and chargedunallowable fees totaling $1,611.

OIG recommended that HUD requireFirst Magnus to indemnify and/orreimburse HUD for the potential and actuallosses on 11 remaining loans with significantdeficiencies, reimburse the appropriateparties for the overinsured and unallowablecharges, and develop policies andprocedures to ensure adequate supervisionover its underwriting process. (AuditReport: 2006-DE-1001)

Contractor ActivitiesContractor ActivitiesContractor ActivitiesContractor ActivitiesContractor Activities

In response to a request from theDenver Homeownership Center ’s RealEstate Owned Division, HUD OIG auditedAmerican Title Services, a contractor closingsales of HUD homes in Denver, CO. Theobjective was to determine whetherAmerican Title complied with contractterms for closing sales of HUD homes.

American Title did not disburse fundson time or in correct amounts, improperlycommingled HUD funds with retail funds,earned interest on closing funds, and did notreimburse HUD for bank charges.American Title’s improper handling ofclosing funds increased HUD’s andhomebuyers’ risk of not meeting financialobligations and homebuyers’ risk of notreceiving funds to which they were entitled.However, American Title’s performance hasimproved since HUD cut back its numberof closings in August 2005.

OIG recommended that HUDrequire that American Title correct theproblems, improve controls, complete alldisbursements, and pay HUD more than$4,000 in interest. (Audit Report: 2006-DE-1002)


InvestigationsInvestigationsInvestigationsInvestigationsInvestigationsDuring this reporting period, OIG

opened 115 investigation cases and closed261 cases in the single-family housingprogram area. Judicial action taken onthese cases during the period included$144,355,458 in investigative recoveries, 255indictments/informations, 111 convictions/pleas/pretrial diversions, 288 arrests, 18civil actions, 1 personnel action, and 85administrative actions.

Loan Origination FraudLoan Origination FraudLoan Origination FraudLoan Origination FraudLoan Origination Fraud

Gary Konstantin, former branchmanager and loan officer, Brucha MortgageBank, was found guilty in a civil proceedingin U.S. District Court, Brooklyn, NY, in aforfeiture hearing seeking an $11.6 millionmonetary judgment against him. OnSeptember 29, 2005, Konstantin was foundguilty on 61 counts of conspiracy, wire fraud,mail fraud, money laundering, and

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

Flipping53%

LoanOrigination

37%

Other1%

False Statements1% RESPA

4%

Property Disposition2%

Title 12%

Total Recoveries $144,355,458

Single-family fraud is an investigativepriority for the Office of Investigation. OIGcontinues mortgage fraud initiativesnationwide that will help reduce fraud inthe FHA single-family mortgage program.Some of the investigations discussed in thisreport were conducted jointly with Federal,State, and local law enforcement agencies.The results of OIG’s more significantinvestigations are described below.

insurance fraud. Coconspirator DonaldFazio pled guilty to one count of conspiracyand 11 counts of money laundering andagreed to a forfeiture and money judgmentof $2,594,169 on September 19, 2005.Konstantin and Fazio, both mortgagebrokers and branch managers at the nowdefunct Brucha Mortgage Bank, conspiredwith nonprofit entities in securingFHA-insured mortgages for unqualifiedborrowers by submitting false loandocumentation. As a result of their scheme,HUD realized losses of $11.6 million.

Neeraj Mody, a loan officer withChallenge Mortgage, was sentenced in U.S.District Court, Northern District of Illinois,Chicago, IL, to 9 months in prison and 2years supervised release and ordered to pay$756,150 in restitution following his guiltyplea to mail fraud. Mody and codefendantTheresa Holt, assistant director at North EastAustin, a nonprofit organization approvedby HUD to acquire HUD-owned propertiesat a 30 percent discount and resell theproperties under HUD’S Direct SalesProgram, personally acquired then resoldHUD’s discounted properties and providedfalse North East Austin employmentinformation to qualify for mortgages.Approximately 100 properties valued at $5.7million were involved.

Leticia Martinez, a real estate agent atPortillo Realty, and Teresa Romero, a loanofficer at PacWest Financial, were eachindicted in U.S. District Court, CentralDistrict of California, Riverside, CA, onthree counts of conspiracy, false statements,and aiding and abetting. Martinez andRomero, along with other coconspirators,allegedly defrauded HUD and commerciallenders by ordering, purchasing, and usingfraudulent employment documents andFederal income tax returns to originate andapprove FHA-insured mortgage loans forunqualified buyers. To date, HUD hasrealized losses of approximating $120,000involving 10 properties.


William Mendez, a former managingrealtor for William E. Mendez Team, Inc.,RE/MAX 100, Inc., pled guilty in U.S.District Court, Denver, CO, to one count ofwire fraud and one count of moneylaundering. Jose Alfredo Ramirez, a realtorwith William E. Mendez Team, pled guiltyto one count of wire fraud. Ramirez waspreviously indicted on September 29, 2005.Nicholas Lopez, a fraudulent documentvendor at William E. Mendez Team, wassentenced to 5 years probation and orderedto pay HUD $40,984 in restitution. Lopezwas previously indicted on April 6, 2005.Benedicta Gomez, owner of 1Service, anincome tax and bookkeeping company, wasarrested after her September 13, 2005,indictment charging her with five counts ofwire fraud and aiding and abetting andone count of criminal forfeiture. Mendezand the above coconspirators assistedunqualified homebuyers in obtaining FHA-insured mortgages by providing falseSocial Security numbers (SSN), incomeinformation, and Federal income tax returns.HUD realized losses approximating $2.35million on more than 300 FHA-insuredproperties.

George Rivas, a loan officer with GuildMortgage Company, pled guilty inU.S. District Court, Central District ofCalifornia, Los Angeles, CA, to two countsof mail fraud. Rivas, along withcoconspirators, created straw-buyers,provided downpayment funds, andprepared and used fraudulent income,identity, and other documents to originateand approve FHA-insured mortgage loansfor unqualified buyers. To date, HUD hasrealized losses estimated at $1.8 millioninvolving 46 FHA-insured properties.

Manuel Molina, also known as MannyMolina, an unlicensed real estate agent andloan officer, was sentenced in U.S DistrictCourt, Central District of California, LosAngeles, CA, to 6 months incarceration and36 months probation and ordered to payHUD $380,823 in restitution. On October 4,

2004, Molina pled guilty to two counts ofwire fraud and one count of aiding andabetting. On November 7, 2005, NellyRubiano, a former Notary Public, wassentenced to 3 years probation and orderedto pay total restitution of $655,920 ($406,692to HUD and $249,228 to DynamicInvestments, Inc.) pursuant to her guiltyplea to wire fraud and aiding and abetting.Molina, Rubiano, and others caused thecompletion and submission of FHA-insuredmortgage applications containing falseemployment, income, and creditinformation for unqualified buyers. Thedefendants generated approximately $1.6million in fraudulent FHA-insuredmortgages in Los Angeles County, and HUDlosses are estimated at $406,174.

Francine Sweet, a loan processor withAmerican International Mortgage Bankers(AIMB), and Matthew Francis, a loan officerwith AIMB, were sentenced in U.S. DistrictCourt, Eastern District of New York, LakeSuccess, NY, following their previous guiltypleas to false statements and conspiracy.Sweet was sentenced to 1 year and 1 dayimprisonment and 3 years supervisedrelease and ordered to pay $878,760 inrestitution. Sweet, Francis, and AIMBfacilitated the approval of FHA-insuredmortgages for unqualified borrowers inmetropolitan New York and Nassau andSuffolk Counties. More than 90 percent ofFHA-insured mortgages originating fromAIMB contained one or more altereddocuments. HUD’s losses are estimated at$239,235 as a result of foreclosures. .

Devon Bowie, president of NeighborhoodMortgage Bankers, and Barry Fauntleroy,president of EON, a real estate investmentcompany, were sentenced in U.S. DistrictCourt, District of New Jersey, Newark, NJ,following their earlier guilty pleas to onecount of conspiracy to commit falsestatements. Bowie was sentenced to 2 yearsprobation and ordered to pay HUD $500,000in restitution within 90 days of sentencing.Fauntleroy was sentenced to 21 months


incarceration and 3 years probation andordered to pay HUD $524,000 in restitution.In addition to Bowie and Fauntleroy,coconspirators Stacie Morrero, anunderwriter at Neighborhood MortgageBankers, and Sean Mason, a closing attorneyat EON, each pled guilty to a one-countinformation charging them with falsificationof documents submitted to HUD. Peter Port,owner of Port Abstract, was sentenced to 5months incarceration and one yearprobation, fined $10,000, and ordered to payHUD $500,000 in restitution. Keith Miles, areal estate contractor and owner of Mid-South Atlantic Asset Holding Company, wassentenced to 2 years probation and orderedto pay HUD $26,000 in restitution. Inaddition, Norm Murphy, president ofGarden State Searches, was arrested andpled guilty in State court to engaging in theunauthorized practice of law for falsifyinga real estate deed. Bowie, Fauntleroy, andthe above coconspirators assistedunqualified borrowers with obtaining FHA-insured mortgages by submitting false loandocumentation and appraisals, purchasedproperties using borrower funds, failedto complete promised renovations,and overcharged borrowers excessiveorigination and discount fees. As a result,HUD realized losses in excess of $1.2 millionon 33 FHA-insured loans.

Idalmis Preval Zayas, a real estateagent, pled guilty in U.S. District Court,Eastern District of Virginia, Norfolk, VA, tofalse statements. Zayas created false incometax returns and credit letters for unqualifiedbuyers securing FHA-insured mortgages onproperties used in the transportation andhousing of illegal aliens. To date, fiveadditional defendants pled guilty to chargesof using false information to purchasehomes with FHA-insured mortgages andtransporting and harboring illegal aliens forpersonal gain.

Carlos Gatmitan, a real estate brokerand owner of Investors Plus, a mortgagebrokerage entity, was indicted in U.S.District Court, Central District of California,

Los Angeles, CA, on one count each ofconspiracy, wire fraud, mail fraud, andaiding and abetting. Gatmitan and anunnamed coconspirator allegedly used thesame loan applicant for three distinct FHA-insured mortgages from three differentlenders to facilitate closing all mortgageloans on the same day, thus hiding fromlenders the simultaneous approval of thethree loans on the same day for the sameapplicant. To date, HUD has realized lossesestimated at $720,000.

Michael Sedor, an attorney/closingagent with Penn State Abstract Agency, andLouis Fierro, a loan officer with FT MortgageCompany, MNC Mortgage, and FirstHorizon Home Loan Corporation, weresentenced in U.S. District Court, MiddleDistrict of Pennsylvania, Dover, PA,following their May 2003 guilty pleas toconspiracy to defraud the U.S. Government.Sedor was sentenced to 7 monthsincarceration, 7 months home confinement,and 2 years supervised release. Fierro wassentenced to 15 months incarceration,followed by 2 years of supervised release.Sedor, Fierro, and coconspirators createdfraudulent gift letters and other documents,provided downpayment funds, and paidcreditors for unqualified buyers, obtainingmore than $16.6 million in FHA-insuredmortgages on more than 150 properties. Todate, HUD losses are estimated at $192,000.

Patrick Singletary, Robert Singletary,Peter Russo, and Clifford Shaw werecharged in a superseding indictment in U.S.District Court, Middle District of Florida,Jacksonville, FL, with conspiracy, falsestatements to HUD, wire fraud, and bankfraud violations. In addition, a forfeitureorder for $17 million in assets, including sixresidential properties, three businesses, andten vehicles was issued. The defendantsallegedly conspired in a property-flippingscheme involving inflated appraisals andstraw-purchasers channeled throughTropical Mortgage, Sunshine Mortgage,Universal Title, and CAL and EagleInvestments, entities they owned and


operated. To date, HUD has realized lossesof $7.3 million.

Lorena Marquez, an escrow officer atSouth Coast Title Company, was indicted inU.S. District Court, Central District ofCalifornia, Los Angeles, CA, on one countof mail fraud. On November 22, 2005, MarioIzquierdo, an assistant loan officer withCapital Mortgage, was indicted on fourcounts of wire fraud. Marquez andIzquierdo allegedly supplied downpaymentfunds and/or purchased false identitydocumentation to secure FHA-insuredmortgages for unqualified borrowers. Todate, $1,483,167 in FHA-insured loans hasresulted in HUD losses of $441,556.

Howard Thaler, a disbarred attorneyworking as a mortgage broker andspeculator, was convicted in U.S. DistrictCourt, Southern District of New York,Yonkers, NY, on two counts of making falsestatements, two counts of making falsestatements to HUD, four counts of mailfraud, one count of wire fraud, and onecount of conspiracy. Thaler was sentencedto 7-years incarceration and 3 yearssupervised release, and ordered to pay$522,496 in restitution. Thaler was involvedin fraudulent real estate transactions, toinclude preparing false documents to assistnonqualified homebuyers in securing FHA-insured mortgages and selling propertyowned by an estate and retaining the saleproceeds.

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 usingfalse documents and misrepresented hisintent to occupy the property as his primaryresidence. Nagy and 19 codefendants werepreviously indicted for conspiracy, mailfraud, wire fraud, bank fraud, moneylaundering, and aiding and abetting forallegedly defrauding federally insuredfinancial institutions and mortgage lendersof more than $15 million.

Chris Liano, a certified HUD appraiserand 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 yearsprobation and ordered to pay HUD$63,037,314 in restitution following his April6, 2001, guilty plea to false statements toinstitutions insured by the Federal DepositInsurance Corporation (FDIC). In addition,Liano forfeited $125,000. Dosch wassentenced to 3 years probation and orderedto pay HUD $8,427,610 in restitutionfollowing his November 13, 2000, guilty pleato false statements. Dosch also forfeited$75,000. Liano and Dosch overvaluedappraisals on more than 300 FHA-insuredproperties originated and issued from thenow defunct Mortgage Lending of America,Ryan’s Express Equities, and SmithhavenMortgage, mortgage companies formerlylocated in Long Island, NY. As a result, 448FHA-insured properties defaulted, andHUD realized losses of more than $94.5million.

Morgan Haines and TheodoreAntonucci, Jr., both investors, pled guilty inU.S. District Court, Western District of NewYork, Rochester, NY. Haines pled guilty toone count of false statements to HUD, andAntonucci pled guilty to one count ofconspiracy to commit bank fraud. Inaddition, on December 12, 2005,coconspirator William O’Keefe wassentenced to 2 years incarceration and 5years supervised release and ordered to paythe U.S. Department of Justice (DOJ)$281,616 in restitution. Haines, Antonucci,and O’Keefe purchased homes in theRochester, NY, area, flipped the propertiesto each other at inflated values, providedfalse documentation to secure FHA orconventional financing on the properties,and defaulted on mortgage loans in excessof $1 million shortly afterward. To date,HUD has paid claims on two FHA-insuredproperties and realized losses of $186,475.


Humberto Maravi, a loan officer withArk Mortgage, was sentenced in U.S.District Court, District of New Jersey,Newark, NJ, to 3 years probation andordered to pay HUD $561,775 in restitutionfollowing his previous guilty plea toconspiracy and false statements. Maravirecruited and assisted nonqualifiedborrowers in obtaining FHA-insuredmortgages by completing fraudulentmortgage applications and submittingfraudulent employment, financial, and otherloan documentation. HUD realized lossesof more than $1.8 million when 37 propertiesdefaulted.

Kristin Bilynsky, a former real estateagent, was sentenced in U.S. District Court,Eastern District of Pennsylvania,Philadelphia, PA, to 5 years probation andfined $13,000. Bilynsky pled guilty on July15, 2004, to making false statements to HUDand aiding and abetting. Bilynsky providedfalse employment documentation, enablingher sister to obtain an FHA-insuredmortgage.

Michael Fedynich, owner of WestgateRealty, agreed to an $802,035 civil judgmentwith the DOJ under the False Claims Act.Fedynich previously pled guilty in U.S.District Court, Northern District of Illinois,Chicago, IL, to providing downpaymentfunds and false closing certifications in theorigination and sale of 10 FHA-insuredproperties resulting in HUD losses of$516,429.

Chad J. Nicks, Dale Nelson, and TashaBarnes, 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 previouslyindicted in June 2005. Nicks, who ownedand operated Planet Wireless, a cellulartelephone store in Freeport, IL, preparedfalse verification of credit letters for potentialFHA borrowers. Nelson, who owned andoperated AMD Sales and Services, a

computer sales and service business inFreeport, IL, prepared false verification ofemployment and credit letters for potentialFHA borrowers. Barnes, who provided falseemployment, landlord, and gift letters,purchased and resold three properties withFHA-insured mortgages to unqualifiedbuyers. Nicks, Nelson, and Barnes admittedto causing more than $100,000 in HUD lossesas a result of foreclosures.

In U.S. District Court, Eastern Districtof Michigan, Detroit, MI, a $41 millionsettlement agreement under the FalseClaims Act and the Program Fraud CivilRemedies Act (PFCRA) was reachedbetween ABN AMRO Mortgage Group, Inc.,DOJ Civil Division, and HUD FHA. Thesettlement terms include a $16 million pluslump sum payment, and ABN AMROMortgage Group, Inc., waiving more than$24 million in FHA claims, resulting from783 defaulted FHA-insured mortgagescontaining false FHA underwritingcertifications. The settlement furthereliminates potential future litigation onapproximately 28,000 FHA-insured loansalso containing false FHA underwritingcertifications.

Michael Dronet, a developer doingbusiness as Homebuyer’s, was sentenced inU.S. District Court, Baltimore, MD, to 1 yearand 1 day in prison and 3 years supervisedrelease and ordered to pay HUD $756,268 inrestitution following his previous guilty pleato conspiracy to make false statements. Inor about 1998, Dronet purchased low-pricedhomes, performed minor repairs, and resoldthe properties at inflated prices. Dronetintroduced potential buyers to codefendantBart Arconti, a former loan officer withCapital Mortgage Bankers, who preparedfalse documents for nonqualified borrowerswho obtained FHA-insured mortgages.HUD realized losses greater than $750,000when 18 FHA-insured loans defaulted.

Sharon Blake pled guilty in U.S. DistrictCourt, Middle District of Pennsylvania,


Harrisburg, PA, to processing andoriginating FHA-insured loans containingfraudulent information. Blake, a former loanprocessor with Sunset Mortgage Company,was previously convicted for herparticipation in an FHA mortgage-flippingscheme. From 1998 to 2001, Blake and anunnamed coconspirator originated 85 FHA-insured home loans containing fraudulentinformation. Forty of the loans, valued atmore than $1.2 million, contained fictitiousinformation, resulting in HUD losses of$740,559. Blake also conspired withproperty speculators Earl Ginter, Jr., DavidWalsh, and Ronald Fruth to provideborrowers with downpayment funds andfabricated gift fund letters. Ginter, Walsh,and Fruth were previously convicted.

Palmida Casanova, also known asPalmira Sosa, Ruth Lizarraga, and PalmiraMartinez, were indicted in U.S. DistrictCourt, Central District of Utah, Salt LakeCity, UT, on five counts of FHA violations,four counts of misuse of a SSN, two countsof possession of false identification, and fivecounts of aiding and abetting. Cassanovaand coconspirators allegedly recruited andassisted unqualified illegal alienhomebuyers in obtaining FHA-insuredmortgages without valid SSNs, legalstatus, or accurate employment history. Todate, HUD has foreclosed 87 FHA-

insured properties and realized lossesapproximating $3,224,417.

Wilfred Changasie pled guilty in U.S.District Court, District of Massachusetts,Springfield, MA, to three counts of wirefraud and conspiracy to launder money. OnJanuary 13, 2006, Paul Starnes, DavidMcCoy, and Marc Brown, real estate brokers,pled guilty to two counts of wire fraud andone count of conspiracy to commit moneylaundering and are subject to forfeitures upto $15 million. Changasie, Starnes, McCoy,and Brown are 4 of 13 defendants indictedon September 9, 2005, for wire fraud andconspiracy to launder money in a property-flipping scheme; the remaining ninedefendants await trial. The defendantsacquired more than 70 single-familyproperties in the Springfield area, includingseveral through HUD’s Real Estate Owned(REO) program, inflated the values as muchas 200 percent, and falsified documents tofacilitate property flips. Approximately $5.9million in FHA-insured mortgages is at risk.

Jeff Smith, a realtor with Green CastleRealty, was sentenced in U.S. District Court,District of New Jersey, Newark, NJ, to 5months home imprisonment, 3 yearsprobation, and ordered to pay HUD $115,593in restitution. On January 18, 2006,Christopher Santarsiero was sentenced to 6months home imprisonment and 5 years

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


probation and also ordered to pay HUD$115,593 in restitution. Both Smith andSantarsiero previously pled guilty to onecount of conspiracy to commit falsestatements. Smith and Santarsieroconspired with loan officer DavidCobianchi, U.S. Mortgage, to create andsubmit fraudulent documents allowingunqualified borrowers to obtain FHA-insured mortgages. As a result of theirscheme, about 20 FHA-insured mortgagesdefaulted, resulting in HUD lossesapproximating $320,000. Cobianchi pledguilty in May 2005 and awaits sentencing.

Sean Teelucksingh, a former loan officerwith Maxwell Mortgage, who pled guilty onApril 6, 2005, to one count of conspiracy tocommit wire fraud and false statements toHUD, was sentenced in U.S. District Court,Middle District of Florida, Tampa, FL, to 18months incarceration and 3 yearssupervised release and was ordered to pay$199,900 in restitution ($65,505 jointly andseverally), in addition to a $100,000monetary judgment. Teelucksingh wasfurther ordered to attend substance abuse,anger management, interpersonalrelationship, and respect for authoritycounseling and prohibited from incurringnew credit charges, opening additional linesof credit, acquiring/obligating himself formajor purchases without probation officerapproval, or engaging in any employmentthat provides him access to personal and/orfinancial information of others.Teelucksingh used false identities, falseincome information, and straw-buyers toobtain conventional and FHA-insured loansfor his personal benefit.

Brothers Paul and William Peterson,doing business as Peterson Land andDevelopment, were each found guilty of onecount of conspiracy and one count of falsestatements in U.S. District Court, CentralDistrict of California, Los Angeles, CA. ThePetersons knowingly conspired and madefalse, fictitious, and fraudulent statementsto HUD when purchasing properties with

FHA-insured mortgages. HUD realizedlosses approximating $1,123,030.

Ifiok Equere, loan broker and real estateinvestor operating as Omega and ParadigmMortgage, pled guilty in U.S. District Court,Eastern District of Missouri, St. Louis, MO,to false statements to HUD and felonypossession of a firearm. Equere, previouslyindicted on October 13, 2005, admitted usingfalse documents to flip properties and brokerFHA-insured mortgages, causing HUDlosses of $105,000. Equere, who has a priorfelony conviction for conspiracy to importheroin, also admitted to illegally possessinga firearm.

Bryon Fitchpatrick, Shatanya Douglas,also known as Shatanya Fitchpatrick,Kathleen Fitchpatrick, Manjur Alam, PhillipFish, Deverell Jones, and Demond Reed werecharged in a 13-count supersedingindictment in U.S. District Court, District ofKansas, Wichita, KS, alleging conspiracy todefraud HUD, wire fraud, and aiding andabetting. Bryon Fitchpatrick and ShatanyaFitchpatrick, husband and wife real estateinvestors and owners of ABS Rentals andInvestments, allegedly used straw-buyersKathleen Fitchpatrick, Jones, and Reed topurchase HUD-owned properties asowners/occupants. Alam, a realtor withReMax Preferred Properties, and Fish, arealtor with Prudential Dunning, allegedlyknew HUD-owned properties werepurchased for investment purposes butprocessed the property sales as owner/occupant, thus preventing true owner/occupants and nonprofit entities anyopportunity to acquire the properties. Inaddition, Alam allegedly knew ByronFitchpatrick stored illegal drugs in and useddrug proceeds to purchase HUD-ownedproperties. Byron Fitchpatrick is alsocharged with unlawful possessing of afirearm in furtherance of drug traffickingand unlawful possession of illegal drugswith the intent to distribute.

Kenneth Jenkins and coconspiratorsSabena Ingalls, Walter Jenkins, RonaldRogers, Rita Jackson-Paulk, and Thomas


Harper were ordered in a U.S. District Court,Camden, NJ, restitution hearing, to payHUD $134,774, National City Mortgage$142,155, and $10,240 to five individualborrowers who suffered financial hardship.The court further ordered the restitution tocommence upon release from incarceration.Kenneth Jenkins and the abovecoconspirators were indicted, convicted, andsentenced on numerous counts involvingwire fraud, conspiracy, possession and/ordistribution of controlled substances, andmoney laundering. Kenneth Jenkins, a drugwholesaler, organized and operated a $1million scheme using crack cocaine profitsto buy abandoned and dilapidatedresidential properties in Camden, performcosmetic repairs, and flip the properties atinflated values to unqualified buyers,securing fraudulent FHA-insured loans.

Gordon Nelson, a real estate developerwith Jae Horn-Gerber, and Linda Martzwere sentenced in U.S. District Court,Northern District of Illinois, Chicago, IL, fortheir previous guilty pleas to a real-estategift fund scheme. Nelson was sentenced to1 year home confinement and 3 yearsprobation; Horn-Gerber was sentenced to 2years probation and ordered to perform 120hours of community service; Martz wassentenced to 1 year probation and orderedto perform 100 hours of community service.The defendants were ordered to pay HUD$650,000 in restitution, jointly and severallywith other co-defendants. Nelson, Horn-Gerber, Martz, and other codefendantsprovided unqualified buyers downpaymentfunds to obtain FHA-insured mortgages.HUD losses exceed $650,000 and involvemore than 40 FHA-insured properties.

Laura Barlow, a former underwriterwith Main Street Mortgage Service and ArkMortgage, pled guilty in U.S. District Court,District of New Jersey, Trenton, NJ, to a one-count Information charging her with falsestatements and conspiracy. On February 24,2006, Barlow was sentenced to 3 yearsprobation, ordered to refrain from anyemployment as an underwriter/loan

originator, and instructed to pay HUD$76,123 in restitution. Coconspirator AxelBonilla, a former loan officer at Main StreetMortgage and Ark Mortgage, pled guilty totwo counts of mail fraud on February 10,2006. Bonilla assisted unqualified borrowersin obtaining FHA-insured mortgages byproviding false documents and payingBarlow $500 to $1,500 for each fraudulentFHA-insured loan she approved. Bonillafurther embezzled and converted more than$1.2 million in investor funds by creatingfalse documents, reporting fictitiousinvestment earnings, and using investorfunds to purchase residential properties. Todate, HUD has realized losses of $76,123when six FHA-insured mortgagesdefaulted.

Kings Mortgage Services, Inc., enteredinto a settlement agreement with the UnitedStates Attorney’s Office, Eastern District ofCalifornia, Fresno, CA, and HUD. KingsMortgage Services’ former agent, CarolMercer, was convicted on January 13, 2003,of making a false statement to HUD forpreparing or causing to be prepared falsedocumentation for four FHA-insuredmortgages. Kings Mortgage Services, Inc.,agreed to pay HUD $147,936.

Patricia Mays pled guilty in U.S. DistrictCourt, Northern District of Illinois, Chicago,IL, to multiple counts of mail fraud and wirefraud. Mays admitted she participated in areal estate fraud scheme and submitted falseloan documents for unqualified borrowersobtaining FHA-insured mortgages onproperties located in south Chicago. HUDrealized more than $3 million in lossesinvolving more than 30 properties.

Violet Duarte, an office assistant withPlatinum Capital Mortgage Company, wassentenced in U.S. District Court, CentralDistrict of California, Los Angeles, CA, to 3years probation and ordered to pay HUD$1,013,966 in restitution following her May26, 2004, guilty plea on two counts ofwire fraud. Duarte purchased andused fraudulent documents to assist


nonqualifying borrowers in securing FHA-insured mortgages. As a result, HUDrealized losses of more than $1 million when13 FHA-insured properties foreclosed.

Katrina Soukkaseum, a manager withFreedom Financial Mortgage Company(FFMC), was sentenced in U.S. DistrictCourt, Eastern District of Arkansas, LittleRock, AR, to 3 years probation and orderedto pay five financial institutions $15,735 inrestitution following her May 19, 2005,guilty plea to one count of conspiracy. FromJanuary 2000 to March 2002, Soukkaseumand coconspirators employed with FFMCand Absolute Abstract and Title (AAT) failedto disclose inflated fees, provided false andmisleading information, and falsified loanorigination and title history documentsrelating to at least 84 loans valued at morethan $3.5 million. In addition, Soukkaseumand codefendants conspired to commit RealEstate Settlement and Procedures Act(RESPA) violations by charging borrowerstremendous document preparation feespayable to Jefferson Doc Prep ( JDP);accepting higher yield spread premiumsfrom funding lenders; and failing to disclosethe relationship among FFMC, AAT, andJDP.

Mark Young, former owner and branchmanager of the now defunct Nevada FirstResidential Mortgage Company (NFRMC),was sentenced in U.S. District Court, Districtof Nevada, Las Vegas, NV, to 78 monthsincarceration and 3 years supervised releaseand ordered to pay HUD $457,740 inrestitution. On September 1, 2005, Youngwas found guilty of 32 counts of submittingfalse information to HUD and one count ofconspiracy. From May 2000 to June 2002,Young conspired with NFRMC employeesand employees of General Realty tomanufacture and submit false employmentand income documentation fornonqualifying borrowers, mostly illegalimmigrants from Mexico, and directed loanofficers and processors to originate 233fraudulent FHA-insured loans valued at

more than $25 million. HUD realized lossesgreater than $1.9 million when 58 FHA-insured loans defaulted.

Nancy Rios, a loan officer with ColoradoBank and Trust, pled guilty in Colorado StateDistrict Court, Jefferson County, Denver,CO, to one count of theft of $15,000 or more.Rios fraudulently originated 30 FHA-insured mortgages by assisting with thecreation of fraudulent documentation fornonqualified borrowers. As a result, HUDrealized losses of $194,617.

Donald W. Gupton, president of DonaldW. Gupton, Inc., doing business as DynastyHomes of Henderson, Superior HousingCenter, Creative Real Estate, ManufacturingHousing Sales Center, CRE Properties LLC,and M&G Properties, Inc. (The Companies),and Richard Meador, a sales manager forGupton, pled guilty in U.S. District Court,Eastern District of North Carolina, Raleigh,NC. Gupton pled guilty to one count ofconspiracy and one count of moneylaundering; Meador pled guilty to one countof conspiracy to commit money laundering.Gupton further agreed to forfeit his or TheCompanies’ real property, a HarleyDavidson motorcycle, a Lexus automobile,and more than $11 million in cash or otherassets. The Companies were indicted on onecount of conspiracy and one count of moneylaundering on March 8, 2006. In addition toGupton, Meador, and The Companies,Donald Scott Carroll, a former salespersonat Creative Real Estate and ManufacturingHousing Sales Center, was charged withfalse statements, mail fraud, wire fraud, andbank fraud in an information filed onDecember 22, 2005. Between 1999 and 2002,Gupton, Meador, and others, using TheCompanies, bought and sold more than 150manufactured and mobile homes, someincluding land, and assisted unqualifiedborrowers in obtaining FHA-insuredmortgages valued at more than $18 millionby using fictitious trade-ins, providing cashand fabricated gift letters, and falselyinflating values and/or certifying land


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 KentAmlin Realty, pled guilty in U.S. DistrictCourt, Southern District of Ohio, Columbus,OH, following the filing of an informationcharging him with four counts of filing falseFederal income tax returns, and six countsof false statements. Winter admitted tofalsifying credit, employment, and rentalhistory documents to qualify 70 borrowersfor FHA-insured mortgages on propertieshe was personally selling and failing toreport the property sales proceeds to the IRS.HUD realized losses of $170,000 as a resultof foreclosure action on seven properties.

Mario Mendoza, a real estate brokerwith Weichart Realtors; Kenneth DiPrenda,a former loan officer with AMS Mortgage;and Myriam Vaca, a check casher forMendoza, pled guilty in U.S. District Court,New Jersey, Newark, NJ, to an informationcharging them with conspiracy to submitfalse statements to HUD. In addition, LindaSerrano, a closing attorney, pled guilty tomaking false statements to HUD. Mendoza,DiPrenda, Vaca, and Serrano recruited andassisted unqualified borrowers withobtaining FHA-insured mortgages bysubmitting fraudulent gift letters andemployment, identity, and other loandocumentation. HUD realized losses inexcess of $349,000 when 12 FHA-insuredproperties defaulted. Mendoza was arrestedon December 2, 2005.

Stefan Crosby pled guilty in U.S.District Court, District of Nevada, LasVegas, NV, to one count of false statementsto HUD and one count of conspiracy.Crosby was indicted on September 13, 2005,for conspiring with Lionel Crosby, hisbrother, and providing fraudulentemployment, income, identification, andother documentation to unqualified straw-buyers obtaining FHA-insured loans. Inaddition, both Stefan and Crosby applied for

FHA-insured loans using bogus documents.As a result, HUD realized losses of $302,365when 11 FHA-insured loans defaulted.

Identity Fraud/False SocialIdentity Fraud/False SocialIdentity Fraud/False SocialIdentity Fraud/False SocialIdentity Fraud/False SocialSecurity NumbersSecurity NumbersSecurity NumbersSecurity NumbersSecurity Numbers

Steven Anthony Watt, also known asJayru Watt, was indicted and pled guilty inU.S. District Court, Northern District ofOhio, Cleveland, OH, to four counts ofconspiracy and false oaths in bankruptcy.Watt was sentenced to 4 monthsincarceration and 2 years probation foracquiring and using a SSN under a fictitiousname to obtain credit, secure an FHA-insured mortgage, and file bankruptcy.

Jesus Bernal-Hernandez pled guilty inU.S. District Court, District of Utah, SaltLake City, UT, to one count of falsestatements and one count of falsebankruptcy documents. Bernal-Hernandezwas indicted on April 27, 2005, and arrestedon August 15, 2005, for assuming another’sidentity and using false identity documentsto secure an FHA-insured mortgage and filebankruptcy. 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 incarcerationand 2 years supervised release and orderedto pay HUD $17,877 in restitution. Ipina,an undocumented alien, pled guilty in July2005 to one count of misuse of an SSN. Ipinaused a false SSN to obtain and later defaulton an FHA-insured loan, causing a $17,877loss to HUD. Ipina will be deported uponcompletion of his prison term.

Jorge Acevedo-Velzquez was indicted inU.S. District Court, Middle District ofGeorgia, Macon, GA, for false statementsand use of false identification. Acevedo-Velzquez allegedly provided falseidentification documents to obtain and later


default on an FHA-insured mortgage,causing a $47,053 loss to HUD.

Enrique O. Montanez, an undocumentedalien homebuyer, was sentenced in 3rd

District Court, County of Salt Lake, SaltLake City, UT, to 3 years probation andordered to pay HUD $50,817 restitution andreport to Immigration and CustomsEnforcement (ICE) for deportation.Montanez pled guilty to one count of forgeryand one count of communications fraud onAugust 8, 2005, for using a false SSN toobtain and later default on an FHA-insuredmortgage.

Maria Brito, Mario Morales Alvarez, andAdriana Osorio Mendoza, undocumentedalien homebuyers, were arrested pursuanttheir November 2005 indictment in 17th

Judicial District, Adams County, Brighton,CO, for offering a false instrument forrecording, criminal impersonation to gain abenefit, and forged instrument possession.Brito, Alvarez, and Mendoza allegedlypurchased properties and obtained FHA-insured mortgages using fraudulentimmigration cards and SSNs. To date, HUDhas not sustained a loss.

Michael Hatton was indicted in U.S.District Court, Eastern District of Virginia,Norfolk, VA, for false statements and usinga false SSN. Hatton allegedly used a falseSSN and concealed prior bankruptcies whenapplying for an FHA-insured mortgage onproperty in Portsmouth, VA.

Odie Webster, a former realtor withMetro Brokers, pled guilty in U.S. DistrictCourt, District of Colorado, Denver, CO, totwo counts of false statements andpossession of false papers. Webster waspreviously indicted on April 20, 2005, andarrested on April 27, 2005. Webster andcoconspirators assisted unqualifiedhomebuyers in obtaining FHA-insuredmortgages using false SSNs and incomeinformation. Daryl Collins, indicted onApril 20, 2005, for Social Security fraud, was

sentenced to 10 months incarceration andordered to pay HUD $47,711 in restitution.Collins, one of several subject homebuyerswho participated in a real estate scheme,used a false SSN and false incomeinformation to obtain an FHA-insuredmortgage. Sheila Lockett and TraceyLockhart, also known as Tracey Richardson,were sentenced for using false SSNs andincome information to obtain FHA-insuredmortgages. Lockett was sentenced to 2 yearsprobation following her October 3, 2005,guilty plea to making false statements.Lockhart was sentenced to 15 monthsincarceration and ordered to pay HUD$57,244 in restitution following herNovember 1, 2005, guilty plea to makingfalse statements and aiding and abetting.

Sonia Ramirez and Albertico Galindo,previously indicted for false statements andpossession of false paper, were eachsentenced in U.S. District Court, District ofColorado, Denver, CO, to 3 years probation.The court further ordered Ramirez to payHUD $10,192 in restitution. Ramirez andGalindo, two of several subject homebuyerswho participated in a real estate scheme,used false SSNs and income information toobtain an FHA-insured mortgage. To date,HUD has realized losses of $2,310,030involving approximately 90 homes with anestimated FHA-insured loan value of $13.5million.

Tonya Hill, a mortgage broker and realestate investor with Sunset Mortgage, wassentenced in U.S District Court, EasternDistrict of Missouri, St. Louis, MO, to 6months home confinement and ordered topay $401,914 in restitution to HUD and otherlenders. 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 falsedocuments to secure FHA-insured andconventional mortgages. Hill alsopurchased her personal residence using afalse SSN to hide her assets from U.S.


Bankruptcy Court. As a result, HUDrealized a $30,163 loss.

In Kansas City, KS, and Kansas City,MO, 33 undocumented aliens werearrested on State of Kansas felony chargesissued by the Johnson County, KS, DistrictAttorney’s Office involving identify theftand false statements to FHA for their rolesin a mortgage fraud scheme. BetweenFebruary 2002 and September 2004, anunidentified loan officer and two real estateagents allegedly originated approximately$5 million in FHA-insured mortgage loansfor illegal aliens using false SSNs.

Maria Carmen Garcia, a loan officer atSummit Mortgage, was sentenced in U.S.District Court, District of Arizona, Phoenix,AZ, to 5 years probation and ordered to payHUD $105,201 in restitution, jointly andseverally with codefendant Leonel Estrella.Garcia pled guilty to one count of falsestatements to HUD on July 25, 2005. OnFebruary 27, 2006, Leonel Estrella, a realestate agent, was sentenced to 5 yearsprobation and ordered to pay HUD $105,201in restitution, jointly and severally withcodefendant Maria Carmen Garcia, and$12,363 to Washington Mutual Bank FA.From May 2000 through August 2002,Garcia used false documents and SSNsprepared by her brother, Leonel Estrella, toqualify mutual clients for FHA-insured andconventional home loans. HUD realizedlosses of $140,310 when five FHA-insuredloans defaulted.

Edward Futch, also known as EdwardDaniels, pled guilty in U.S. District Court,Eastern District of Virginia, Norfolk, VA, toan information charging him with one countof making false statements to HUD.Futch admitted he purchased property andsecured an FHA-insured mortgage using afalse SSN, fraudulent identity, and otherfalse documents.

Bankruptcy FraudBankruptcy FraudBankruptcy FraudBankruptcy FraudBankruptcy Fraud

Milton G. Goddard, doing business asWest Coast Land Group (WCLG), wassentenced in U.S. District Court, EasternDistrict of Michigan, Detroit, MI, to 18months incarceration and 2 years supervisedrelease and ordered to pay $31,000 inrestitution to numerous victims. Goddardpreviously pled guilty to one count of wirefraud for his role in a bankruptcy scheme.Goddard and codefendants acceptedmortgage payments from distressedhomeowners attempting to avoidforeclosure and deposited their funds into aWCLG bank account but failed to paymortgage loans as promised. To date, 120FHA-insured mortgages were identified.

Donald Kingston, owner of DBKProperties, pled guilty in U.S. District Court,District of Utah, Salt Lake City, UT, to onecount of bankruptcy fraud. Kingstonperpetrated an equity-skimming schemethroughout the State of Utah by obtainingquit-claim deeds from property owners infinancial distress, failed to pay mortgagepayments while collecting rents, and filedbankruptcy to stall foreclosure proceedings.To date, HUD losses exceed $150,000involving six properties.

Barbara Kessinger, also known as SheilaMurphy, pled guilty in U.S. District Court,Northern District of Illinois, Chicago, IL, toone count of bankruptcy fraud. Kessingeracquired one FHA-insured and two U.S.Department of Veterans Affairs (VA) loan-guaranteed properties using a bogus nameand SSN, failed to make mortgagepayments, and filed multiple shambankruptcies to hinder foreclosureproceedings. As a result of her actions, HUDand VA realized losses of $74,000 and$36,000, respectively.

Mark Neusch and Michael Davis, realestate investors and managing members ofM&M Properties LLC and ReliableProperties LLC, were each indicted in theU.S. District Court, District of Utah, SaltLake City, UT, on one count of equity


skimming and three counts of bankruptcyfraud. Neusch and Davis obtained quit-claim deeds through misrepresentations toproperty owners, failed to make mortgagepayments while collecting rents, and filedbankruptcy to forestall foreclosureproceedings. HUD realized losses of$470,000 when 17 FHA-insured propertiesforeclosed.

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

Kathleen Johnson, a HUD-approvedreal estate broker at RE/MAX Realty, wassentenced in U.S. District Court, Rochester,NY, to 5 years probation and 6 months homeconfinement and ordered to pay HUD$22,800 in restitution. In April 2005, Johnsonpled guilty to one count of mail fraud forcollecting earnest deposits from potentialbuyers, failing to deposit their funds in anearnest deposit account, and keepingapproximately $26,000 for personal use. Inaddition, Johnson prepared and mailedfalse prequalification letters frommortgage companies and banks to FirstPreston Management Company, certifyingprospective buyers for financing.

Donald Lee Liverman, a developerdoing business as 1st Homes, pled guilty inU.S. District Court, Eastern District ofVirginia, Richmond, VA, to one count ofFederal tax evasion. Liverman, previouslyindicted on numerous charges includingFHA fraud, purchased distressedproperties; flipped the properties to first-time homebuyers; failed to disclosesignificant structural problems, termites,and/or water damage; and hid the propertydefects by generating fake repair completionletters from contractors. HUD losses are yetto be determined.

Norvel Brown, president of MississippiValley Title, was indicted in U.S. DistrictCourt, Eastern District of Missouri,Herculaneum, MO, on two counts of wirefraud. From 2000 to 2005, Brown, a HUD

single-family property disposition closingagent, allegedly diverted and retainedclosing funds in lieu of wiring closingproceeds to HUD. As a result of his scheme,HUD losses are estimated at $2.8 million.

Todd Stall and Daniel Curtin, formerpartners in the law firm of Hankin, Hanig,Stall, Caplicki, Redl, and Curtin, each pledguilty in U.S. District Court, SouthernDistrict of New York, Poughkeepsie, NY, toone count of violating RESPA. From January2001 through December 2004, Stall andCurtin provided no professional services butaccepted $106,300 from Crystal ClearAbstract Title when they sold title insuranceand supplied settlement services.

In Rochester, NY, Rita Zambito, a realestate agent/broker for Realty USA, andKevin Parker, a private investor, entered intoPFCRA settlements agreeing to pay HUD$9,000 and $5,500, respectively. Parkerpurchased two HUD REO properties as anowner/occupant through Zambito and soldor rented the properties immediately afterthe properties closed.

Edward Carrillo, owner of SaharaInvestments, pled guilty in Superior Court,Maricopa County, Phoenix, AZ, to twocounts of fraudulent schemes. Carrillo waspreviously indicted on nine counts offraudulent schemes, six counts of theft, andone count of unlicensed real estate activity.Carrillo accepted $989,800 in investor fundsto teach HUD’s preforeclosure businessprocedures and purchase investmentproperties. Carrillo failed to acquireinvestment properties as promised or returninvestor funds.

In Newark, NJ, Denise Jones, aNorthern New Jersey State Prison payrollclerk, entered into a false claims civilsettlement agreement, consenting to pay theU.S. Government $61,200. Jones purchasedtwo HUD Officer Next Door (OND)properties within 6 months and falsely


certified each OND property as her soleresidence.

Carl A. Clayton was sentenced in U.S.District Court, Baltimore, MD, to 2 yearssupervised probation and ordered to payrestitution of $18,000 following hisSeptember 2005 guilty plea to making falseoccupancy statements to HUD. In May2000, Clayton purchased property fromHUD through HUD’s OND program, failedto occupy the property for the required 3-year period, and rented the property to atenant approximately 30 days after closing.After purchasing and renting the ONDproperty, Clayton entered into a lawenforcement officer’s lease with the HousingAuthority of Baltimore City and resided ina HUD-assisted building paying $150 inmonthly rent. Clayton later relocated toNew York, NY, where he resided for theremainder of the OND-required 3-yearoccupancy period.

John Henry Davis, correctional officer,Ironwood State Prison, Blythe, CA, wasindicted in U.S District Court, Los Angeles,CA, on one count of false statements. Davisallegedly purchased a house through HUD’sOND/Teacher Next Door (TND) program,rented the property for 34 months, andfalsely certified he resided at the propertyand the property was his sole residence. Asa result, HUD losses approximate $60,000.

Realtor Rohan A. Johnson, also knownas Ato Ra Ajah El, and real estate consultantDonovan Gilpin, doing business as PreAmble Properties, were indicted in U.S.District Court, Central Islip, NY, on onecount of conspiring to defraud HUD and VAin a multimillion dollar HUD- and VA-owned property fraud scheme. Johnson andGilpin allegedly filed fraudulent deeds onone VA- and 14 HUD-owned properties,preventing banks from deeding foreclosedproperties to HUD or HUD and VA fromselling the properties to legitimate buyers.Johnson and Gilpin were arrested onDecember 9, 2005.

Murray Beitman was sentenced inCumberland County Common Plea Court,Carlisle, PA, to 2 years incarceration andordered to pay $30,685 in restitution to thevictim for his role in a counterfeitGovernment National Mortgage Association(GNMA) mortgage-backed certificatescheme. Beitman swindled the savings ofan elderly woman when he sold her acounterfeit GNMA certificate, claiming it tobe worth $1.2 million on maturity in 30years.

Jamal Zafar, a real estate investor, pledguilty in Nassau County Criminal Court,Mineola, NY, to one count of attemptedcriminal possession of a forged instrument.Zafar swindled two victims into investing$165,000 for the purchase of property withSection 8 subsidies, promising the victimsSection 8 rent monies and proceeds from thefuture property sale. With the victims’money, Zafar purchased the property,collected Section 8 rents, sold the propertyto another buyer, and realized $100,000 insale proceeds. Zafar, released on his ownrecognizance 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 ifhe fails to comply.

James Anthony Street, a police officerwith United States Postal Inspection Service(USPIS), was indicted in U.S. District Court,Los Angeles, CA, on two counts of makingfalse statements to HUD. Street, aparticipant in HUD’S OND program,allegedly owned property in Bloomington,CA, at the same time he submitted writtencertifications claiming his OND property inLong Beach, CA, was his sole property andresidence. Street, who purchased the ONDproperty for $48,500, recently sold theproperty for $335,000.

Steven Marquez, a loan officer atPrimera Mortgage Company, was indictedon two counts of theft in Cook CountyCircuit Court, Chicago, IL. Marquezallegedly deceived property owners and


acquired rights to their property, sold theproperty, and collected the sale proceeds.The property owners, believing they wererefinancing their $250,000 FHA-insuredmortgage, mistakenly signed “power ofattorney” papers assigning theirhomeownership rights to Marquez. TheFHA-insured mortgage is in foreclosure.

In Newark, NJ, Toni Cruz, a New Jerseytransit police officer, entered into a falseclaims civil settlement agreement for$62,000 with DOJ. Cruz, who owned aprincipal residence, purchased a propertythrough HUD’s OND program and falselycertified the OND property was her soleresidence.

Dwayne Jones was indicted in U.S.District Court, Eastern District of New York,

Brooklyn, NY, on one count of wire fraudand one count of conspiracy to defraud HUDand Countrywide Home Loans. Jonesallegedly submitted false documents toHUD and Countrywide Home Loans whenhe flipped his FHA-insured property to hiscousin, Rohan Vickers, who obtained anFHA-insured mortgage on the propertyfrom First Funding Mortgage Bankers. Jonesreceived proceeds in excess of $51,000, aswell as a short payoff on his original FHA-insured mortgage serviced by CountrywideHome Loans. Countrywide Home Loans,unaware the property for which it approveda short payoff was later flipped to straw-buyer Vickers for $75,000 more than theapproved purchase price, submitted aninsurance claim to HUD in excess of $85,000.Jones was arrested on March 16, 2006, andVickers was arrested on March 21, 2006.


Chapter 3Chapter 3Chapter 3Chapter 3Chapter 3HUD’s Public and IndianHUD’s Public and IndianHUD’s Public and IndianHUD’s Public and IndianHUD’s Public and Indian

Housing ProgramsHousing ProgramsHousing ProgramsHousing ProgramsHousing Programs

34 HUD’s Public and Indian Housing Programs

The U.S. Department of Housing andUrban Development (HUD) provides grantsand subsidies to more than 4,100public housing authorities (PHA)nationwide. More than 3,100 PHAsmanage public housing units, and almost1,000 with no public housing, manage unitsunder Section 8 programs. Many PHAsadminister both public housing and Section8 programs. HUD also provides assistancedirectly to PHAs’ resident organizations toencourage increased resident managementof public housing developments and topromote the formation and development ofresident management entities and residentskills programs. Programs administered byPHAs are designed to enable low-incomefamilies, the elderly, and persons withdisabilities to obtain and reside in housingthat is safe, decent, sanitary, and in goodrepair.


of Inspector General (OIG) issued 31 reports:one internal audit and 30 external audits inthe Public and Indian Housing (PIH)program area. These reports disclosed morethan $23 million in questioned costs andabout $100 million in recommendations thatfunds be put to better use. During thisreporting period, OIG reviewed the Section8 Housing Choice Voucher programactivities, and public housing activities,

Section 8 Housing ChoiceSection 8 Housing ChoiceSection 8 Housing ChoiceSection 8 Housing ChoiceSection 8 Housing ChoiceVoucher Program ActivitiesVoucher Program ActivitiesVoucher Program ActivitiesVoucher Program ActivitiesVoucher Program Activities

HUD OIG audited the Miami DadeHousing Agency’s, Miami, FL, Section 8Housing Choice Voucher program as partof OIG’s strategic plan. The objective wasto determine whether Section 8-assistedunits met housing quality standards inaccordance with HUD requirements.

Of the 120 Section 8 units inspected, 117did not meet minimum housing qualitystandards. Thirty-eight units had significanthousing quality violations. Projecting theresults of the statistical sample to thepopulation indicates at least 12,387 of theAgency’s 13,200 units did not meetminimum housing quality standards.Further, 3,265 units had significant housingquality standards violations. As a result,tenants lived in units that were not decent,safe, and sanitary, and HUD made housingassistance payments for units that did notmeet standards.

OIG recommended that HUD requirethe Agency to inspect all of the 117 Section 8housing choice voucher-assisted units toverify that corrective actions were taken bythe landlord, and if not, to abate the rents orterminate the tenants’ vouchers. The Agencyshould also develop and implement aninternal control plan to ensure units meethousing quality standards and inspectionsmeet HUD requirements to prevent anestimated $25.9 million from being spent onunits with significant violations. Further,HUD should reduce or offset $7,300 of theAgency’s administrative fees for the 38 unitswith significant housing quality standardsviolations. (Audit Report: 2006-AT-1001)

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

100,000,00090,000,00080,000,00070,000,00060,000,00050,000,00040,000,00030,000,00020,000,00010,000,000

0 Questioned Costs Funds Put to Better Use

including PHA activities with relatednonprofit entities, and PHA pension planforfeiture policy. In addition, OIGconducted a corrective action verificationreview.

HUD’s Public and Indian Housing Programs 35

HUD OIG audited the HousingAuthority of the City of Prichard’s, Prichard,AL, Housing Choice Voucher program aspart of its strategic plan. The objectives ofthe audit were to determine whether theAuthority only paid housing assistancepayments for units that were decent, safe,and sanitary; properly determined tenanteligibility and subsidy amounts; and madehousing assistance payments only to eligiblelandlords.

The Authority failed to ensure that itsunits receiving housing assistancepayments met housing quality standards.Of the 65 units reviewed, 97 percent, or 63,did not meet housing quality standards. Ofthe 63 units, 45 were in materialnoncompliance with housing qualitystandards. In addition, the Authority paidmore than $63,000 for ineligible units,including more than $8,000 for failed unitsrequiring housing assistance paymentabatements and approximately $55,000 forunits that lacked annual inspections. It alsoearned more than $6,000 in administrativefees for ineligible units. OIG estimates thatHUD paid more than $14 million in housingassistance payments on units that may nothave met housing quality standards. Inaddition, the Authority’s internal controlsover processing tenant files were notcomplete. Finally, the Authority violatedFederal and local conflict-of-interestprovisions by allowing an Authorityemployee and board member to rent to ahousing choice voucher holder, resulting inmore than $22,000 paid to this ineligiblelandlord.

OIG recommended that HUD terminatethe Authority’s Section 8 Housing ChoiceVoucher program and transfer it to anotherAlabama housing authority, require theAuthority to immediately abate the Section 8housing assistance payments or terminatetenant vouchers on the 63 units that do notmeet housing quality standards ifdeficiencies are not corrected, and repaymore than $69,000 for housing assistance

payments it paid and administrative fees itearned for ineligible units. Also, since theAuthority had inadequate internal controlsover processing tenant files, HUD shouldreduce the Authority’s administrative feesby 10 percent for fiscal years (FY) 2003 and2004, approximately $233,000. Finally, HUDshould require the Authority to repayineligible costs of more than $22,000 for theconflict-of-interest violation. (Audit Report:2006-AT-1004)

HUD OIG audited the HousingAuthority of the City of Winston-Salem’s,Salem, NC, Housing Choice Voucherprogram as part of the OIG strategic plan.The objective was to determine whetherunits met housing quality standards.

Of the 67 units OIG inspected, 51 didnot meet minimum housing qualitystandards. Of the 51 units, 26 were inmaterial noncompliance with housingquality standards. As a result, HUD madehousing assistance payments for units thatdid not meet standards. OIG estimates thatover the next year, HUD will pay housingassistance payments of more than $6.4million for units in material noncompliancewith housing quality standards.

OIG recommended that HUD requirethe Authority to inspect the 51 units that didnot meet minimum housing qualitystandards to verify that the landlords tookappropriate corrective actions. Ifappropriate actions were not taken, HUDshould abate the rents or terminate thetenants’ vouchers. OIG also recommendedthat HUD require the Authority toimplement an internal control plan to ensureits Section 8 units meet housing qualitystandards and inspections meet HUDrequirements to prevent an estimated $6.4million from being spent on units that arein material noncompliance with standards.(Audit Report: 2006-AT-1005)

HUD OIG audited the Municipality ofSan Juan Housing Authority’s, San Juan, PR,Section 8 Housing Choice Voucher programto determine whether units met housingquality standards in accordance with HUDrequirements.

Of the 67 units OIG inspected, 63 didnot meet minimum housing qualitystandards. Of the 63 units, 25 were inmaterial noncompliance with housingquality standards. As a result, tenants livedin units that were not decent, safe, andsanitary, and HUD made housing assistancepayments for units that did not meetstandards. OIG estimates HUD will payhousing assistance payments more than $5.8million for units in material noncompliancewith housing quality standards over thenext year.

OIG recommended that HUD requirethe Authority to inspect all units that didnot meet minimum housing qualitystandards to verify that the landlords tookappropriate corrective actions to make theunits decent, safe, and sanitary. Ifappropriate actions were not taken, theAuthority should abate the rents orterminate the tenants’ vouchers. HUDshould also require the Authority toimplement an internal control plan andincorporate it into the Authority’s Section 8administrative plan to ensure units meethousing quality standards and inspectionsmeet HUD requirements. (Audit Report:2006-AT-1006)

As part of its FY 2005 annual audit plan,HUD OIG reviewed the Section 8 HousingChoice Voucher program of the HartfordHousing Authority in Hartford, CT. Theobjective was to determine whether theAuthority properly administered theprogram in accordance with its annualcontributions contracts and HUDrequirements.

The Authority 1) inaccurately reportedleasing and cost data to HUD and

incorrectly received more than $841,000 infunding; 2) improperly charged more than$714,000 in administrative costs to theprogram; 3) approved unreasonable rents,resulting in ineligible and prospectiveineligible costs totaling more than $595,000;4) paid housing assistance payments forsubstandard housing; and 5) did not accountfor and failed to collect its portable voucherreceivables. As a result, OIG identifiedquestioned costs and opportunities for fundsto be put to better use totaling more than$2.6 million.

OIG recommended that HUD requirethe Authority to 1) implement proceduresto properly track and report housingassistance payments and administrative feesand repay HUD more than $841,000; 2)repay the program more than $714,000 andproperly allocate administrative costs; 3)repay the program more than $159,000 forunreasonable rents and inspection costs; 4)develop and implement an effective qualitycontrol process to ensure reliableinspections, correction of substandardhousing, and abatement of payments forhousing that does not meet HUD standards;and 5) establish procedures to reconcile allportability receivables, reimburseauthorities for any overpayments, andfollow up on past-due accounts. (AuditReport: 2006-BO-1005)

HUD OIG audited the Mount VernonUrban Renewal Agency’s, Mt. Vernon, NY,administration of its Section 8 HousingChoice Voucher program. The objectiveswere to determine whether the Agency (1)correctly billed HUD for housing choicevouchers used; (2) complied with HUDprogram requirements for tenant admission,rental subsidy calculations, and housingquality standards; and (3) implementedfinancial management controls to ensurethat Housing Choice Voucher programfunds were adequately safeguarded.

The Agency over-requisitioned housingassistance payments and administrative fees


from HUD, resulting in more than $1.7million in overpayments. The Agency alsodid not properly use or maintain its waitinglist, conduct recertifications in a timelymanner, or document that all units methousing quality standards. Further, theAgency made duplicate and ineligiblehousing assistance payments, inadequatelysupported expenditures, and used HousingChoice Voucher program funds for otherprograms.

OIG recommended that HUD recoupthrough offset against future payments theoverpaid housing assistance payments andadministrative fees received, instruct theauditee to implement controls andprocedures to properly maintain its waitinglist, and ensure the auditee develops andimplements financial controls to adequatelysupport expenditures and use HousingChoice Voucher program funds only for thatprogram. (Audit Report: 2006-NY-1004)

HUD OIG audited the Section 8Housing Choice Voucher program of the Ft.Worth Housing Authority in Ft. Worth, TX,to determine whether the Authorityproperly applied the subsidy size standardsin its administrative plan.

The Authority had sound policiesregarding assignments of tenant subsidysize; however, it did not follow its policywhen it neglected to change voucher sizesfor as many as 382 tenants. This resulted inmore than $180,000 in ineligible andunsupported payments and potentialoverpayments of approximately $521,000over the next 3.7 years. Further, theAuthority enacted policy changes withoutapproval from its board of commissioners.

OIG recommended that HUD requirethe Authority to (1) repay ineligible housingassistance overpayments of more than$5,000, (2) repay or support questioned costsof more than $175,000, (3) develop andimplement procedures to ensure it assignsthe correct subsidy size for all tenants to

better use approximately $521,000 in Section8 funding, and (4) institute controls to ensurethat the board of commissioners approvesany program changes before they areimplemented. (Audit Report: 2006-FW-1001)

HUD OIG reviewed the ColumbiaHousing Authority’s, Columbia, MO,Housing Choice Voucher program toidentify savings the Authority will realizeby ensuring tenants are in appropriate-sizeunits.

The Authority unnecessarily paid morethan $216,000 in program funds for 99tenants with units larger than necessary. Byenhancing its procedures to ensure thatprogram tenants receive the proper vouchersize and subsidy payments, the Authoritycould avoid future losses of approximately$300,000 and be able to provide vouchers toadditional tenants.

OIG recommended that HUD requirethe Authority to correct vouchers for unitslarger than allowed by the Authority’sadministrative plan, repay more than$216,000 for excess housing assistancepayments, and develop and implementprocedures to ensure that tenants receivecorrect-size vouchers. (Audit Report: 2006-KC-1001)

HUD OIG audited the Housing ChoiceVoucher program of Northeast WashingtonHousing Solutions in Spokane, WA, todetermine whether it complied with HUDrequirements.

The Authority made housing assistancepayments of almost $450,000 through theuse of vouchers for 154 families whoseeligibility was unknown. HUD paid theAuthority more than $58,000 to administerthese vouchers. In addition, the Authoritydid not correctly report its fiscal year 2005Section 8 Management Assessment Programscore and did not have an adequate planfor allocating indirect salary costs.


OIG recommended that HUD requirethe Authority to determine the eligibility ofthe 154 families and return any ineligiblehousing assistance payments, recoup theappropriate amount of administrative fees,perform an on-site verification of theAuthority’s 2006 Section 8 ManagementAssistance Program score, and require theAuthority to submit a plan for allocatingindirect salaries. (Audit Report: 2006-SE-1002)

At the request of the executive directorof the Housing Authority of the Cityof Los Angeles, Los Angeles, CA, HUDOIG conducted a review of theAuthority’s Section 8 rent reasonablenessdeterminations for the Housing ChoiceVoucher program.

The Authority did not adequatelydocument rent reasonablenessdeterminations to ensure Section 8 rentswere reasonable before entering intohousing assistance payment contracts.

OIG recommended that the Authoritysupport or reimburse HUD more than$186,000 in unsupported Section 8 housingassistance payments and follow theestablished policies and procedures for rentreasonableness determinations. (AuditReport: 2006-LA-1002)

HUD OIG reviewed the Section 8Housing Choice Voucher program of theHousing Authority of Kansas City, KansasCity, MO, to determine whether theAuthority paid excess subsidies for tenantunits that were larger than necessary.

The Authority unnecessarily paidnearly $31,000 in program funds for 50tenants in units that were larger thannecessary or allowed by the Authority’sadministrative plan. The Authority couldavoid future losses of more than $73,000 byenhancing its controls, thereby allowing itto provide vouchers to additional tenants.

OIG recommended that HUD requirethe Authority to immediately correcttenants’ vouchers, repay the unnecessarycosts incurred, and develop and implementprocedures that improve controls overassigning voucher sizes. (Audit Report:2006-KC-1006)

HUD OIG reviewed the Section 8Housing Choice Voucher program of the St.Joseph Housing Authority in St. Joseph,MO, to determine whether the Authoritypaid excess subsidies for units that are largerthan the needs of the tenant.

The Authority overhoused 16 tenantswhen it subsidized an additional bedroomfor medical purposes without properjustification, resulting in overpayments ofmore than $20,000 from 2002 throughJanuary 2006. By correcting its weakcontrols, the Authority can avoid futureoverpayments totaling more than $54,000.

OIG recommended that HUD (1) ensurethat the Authority immediately correctoverhoused tenants’ vouchers and repaythe overpayments and (2) verify that theAuthority implements procedures to ensurethat each tenant receives the proper vouchersize to avoid additional overpayments.(Audit Report: 2006-KC-1008)

HUD OIG audited Inglewood HousingAuthority’s, Inglewood, CA, administrationof its Section 8 Housing Choice Voucherprogram to determine whether theAuthority administered its programin compliance with pertinent HUDrequirements and its annual contributionscontract and operated its program in aneffective and efficient manner.

The Authority did not comply withprogram requirements relating to portabilityprocedures and responsibilities, tenantcertification, housing quality standardsrequirements, housing assistance paymentregister maintenance, and salary allocationand procurement procedures. In addition,


the Authority’s organizational structure andmanagement responsibilities were notclearly defined, and its financial reportingfunction was ineffective and inefficient.Finally, the Authority did not requestadditional funds from HUD when neededto alleviate its cash deficit problems.

OIG recommended that HUD requirethe City of Inglewood’s mayor and board ofcommissioners to replace the currentexecutive director and housing manager,establish a separate housing authoritycommission, and require the City ofInglewood to designate sufficient financedepartment personnel dedicated to worksolely on Authority-related financialreporting activities. (Audit Report: 2006-LA-1004)

HUD OIG audited the FranklinRedevelopment and Housing Authority’s,Franklin, VA, Section 8 Housing ChoiceVoucher program to determine whether theAuthority adequately administered itsSection 8 program according to HUDrequirements.

The Authority often made incorrecthousing assistance payments and did notperform required quality control reviews ofits Section 8 tenant files. Additionally, it didnot verify rent reasonableness and allowedan apparent conflict-of-interest situation toexist.

OIG recommended that HUD requirethe Authority to repay more than $9,000 inhousing assistance overpayments andreimburse tenants more than $1,500 inhousing assistance underpayments. OIGalso recommended that the Authoritystrengthen its internal controls to ensure itadequately administers its Section 8program and prevent future apparentconflict-of-interest situations. (AuditReport: 2006-PH-1003)

HUD OIG audited the HousingAuthority of the City of Los Angeles, Los

Angeles, CA, in response to a request fromits executive director regarding his concernover the management of the Authority’swaiting list. The objective was to determinewhether the Authority complied withapplicable laws and regulations whenplacing registrants on the waiting list andselecting applicants in the proper order toreceive housing vouchers.

The Authority did not adequatelyadminister and maintain its waiting list inaccordance with program requirements and,thus, may not have selected applicants inthe proper order.

OIG recommended that HUD requirethe Authority to engage a dedicated team toanalyze, purge, and update its waiting listto ensure that it is accurate and complete;evaluate and implement any neededchanges to its administrative plan; andprovide training to employees on the revisedwaiting list procedures and policies. (AuditReport: 2006-LA-1008)

HUD OIG audited the Section 8Housing Choice Voucher program of theHousing Authority of the City of Annapolis,Annapolis, MD, as part of its FY 2006 annualaudit plan. The objective was to determinewhether the Authority adequatelyadministered the program according toHUD requirements.

The Authority generally administeredthe program according to HUDrequirements but did not adequatelyadminister its waiting list. It did not followcontrols in its Section 8 administrative planrequiring it to update and purge its waitinglist annually or maintain its Section 8applications in a permanent file in the orderin which the applicants applied forassistance. These controls were needed toensure that families received assistance asquickly and efficiently as possible and toprovide assurance that the Authorityprovided fair and consistent treatment offamilies.


OIG recommended that HUD requirethe Authority to provide adequatemanagement oversight to ensure its Section8 waiting list is updated and purgedannually and its Section 8 applications aremaintained in a permanent file in order ofdate and time of the application. (AuditReport: 2006-PH-1009)

Public Housing AuthorityPublic Housing AuthorityPublic Housing AuthorityPublic Housing AuthorityPublic Housing AuthorityManagement of AssetsManagement of AssetsManagement of AssetsManagement of AssetsManagement of Assets

HUD OIG audited Baytown HousingAuthority in Baytown, TX, due to concernsexpressed by the Houston Office of PublicHousing. The objectives were to determinewhether the Authority used resourcessubject to the annual contributions contractonly for expenses of that program.

The Authority inappropriately usedpublic housing funds to support itsnonprofit and related entities. For some ofthe transfers, the Authority’s executivedirector altered transfer documentation. Asof March 31, 2005, the Authority owed thelow-rent and Section 8 programs more than$792,300, and it could not support

approximately $134,800 in transfers andencumbrances. Further, the Authority couldnot demonstrate that it equitably distributedsalary costs between its HUD and non-HUDactivities because it did not support salarypayments with required activity reports orequivalent documentation. As a result, theAuthority cannot support $1.1 million insalary costs allocated to its HUD programs.

OIG recommended that HUD requirethe Authority to repay its HUD programsat least $792,300; provide support for orrepay $1.2 million in unsupported transfers,encumbrances, and salary costs; andimplement procedures and controls tocorrect the weaknesses identified. Properprocedures and controls should help ensurethat the Authority will properly use andsupport the $5.9 million in HUD funding itwill receive next year. (Audit Report: 2006-FW-1002)

HUD OIG reviewed the HousingChoice Voucher and Public HousingOperating Fund programs at the WorcesterHousing Authority in Worcester, MA, aspart of its FY 2005 annual audit plan. Theobjectives were to determine whether the

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


Authority improperly used Federal fundsfor expenses of its State program andproperly allocated salary and other expensesto its Housing Choice Voucher and PublicHousing Operating Fund programs.

The Authority did not use its Federalfunds in compliance with its annualcontributions contracts. It used its publichousing operating funds to payexpenditures for State-subsidized housingprograms and other Federal programs. Asa result, the Authority did not have morethan $1.9 million available for its PublicHousing Operating Fund program.Additionally, the Authority could notsupport the salary and benefits expensescharged to its Housing Choice Voucher andPublic Housing Operating Fund programs.

OIG recommended that HUD requirethe Authority to monthly reimburse itsrevolving fund the amounts owed by itsprograms and cease the practice of usingpublic housing operating funds to pay fornonprogram costs. In addition, theAuthority should conduct a time study todetermine the appropriate allocation ofsalary and benefits for its Federal programsand develop and implement a HUD-approved cost allocation plan for salariesand employee benefits. The FY 2006accounting records should be adjustedaccordingly. (Audit Report: 2006-BO-1002)

HUD OIG audited the AlexandriaRedevelopment and Housing Authority inAlexandria, VA, to determine whether itimproperly used Section 8 funds to supportits other programs.

Contrary to its consolidated annualcontributions contracts, the Authority didnot track its Section 8 administrative andhousing assistance funds during the year ormonitor and periodically settle the Section8 programs’ due-to/due-from account to andprevent it from using Section 8 funds tosupport its other programs. As a result, it

improperly used more than $462,000 inSection 8 funds.

OIG recommended that the Authorityrepay its Section 8 programs the more than$462,000, which it improperly used tosupport its other programs. The Authoritytook action to repay that amount during theaudit. OIG further recommended that HUDrequire the Authority to create andimplement internal controls to track itsSection 8 administrative and housingassistance funds during the year, reconcileand settle its Section 8 due-to/due-fromaccount monthly, and stop improperly usingSection 8 funds to support its otherprograms, thereby ensuring $462,000 will beused for the appropriate program over thenext year. (Audit Report: 2006-PH-1001)

HUD OIG audited the HousingAuthority of the County of Butler, Butler,PA, as part of its FY 2005 audit plan. Theaudit objective was to determine whetherthe Authority properly used HUD funds todevelop and support its affiliated nonfederalentities.

The Authority improperly used HUDassets as collateral to obtain two lines ofcredit totaling $1.1 million. As of August2005, it owed more than $888,000 on the linesof credit, placing significant HUD assets atrisk. It also did not properly record theseloans in its financial records. In addition,the Authority failed to properly allocate allapplicable salary costs and improperly paidsalaries estimated at more than $205,000from Federal funds for work its employeesperformed for its nonfederal entities.

OIG recommended that HUD requirethe Authority to modify its financialinstruments to release the funds as collateraland allow the more than $888,000 to remainavailable for HUD-intended purposes. OIGalso recommended that HUD require theAuthority to properly record its lines ofcredit in its financial records. Finally, OIG


recommended that HUD require theAuthority to recover approximately$205,000 from nonfederal entities forimproperly allocated employee expensesand develop a reasonable method forallocating future salaries and expenses.(Audit Report: 2006-PH-1005)

HUD OIG reviewed the PalaciosHousing Authority’s, Palacios, TX, low-rentand Section 8 Housing Choice Voucherprograms to determine whether theAuthority operated the programs inaccordance with HUD requirements.

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


The Authority could not providesupport for funds transferred between itsSection 8 and low-rent housing programs.The Authority also made minor errors in itstenant files and did not always ensure unitswere decent, safe, and sanitary. OIGdetermined the Authority’s lack ofcompliance did not materially affect itshousing programs and it can easily correctthe deficiencies identified.

OIG recommended that HUD requirethe Authority to implement a budget-basedapproach in its operations, including usingan approved documented cost allocationplan, which will result in the Authoritymaintaining support for an estimated$44,600 in future fund transfers. Further,HUD should require the Authority toimplement a quality control plan to reviewall new tenant rent calculations, obtainadditional inspection training, and includean exterior conditions assessment when itconducts unit inspections. (Audit Report:2006-FW-1003)

HUD OIG audited the operations of theSuffolk Redevelopment and HousingAuthority in Suffolk, VA, as part of its FY2005 annual audit plan. The audit objectivewas to determine whether the Authoritycarried out its operations in accordance withapplicable HUD requirements.

For the most part, the Authority carriedout its operations in accordance withapplicable HUD criteria. It properlyinspected its Section 8 units, followed propercontracting procedures, and properlysupported its drawdown of HUD funds.However, it did not always properlycalculate Section 8 tenant income and utilityallowances, resulting in net overpaymentsof more than $5,000. Additionally, for oneof its public housing developments, theAuthority sometimes did not performrequired annual inspections or properlyrecertify the tenants.

OIG recommended that HUD reducethe Authority’s housing assistance paymentsby the amount of the net overpayments onits next Section 8 year-end settlementstatement. Additionally, OIG recommendedthat HUD require the Authority to follow itsSection 8 administrative plan and to prepareperiodic reports showing the results of filereviews and any actions taken. OIG furtherrecommended that HUD require theAuthority to perform the necessary reviewsto ensure recertifications and inspections aredone when required. (Audit Report: 2006-PH-1002)

Public Housing Authority Activity withNonprofit Entities

HUD OIG audited the HousingAuthority of the City of Prichard’s, Prichard,AL, administration of its nonprofit activitiesand homeownership programs at therequest of HUD. HUD expressed concernsregarding the nonprofit’s ventures into areasother than housing, such as the purchase ofa shopping center and the Authority’s useof the proceeds from the sale of its publichousing units. The objectives were todetermine the validity of these two concerns.

Although the Authority only used low-income housing funds to pay for authorizednonprofit-entity activities, its programs tomake affordable homes available to low- andmoderate-income persons were inadequate.As of June 1, 2005, the Authority had awaiting list of more than 250 potentialhomebuyers, while 139 homes wereavailable for sale. Although the Authoritywas not selling the homes in its inventory, itplanned to seek approval to useapproximately $3.8 million in HUD grantfunds to build additional homes. Inaddition, it did not include sales proceedsand estimated proceeds of more than $11.6million from its homeownership programsin its 5-year public housing authority plan.The funds have remained idle since 2002.Finally, the Authority inappropriately


advanced more than $806,000 in publichousing funds to pay for other programs’expenses.

OIG recommended that HUD requirethe Authority to aggressively market itsSection 5(h) and Housing Opportunities forPeople Everywhere (HOPE 1) homes asaffordable housing to ensure that HUDfunds provided for the construction of thesehomes are used as intended and the homesare not allowed to deteriorate. OIG alsorecommended that HUD require theAuthority to demonstrate it has thecapability to sell its remaining units beforerequesting more than $3.8 in HUD grantfunds to build additional homes. Further,OIG recommended that HUD require theAuthority to include in its 5-year plan morethan $11.6 million in proceeds and its plansfor using the funds. (Audit Report: 2006-AT-1002)

HUD OIG audited the HousingAuthority of the City of Newark in Newark,NJ. The objectives were to determinewhether the Authority’s (1) Housing FinanceCorporation conducted its operations inaccordance with HUD regulations, (2)payments made to the City of Newark inaddition to the payments in lieu of taxes formunicipal services were allowable, (3) costsfor legal settlements were properlyauthorized, and (4) self-insurance programwas cost effective.

The Authority (1) may not beconducting its bond financing activities inaccordance with HUD requirements; (2)could not substantiate that the $6.9 millionpaid to the City of Newark was fornecessary, reasonable, and additionalservices provided to the Authority; (3)settled general liability claims withoutobtaining prior written HUD approval; and(4) could not assure that more than $1.2million in legal settlements paid under theself-insurance program were processed ina cost-effective manner.

OIG recommended that HUD obtain alegal opinion as to the disposition of $3.7million in funds being retained by theAuthority and its Housing FinanceCorporation, review the documentationprovided to determine whether city serviceswere provided in accordance with thecooperation agreement and seekreimbursement for any amounts notsupported, and require the Authority to seekHUD approval for general liabilitysettlements and ensure that contract servicesare provided as required. (Audit Report:2006-NY-1003)

HUD OIG audited the FairfieldMetropolitan Housing Authority’s,Lancaster, OH, activities with its relatednonprofit organization. The Authority wasselected for audit because it was identifiedas having high-risk indicators of nonprofitdevelopment activity. The objective was todetermine whether the Authorityimproperly diverted or pledged resourcesfor the benefit of non-HUD developments.

The Authority improperly transferredmore than $520,000 of its HOPE 1 and 5(h)Homeownership Plan sales proceeds to itsnonprofit, the Lancaster CommunityHousing Corporation. The Authorityreceived more than $337,000 from 10 HOPE1 properties sold in 1995 and $78,000 fromtwo 5(h) Homeownership Plan propertiessold in 1996. The sales proceeds were pooledand invested in certificates of deposit,accumulating interest until 2004, when theAuthority transferred the proceeds to theCorporation. The transfer occurred withoutHUD approval and did not follow Federalrequirements regarding the use of theproceeds. The Authority also transferredownership of three properties that wererehabilitated using HUD’s McKinney grantfunds to the Corporation without HUDapproval. The Corporation sold oneproperty in 2004. The Authority and/or theCorporation did not reimburse HUD formore than $23,000 used to rehabilitate theproperty.


OIG recommended that HUD requirethe Authority to (1) reimburse its HOPE 1and 5(h) Homeownership Plan programsmore than $520,000 from nonfederal fundsfor the improper transfer of the salesproceeds to its nonprofit; (2) reimburseHUD more than $23,000 from nonfederalfunds for the McKinney grant funds usedto rehabilitate the one property; and (3)implement procedures and controls tocorrect the weaknesses identified. (AuditReport: 2006-CH-1005)

Low-Rent Housing ProgramLow-Rent Housing ProgramLow-Rent Housing ProgramLow-Rent Housing ProgramLow-Rent Housing Program

HUD OIG audited the HousingAuthority of the City of Winston-Salem,Winston-Salem, NC, to determine whetherthe Authority used funds subject to its low-income housing annual contributionscontract for the benefit of other programsor entities without HUD approval.

In violation of its contract with HUD,the Authority used more than $4.9 millionin operating subsidies to pay expenses ofother Federal and nonfederal programs.Further, the Authority violated its contractby encumbering assets when it executed aguarantee of payment agreement for a$475,000 loan for an affiliated entity. As aresult, the funds were not available foroperation or modernization of publichousing units, and assets are at risk.

OIG recommended that HUD requirethe Authority to repay ineligible costs ofmore than $4.9 million to its public housingfund, establish a procedure that requires theexecutive director to provide monthlyfinancial documents to the board beforemeetings to assist the board in providingoversight, and obtain a release ofencumbered assets in the amount of$475,000 for use as originally intended. OIGalso recommended that HUD determinewhether the Authority substantiallydefaulted on its contract. (Audit Report:2006-AT-1007)

HUD OIG audited the low-rent housingprogram of the Utica Municipal HousingAuthority in Utica, NY, to determinewhether it complied with the provisions ofits annual contributions contract.

The Authority improperly disbursedmore than $511,000 in operating funds forhealth benefits of retired employees. It didnot ensure that all procurements allowed forfull and open competition, procured legalservices without executing a contract, madecontract payments without adequatesupporting documentation, and failed toenforce contract provisions for elevatorconstruction services. The Authorityincurred questionable costs of more than$140,000 and did not completely earn theadministrative fees it was paid as a contractadministrator for the Section 8 program

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


since it failed to conduct requiredmanagement reviews and meet itsmonitoring responsibilities.

OIG recommended that HUD requirethe Authority to establish controls andprocedures to ensure compliance with allapplicable board, procurement, and contractadministration policies and procedures;submit documentation to justify allunsupported costs; and reimburse theprogram from nonfederal funds all amountsfound to be ineligible. In addition, theAuthority should enforce the damage clauseof its elevator contract and collect all penaltyincome for program use. (Audit Report:2006-NY-1005)

HUD’s Real Estate AssessmentHUD’s Real Estate AssessmentHUD’s Real Estate AssessmentHUD’s Real Estate AssessmentHUD’s Real Estate AssessmentCenter’s (REAC) HousingCenter’s (REAC) HousingCenter’s (REAC) HousingCenter’s (REAC) HousingCenter’s (REAC) HousingInspectionsInspectionsInspectionsInspectionsInspections

HUD OIG reviewed HUD’s Real EstateAssessment Center ’s (REAC) housinginspections and oversight and controls overits housing inspection process. OIG initiatedthe review as part of its strategic plan to helpHUD improve the execution of its fiscalresponsibilities. The objective was todetermine whether REAC had adequatecontrols to safeguard the integrity of itshousing inspection data.

Without REAC’s knowledge, confidentialinformation maintained in its system wasaccessed and used inappropriately byunauthorized persons. The unauthorizedpersons drew a sample of housing authorityunits before the inspector ’s scheduledinspection. REAC’s controls and proceduresfor securing its housing information after adownload and before the upload ofinspection data were not in place to assurethat only authorized users had access toHUD’s confidential information. OIGinformed the REAC’s Deputy AssistantSecretary of other minor deficiencies in amemorandum, dated November 22, 2005.


OIG recommended that HUDimplement procedures and controls over thephysical assessment subsystem to correctthe deficiencies addressed. (Audit Report:2006-CH-0001)


opened 486 investigation cases and closed393 cases in the PIH program area. Judicialaction taken on these cases during theperiod included $8,829,801 in investigativerecoveries, 386 indictments/informations,287 convictions/pleas/pretrial diversions,1,093 arrests, 12 civil actions, 19 personnelactions, and 991 administrative actions.

Public housing rental assistance fraudis an investigative priority for the Office ofInvestigation. OIG runs rental assistancefraud initiatives nationwide to reduce fraudin HUD rental assistance programs andsupport the HUD Rental Housing IntegrityImprovement Project (RHIIP). Some of theinvestigations discussed in this report wereconducted jointly with Federal, State, andlocal law enforcement agencies. Theresults of OIG’s more significantinvestigations are described below.

Rental Assistance FraudRental Assistance FraudRental Assistance FraudRental Assistance FraudRental Assistance Fraud

Linton White, a Topeka HousingAuthority (THA) public housing tenant,pled guilty in Topeka, KS, State court to aninformation charging him with theft. Whitefalsified his housing assistance applicationby failing to report his Missouri sexualpredator classification to authorities in theState of Kansas and THA. White received$6,493 in housing assistance payments towhich he was not entitled.

Robert Askew III, former Section 8tenant, Oakland Housing Authority (OHA),was indicted in U.S. District Court, NorthernDistrict of California, Oakland, CA, on ninecounts of mail fraud and one count of falsestatements. The indictment also includedcriminal forfeiture provisions. From 1999through 2002, Askew allegedly reported hewas disabled, unemployed, and had noassets on OHA and Social SecurityAdministration (SSA) disabilitycertifications, when Askew was self-employed, actively operating a homerenovation/improvement business known asAskew & Company; owned four cars, amotorcycle, residential property in Oakland,CA, and rental property in Sacramento, CA;and made bank account deposits of $87,058in 1999, $52,365 in 2000, $211,014 in 2001,and $407,606 in 2002. Askew was arrestedon October 19, 2005. HUD losses areestimated at $35,500.

Debra Utley pled guilty in U.S. DistrictCourt, Middle District of Tennessee,Nashville, TN, to one count of theft of publicmoney and agreed to pay Nashville MetroDevelopment Housing Agency $10,983 inrestitution. Utley failed to report her August2000 employment at Vanderbilt UniversityMedical Center.

Alisa Covington, a Lakeland HousingAuthority (LHA) public housing resident,was arrested in Lakeland, FL, on a State ofLouisiana arrest warrant for probationviolations. Covington’s probation stemmedfrom a Louisiana conviction for possessionwith intent to sell 11 pounds of marijuana.LHA was notified of Covington’s arrest andbegan terminating Covington from theirhousing assistance program. Covington wasextradited by the Lakeland PoliceDepartment.

Ernest Stevenson, a Section 8 landlord,and Paula Petruk, also known asPaula Stevenson, a Duluth HousingRedevelopment Authority (DRHA) Section8 tenant, each pled guilty in U.S. District


Chart 3.2: Public and Indian HousingChart 3.2: Public and Indian HousingChart 3.2: Public and Indian HousingChart 3.2: Public and Indian HousingChart 3.2: Public and Indian HousingRecoveriesRecoveriesRecoveriesRecoveriesRecoveries

Section 854%

PHA Fraud10%


Embezzlement7%

Other12%

FalseStatements

2%Public

Corruption15%

Court, District of Minnesota, Duluth, MN,to one count of conspiracy. Stevenson andPetruk, who received housing assistancefrom DHRA, failed to disclose joint accountsand co-ownership of real estate located inDuluth. HUD’s loss is estimated at $54,000.

Jacinda Stokes and Sherrell Lanier,former Lakeland Housing Authority (LHA)Section 8 tenants, were arrested aftercomplaints were filed in State court,Lakeland, FL, charging them with publicassistance fraud. Stokes and Lanierallegedly failed to disclose earned incomeon their annual Section 8 recertificationforms submitted to LHA. HUD’s loss isestimated at $19,261.

Carresha Skiffer, a former InglewoodHousing Authority (IHA) Section 8recipient, was charged in Superior Court,County of Los Angeles, Inglewood, CA,with one count of theft and one count ofobtaining money under false pretenses.Skiffer allegedly filed false annual housingcertifications by failing to claim income sheearned from operating an adult-sexually-oriented business out of her subsidizedapartment or rents she collected fromsubleasing her unit for extended periods.IHA removed Skiffer from the rentalassistance program.

Maverick E. Jackson, a Section 8landlord, Aiken Housing Authority (AHA),was indicted in U.S. District Court, Districtof South Carolina, Aiken, SC, on two countsof submitting false documents to AHA.Jackson allegedly lived in a subsidized unitand falsely certified that he had norelationship to a tenant in his unit, who washis half brother and an AHA Section 8applicant. HUD’s loss is estimated at $6,100.

Kelly Turnage, a former InglewoodHousing Authority (IHA) Section 8recipient, was charged in Superior Court,County of Los Angeles, Inglewood, CA,with one count of theft and one count ofobtaining money under false pretenses.

Turnage allegedly filed false annual housingcertifications by failing to report her priorcriminal convictions for prostitution, autotheft, forgery, and narcotics; her currentprobation status; or her use of numerousaliases. IHA removed Turnage from therental assistance program.

Rocky Stubbs, a Section 8 landlord withCoshocton Metropolitan Housing Authority(CMHA), was sentenced in CoshoctonCounty Court, Coshocton, OH, to 3 yearsprobation and ordered to pay CMHA $27,000in restitution. Stubbs, leasing his propertyto CMHA, resided at his property with aCMHA Section 8 recipient and concealedtheir living arrangement from CMHA.

Tyrone Mock, a Cuyahoga MetropolitanHousing Authority (CMHA) Section 8landlord, was sentenced in U.S. DistrictCourt, Northern District of Ohio, Cleveland,OH, to 46 months incarceration and 3 yearssupervised release and ordered to payCMHA $37,438 in restitution. Mockpreviously pled guilty to providingfraudulent information to obtain multipleproperties, leasing the properties to CMHAtenants, residing in one leased property witha CMHA Section 8 recipient, failing to paymortgages associated with the properties,and filing bankruptcies to stop foreclosureproceedings and continued to receiveCMHA housing assistance payments.

Carol Tharpe, a former Seattle HousingAuthority (SHA) Section 8 tenant, wassentenced in U.S. District Court, WesternDistrict of Washington, Seattle, WA, to 5years probation and ordered to pay SHA$37,500 in restitution for her previous guiltyplea to one count of theft. From 1997 through2004, Tharpe understated her income onannual SHA certifications.

Sherrell A. Lanier, a Lakeland HousingAuthority (LHA) Section 8 tenant, wascharged in an information filed in the 10thJudicial Circuit, State of Florida, Lakeland,FL, with one count of public assistance


fraud. From January 2001 through February2004, Lanier allegedly failed to reportemployment income and received $8,114 inLHA housing benefits to which she was notentitled.

Xavier Williams, New York CityHousing Authority (NYCHA) publichousing tenant and member of a violentBronx-based gang called Sex, Money andMurder Crew, was sentenced in U.S. DistrictCourt, Southern District of New York, NewYork, NY, to life imprisonment withoutparole. Williams was convicted on July 8,2005, after a 7-week trial involving publichousing fraud, narcotics and firearmstrafficking, money laundering, racketeering,and attempted murder violations. Williamsoperated a narcotics and money-launderingenterprise from his public housing unit atNYCHA’S Bronx River Houses andprovided false statements on his annualpublic housing recertifications.

Jacinda Stokes, a Lakeland HousingAuthority (LHA) Section 8 tenant, wascharged in an information filed in 10thJudicial Circuit, State of Florida, Lakeland,FL, with one count of public assistancefraud. From April 2001 through July 2005,Stokes allegedly failed to reportemployment income and received $11,147in LHA housing benefits to which she wasnot entitled.

Geno Wilson, a former InglewoodHousing Authority (IHA) Section 8recipient, was charged in Superior Court,County of Los Angeles, Inglewood, CA,with four counts of filing a false documentwith a public office, one count of obtainingmoney under false pretenses, and one countof grand theft. Wilson allegedly failed todisclose his 1991 sexual offender convictionon his initial IHA Section 8 application oron IHA annual certifications. SinceFebruary 2002, Wilson has received anestimated $50,000 in Section 8 housingassistance payments to which he was notentitled.

Tony Jones, former St. PetersburgHousing Authority (SPHA) landlord, wassentenced in U.S. District Court, MiddleDistrict of Florida, Tampa, FL, to 4 monthsincarceration and 3 years supervised releasewith 4 months home detention and orderedto pay HUD $31,606 in restitution, jointlyand severally with codefendant NatalieJones, and $26,000 to the U.S. Governmentsolely. On June 8, 2005, Jones was convictedof conspiracy to defraud HUD. Tony Jonesleased his residence to SPHA and SPHASection 8 tenant Natalie Jones, his wife, butfailed to report to SPHA that he resided withhis wife at his residence. As a result of hisactions, Jones received $31,606 in housingassistance to which he was not entitled.

Angelina Lyles, former DuPageHousing Authority (DHA) Section 8 tenant,was found guilty in U.S. District Court,Northern District of Illinois, Chicago, IL, ofthree counts of false statements. Lyles failedto report her income, the presence and full-time income of her husband, her criminalrecord, and bank accounts to the DHA.HUD loss is estimated at $15,000.

Paul and Kristen West, former KingCounty Housing Authority (KCHA) Section8 recipients, were each charged in KingCounty Superior Court, Seattle, WA, withone count of theft. The Wests allegedly failedto report their employment or incomeearned on their initial KCHA Section 8application or annual recertifications. SinceApril 2002, Paul and Kristen West havereceived more than $28,000 in housingassistance payments to which they were notentitled.

Dannette Thomas, an InglewoodHousing Authority (IHA) Section-8recipient, was charged in Superior Court,County of Los Angeles, Inglewood, CA,with one count of grand theft, one count ofobtaining money under false pretenses, andone count of filing a false document with apublic office. Thomas allegedly failed toreport the 6-month residency and income of


her brother Billy Thomas, a convicted sexoffender, to IHA on her housing certification.Dannette Thomas was arrested on anoutstanding warrant, and Billy Thomas wasarrested on parole violations and possessionof crack cocaine at Thomas’s IHA subsidizedunit.

Toria Woods, an Inglewood HousingAuthority (IHA) Section-8 recipient, wascharged in Superior Court, County of LosAngeles, Inglewood, CA, with one count ofgrand theft, one count of obtaining moneyunder false pretenses, and one count of filinga false document with a public office.Woods allegedly failed to claimunauthorized tenants residing in her unit,income she gained from an identity theftscheme, use of aliases, or her prior criminalhistory on IHA annual housingcertifications. As a result, she receivedapproximately $20,375 in housing assistancepayments to which she was not entitled.IHA has removed Woods from its rentalassistance program.

Kamilah Rainey and Iris Riley werearrested pursuant criminal complaints filedin the 10th Judicial Circuit, State of Florida,Lakeland, FL, on Section 8 fraud charges.Rainey and Riley are current LakelandHousing Authority (LHA) Section 8 tenantswho allegedly underreported their incomesduring annual recertifications submitted toLHA. HUD’s loss is approximately $21,435.

Sharon Dixon, a Miami-Dade HousingAuthority (MDHA) Section 8 tenant, wasindicted in U.S. District Court, SouthernDistrict of Florida, Miami, FL, on falsestatements to HUD and theft of governmentfunds. Dixon was arrested after herindictment. From January 2001 throughDecember 2004, Dixon allegedly submittedfalse applications to MDHA for HUDSection 8 subsidies by failing to disclose herMiami-Dade County Transit Authorityemployment. HUD’s loss is estimated at$49,500.

Barbara Singleton, a Rochester HousingAuthority (RHA) Section 8 tenant, and LarryPradia, RHA landlord, were each chargedin U.S. District Court, Western District ofNew York, Rochester, NY, with one countof conspiracy, false statements, and theft ofgovernment funds. From 1998 through 2004,Singleton and Pradia allegedly conspired tocollect more than $70,000 in RHA Section 8housing assistance payments whenSingleton certified that Pradia was herlandlord residing elsewhere on annualrecertification and other RHA documents.

Brooks Rice was sentenced in U.S.District Court, Eastern District of Tennessee,Chattanooga, TN, to 21 months confinementand 26 months supervised release andordered to pay HUD $16,565 in restitution.On September 15, 2005, Rice pled guilty toone count of use of a false Social Securitynumber (SSN). Rice used a fraudulent SSNto obtain Section 8 benefits she was notentitled to receive.

Celestine Gallegos, San FranciscoHousing Authority (SFHA) and HousingAuthority of the County of San Mateo(HACSM) housing assistance recipient, wascharged with one count of false statementsin an information filed in U.S. District Court,Northern District of California, SanFrancisco, CA. On December 16, 2005,Gallegos pled guilty to receiving housingassistance payments simultaneously fromSFHA and HACSM, receiving $13,285 towhich she was not entitled.

Benzalda Delarosa was indicted on twofelony counts of theft in WashingtonSuperior Court for Grays Harbor County,Aberdeen, WA. Delarosa allegedly failed toreport all household resident income andreceived $11,000 in HUD Section 8 funds and$12,000 in Washington Department of Socialand Health Services welfare benefits towhich she was not entitled.


Evelyn Bessent was charged with theftof government funds in an information filedin U.S. District Court, Southern District ofFlorida, West Palm Beach, FL. Bessent, aparticipant in the Palm Beach CountyHousing Authority Section 8 HousingChoice Voucher program, allegedly used hervoucher to reside in a home she co-ownedwith her spouse and concealed ownershipof two additional residential propertiesoccupied by Section 8 program participants.Bessent received $21,255 in housingassistance payments to which she was notentitled.

An Essex County Superior Court GrandJury, Salem, MA, indicted JenniferStevanovich, a former Andover Section 8tenant, on two counts of larceny and fourcounts of criminal perjury. Stevanovich waspreviously convicted of selling stolen

“Victoria’s Secret” merchandise from hersubsidized housing unit. Between January2000 and January 2005, Stevanovichallegedly deposited approximately $280,000cash into eight bank accounts, but failedto report the funds to HUD or the state ofMA, and received $59,765 in housingbenefits and $57,790 in welfare benefits shewas not entitled to receive.

In Bucks County Court of CommonPleas, Bucks County, PA, Herbert andAnnette Smith entered guilty pleas to felonycharges of theft, criminal conspiracy, andfalse swearing. The Smiths, residents ofsubsidized housing, Bucks County HousingAuthority (BCHA), failed to report HerbertSmith’s 30-year criminal history includingtwo sex offender convictions to BCHA. TheSmiths were evicted from BCHA housing.

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


Andrea Henderson was charged withfour felony counts of grand theft, filing falsedocuments with a public office, andobtaining money under false pretenses inSuperior Court, County of Los Angeles,Inglewood, CA. In 2004 and 2005,Henderson allegedly filed false housingcertifications with the Inglewood HousingAuthority (IHA) by failing to identify herhusband, Darryl Kennedy, a convicted sexoffender, and two unauthorized individualsas residents in her Section 8 subsidized unit.As a result, Henderson received $14,000 inhousing assistance payments to which shewas not entitled.

A civil complaint was filed by the U.S.Attorney’s Office, District of NewHampshire, Concord, NH, against AmyMcPherson, John Nionakis, and DelilahProperties Inc. The complaint, filed onbehalf of HUD, U.S. Department of Healthand Human Services (HHS), U.S.Department of Agriculture (USDA), andSSA, seeks approximately $382,000 and civilpenalties against McPherson, Nionakis, andDelilah Properties, Inc., under the FalseClaims Act. On November 14, 2005,McPherson, a former Section 8 recipient, wassentenced to 6 months in prison and 3 yearssupervised release and ordered to pay HUD,USDA, and HHS $67,547 in restitutionfollowing her previous guilty plea tomultiple counts of false statements.McPherson received Section 8 subsidies ata home she owned under the corporatename of Delilah Properties, Inc., in Exeter,NH.

Kelly M. Summerour, Tracy Curry-Culbreath, and Wanda T. Nolan, formerInternal 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 Nolanallegedly provided false verifications ofemployment to Atlanta and Decatur/DekalbHousing Authorities, fraudulently receiving$38,532 in housing assistance payments.

Michael Washington, a former Section8 landlord, pled guilty to one felony countof grand theft in State of California SuperiorCourt, County of San Mateo, San Mateo, CA.Washington was sentenced to 90 days incounty jail and 3 years probation andordered to pay approximately $15,668 inrestitution to the Housing Authority of theCounty of San Mateo (HACSM). FromDecember 2002 to December 2003,Washington received approximately $15,668in Section 8 housing assistance paymentsfrom HACSM for a tenant who had movedfrom her unit.

Ebony Lucien, a Section 8 recipient, wascharged in Superior Court, County of LosAngeles, Los Angeles, CA, with one countof perjury, one count of grand theft, onecount of unlawfully making a false financialstatement, and two counts of filing a falsedocument with a public office. In 2003 and2004, Lucien allegedly filed false housingcertifications with both City of Los Angelesand County of Los Angeles HousingAuthorities, receiving $11,721 in housingassistance payments to which she was notentitled.

Jacqueline Watson, a Section 8 tenant,was charged in a complaint filed in SuperiorCourt of California, Solano County, Vallejo,CA, with one count of grand theft. Watsonallegedly failed to report her incarcerationand absence for more than 1 year from herVallejo Housing Authority Section 8 unit.The loss to HUD is estimated at $40,625.

Barbara Mack, former Section 8 tenant,Tampa Housing Authority (THA), wasindicted in U.S. District Court, MiddleDistrict of Florida, Tampa, FL, on two countsof theft of government funds and one countof bankruptcy fraud. Mack allegedlyacquired and used two SSNs to obtain HUDhousing assistance and SSA disabilitybenefits while earning employment income,obtaining a Federal Housing Administration(FHA)-insured mortgage, and filingbankruptcy. Mack allegedly failed to reportemployment income earned to THA or


approximately $23,455 in Section 8 and$61,788 SSA disability benefits she receivedto the bankruptcy court. On February 3,2006, Mack was arrested in Clearwater, FL.

Sharon Smith, a superior court judicialclerk, Union, NJ, pled guilty to aninformation filed in U.S. District Court,Newark, NJ, charging her with one countof theft of government funds. From January2002 to September 2005, Smith causedfraudulent verification of employmentforms to be submitted to the ElizabethHousing Authority (EHA), resulting inSmith defrauding EHA of approximately$20,714.

Tyeshia Borela, a former San FranciscoHousing Authority (SFHA) Section 8 tenant,was indicted in U. S. District Court,Northern District of California, SanFrancisco, CA, on one count of falsestatements to HUD. From 2002 to 2005,Borela allegedly claimed a nonexistentdaughter, failed to report her actual income,and subleased her SFHA Section 8subsidized unit. In addition, Borelaallegedly provided false income informationduring her November 2004 bankruptcyfiling. As a result, she receivedapproximately $64,000 in Section 8 housingassistance and $36,000 in discharged debtsto which she was not entitled.

Billy Nsubuga, a former Section 8tenant, Malden Massachusetts HousingAuthority (MMHA), pled guilty to anInformation filed in U.S. District Court,Boston, MA, charging six counts of bankfraud, five counts of mail fraud, five countsof identity theft, and one count of identitydocument fraud. Nsubuga opened bankaccounts in Massachusetts, New York, andConnecticut with cash deposits in the namesof others using altered passports fromUganda, The Republic of Congo, and SouthAfrica and bogus identification documentsfrom California. Nsubuga received morethan $100,000, which was not reported to

MMHA, before her scheme was detected byNew York and Connecticut banks.

Quiana Adams pled guilty to 35 countsof theft of government funds, four counts offalse statements, and one count ofconspiracy in U.S. District Court, SouthernDistrict of Florida, Miami, FL. Adams’spouse, Anthony Boatwright, pled guilty totwo counts of false statements and one countof conspiracy. Adams and Boatwright,participants in the Section 8 Housing ChoiceVoucher program, provided false householdcomposition and income information to theMiami-Dade Housing Agency to qualify forhousing assistance. Adams and Boatwrightreceived $37,229 in housing assistancebenefits to which they were not entitled.They were arrested on December 8, 2005.

Nasir Javaid and Nancy Kharsa, formerSan Francisco Housing Authority (SFHA)Section 8 landlord and tenant, each pledguilty in U.S. District Court, NorthernDistrict of California, San Francisco, CA, toone count of making false statements toHUD. Under the plea agreement, Javaid andKharsa agreed to pay HUD $51,717 inrestitution. From 1998 to 2002, Javaid andKharsa participated in a scheme to defraudHUD’s Section 8 program by using SFHAand/or HUD multifamily housing assistancepayments received by Javaid, Kharsa, andJavaid’s mother, Jhan Noor, to purchase twoproperties in El Cerrito and San Francisco,CA. As a result, Javaid and Kharsa receivedapproximately $51,717 in Section 8 housingassistance benefits to which they were notentitled.

Kalsoum Berro, a Michigan StateHousing Development Authority (MSHDA)Section 8 tenant, and her husband, HassanBerro, a MSHDA Section 8 landlord, wereeach charged in 19th District Court,Dearborn, MI, with one count of violatingthe State Housing Development AuthorityAct of 1996. Hassan and Kalsoum Berroallegedly had lived together since 1990 and


received $94,000 in housing assistancepayments to which they were not entitled.

Farid Bayot, real estate broker andowner of Global One Realty, Inc., Aurora,CO, was charged in an information filed inU.S. District Court, District of Colorado,Denver, CO, with one count of loan andcredit applications generally. Bayotallegedly assisted Littleton HousingAuthority (LHA) Section-8 tenant,Hamidullah Sarwary, in purchasing thehome in which Sarwary resided and forwhich Sarwary received LHA housingassistance payments. As a result of hisaction, HUD realized losses of $3,000.

Jessica Jackson-Elston, former RockIsland Housing Authority (RIHA) Section 8tenant, along with Fabiola Munoz and JulioGallegos, former Moline Housing Authority(MHA) public housing tenants, werecharged in Rock Island Circuit Court, RockIsland, IL, with multiple counts of theft andidentity fraud. Jackson-Elston allegedlyfailed to report her husband’s ownership ofher RIHA Section 8 subsidized unit, andMunoz and Gallegos allegedly failed toreport income and/or used false identitiesand SSNs on MHA annual recertifications.As a result of their actions, the collective lossto HUD exceeds $35,000. Jackson-Elstonwas terminated from the RIHA rentalassistance program.

Mary Martin, former St. PetersburgHousing Authority (SPHA) Section 8 tenant,pled guilty in U.S. District Court, MiddleDistrict of Florida, Tampa, FL, to one countof theft of government funds. Martin failedto report income earned by her residentspouse to SPHA and claimed a residentdaughter while the daughter received herown Section 8 housing benefits from PinellasCounty Housing Authority. As a result,HUD realized an estimated $36,997 loss.Martin was arrested on March 1, 2006.

Ranina Jones, former San FranciscoHousing Authority (SFHA) and Housing

Authority of the County of San Mateo(HACSM) Section 8 tenant, was sentencedin U.S. District Court, Northern District ofCalifornia, San Francisco, CA, to 2 yearsprobation and ordered to pay HACSM$25,582 in restitution for her previous guiltyplea to false statements to HUD. Jones,while living in and receiving public housingassistance from SFHA, applied for andreceived Section 8 housing assistancepayments from HACSM. As a result, Jonesreceived $25,582 in Section 8 housingassistance to which she was not entitled.

PHA Employee Theft/PHA Employee Theft/PHA Employee Theft/PHA Employee Theft/PHA Employee Theft/EmbezzlementEmbezzlementEmbezzlementEmbezzlementEmbezzlement

Douglas Hamond, former maintenancegeneral foreman, Utica Housing Authority(UHA), was arrested and charged with fivecounts of petty theft and one count of perjuryin Oneida County Court, Utica, NY.Hamond allegedly misused UHA’S creditcard for personal purchases.

In Grand Rapids, MI, JeromeWisniewski, former executive director,Manistee Housing Commission (MHC), wassentenced to 3 years in prison and 3 yearsprobation and ordered to pay HUD$1,308,522 in restitution after he pled guiltyto embezzlement and unlawful monetarytransactions. Wisniewski, in a scheme todefraud MHC of more than $1.2 million,funneled MHC’S funds into a fictitiouscompany he created and used the money topurchase a 1989 Rolls Royce Silver Spur, a1999 Porsche 911, and two residentialproperties.

Jane A. Burchett, former executivedirector, Wymore Housing Authority(WHA), was sentenced in U.S. DistrictCourt, District of Nebraska, Omaha, NE, to3 years probation and ordered to pay WHA$19,977 in restitution. Burchett, who wasconvicted of Federal program fraud onAugust 18, 2005, embezzled approximately$26,683 from WHA by issuing inflated WHA


payroll checks to an employee, forging theemployee’s signature, and cashing thechecks.

Wilma A. Nicholson, former executivedirector of the Housing Authority of the Cityof Alamo (HACA), was sentenced in U.S.District Court, Southern District of Georgia,Alamo, GA, to 10 months incarceration and3 years supervised release and ordered topay HACA $46,169 in restitution. Nicholsonpreviously pled guilty to one count of theftof government funds for pilfering cashdwelling receipts from HACA.

Michael Mullins and David Carte,former Cuyahoga Metropolitan HousingAuthority (CMHA) employees, each pledguilty in Court of Common Pleas, CuyahogaCounty, Cleveland, OH, to a one-countinformation charging them with theft.Mullins and Carte claimed labor hours onCMHA time sheets and received CMHAwage payments while working at other jobs.Mullins and Carte were each sentenced to 2years probation and ordered to pay CMHArestitution of $8,214 and $8,813 respectively.

Lawrence Bower, former WilliamsportHousing Authority (WHA) board member,was indicted in U.S. District Court, MiddleDistrict of Pennsylvania, Williamsport, PA,for allegedly making false statements toHUD. Bower allegedly failed to apply foror obtain a waiver from HUD to participatein the WHA Section 8 program as required.Bower, in his position as WHA boardmember, approved monthly WHA housingassistance checks made payable to him,receiving a total of $25,324 over 11 years.The Williamsport City Council dissolvedWHA, assigning WHA duties LycomingCounty Housing Authorities.

Jaymie Jo Phillips, former YanktonSioux Housing Authority (YSHA)occupancy specialist, was sentenced in U.S.District Court, District of South Dakota,Sioux Falls, SD, to 3 years probation andordered to pay YSHA $8,389 in restitutionfollowing her previous guilty plea to

embezzlement and theft from an Indiantribal organization. During 2004, Phillipsskimmed $7,000 in cash rental proceedsfrom YSHA.

Bernard Meyer, former WilliamsportHousing Authority (WHA) executivedirector, was sentenced in U.S. DistrictCourt, Middle District of Pennsylvania,Williamsport, PA, to 1 year supervisedprobation and ordered to pay HUD $9,766in restitution. Meyer was charged withconflict of interest for failing to disclose hisfinancial interest in several propertieshousing Section 8 tenants through WHA andfailing to obtain a waiver from HUD. Meyerreceived $9,766 in housing assistance checkson behalf of Section 8 tenants over 6 years.Meyer resigned his position when charged,and Williamsport City Council dissolvedWHA, assigning WHA duties to LycomingCounty Housing Authorities.

Thomas Herrera, former executivedirector, Pueblo de Cochiti HousingAuthority (PCHA), pled guilty in U.S.District Court, District of New Mexico,Albuquerque, NM, to one count of theft andone count of embezzlement from an Indiantribal organization. From February toNovember 2003, Herrera embezzled PCHAfunds by issuing unauthorized PCHAchecks to himself, forging PCHA boardmembers’ signatures, cashing the checks,and using the funds for personal expenses.HUD realized losses of $78,448.

Stan Self, former executive director forHugo Housing Authority (HHA), Hugo,OK, and Region VI Housing Authority,Roswell, NM, was indicted in U.S. DistrictCourt, Eastern District of Oklahoma,Muskogee, OK, on one count of mail fraud.Self pled guilty to the charge during a pleahearing on December 29, 2005. Self, asexecutive director of HHA, embezzled HHAfunds by providing HHA consultingservices according to his employmentcontract on 25 occasions, collecting thepayments on behalf of HHA, failing to remitthe payments to HHA, and using the funds


for his personal benefit. Self resigned fromHHA after receiving a limited denial ofparticipation (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, HUDrealized losses of $6,304.

Loren Goldtooth, former executivedirector, KI:KI Association, the HUD-funded tribally designated housing entityof the Tohono O’Odham Indian Nation, andcertified public accountant doing businessas Goldtooth & Company, P.C., was indictedon February 6, 2006, in U.S. District Court,District of Arizona, Tucson, AZ, on twocounts of embezzlement and theft from anIndian tribal organization, three counts offailing to file Federal individual income taxreturns, and two counts of failing to fileFederal corporate income tax returns. FromFebruary 2000 through August 16, 2002,Goldtooth allegedly embezzled $216,531 ofKI:KI Association funds and failed to fileFederal individual and/or corporate taxreturns for 1999 through 2002. On February16, 2006, Goldtooth was arrested.

James H. Tate, former executivedirector, Junction City, KS, HousingAuthority (JCHA), was sentenced in U.S.District Court, District of Kansas, Topeka,KS, to 5 months prison, 5 months housearrest and 3 years probation and ordered topay JCHA $102,701 in restitution. OnAugust 23, 2005, Tate pled guilty to theft ofgovernment property for stealing $102,701from JCHA by purchasing personal itemson JCHA credit cards. Tate paid hisunauthorized JCHA credit card expensesusing the electronic signature password ofthe JCHA board chairman to approve theissuance of checks from JCHA’Scomputerized accounting program.

John C. Wolfe, Sr., former executivedirector, Marionville Housing Authority(MHA), was charged in a felony complaintfiled in 39th Missouri Judicial Circuit Court,Marionville, MO, with two counts ofstealing. From April 2003 through August2004, Wolfe allegedly embezzled $23,267from MHA by issuing himself payrollchecks not reported to or approved by theMHA board of directors.

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


Barbara Gilbert, former executivedirector, Buena Housing Authority (BHA),was sentenced in Atlantic County Court,Newark, NJ, to 180 days in prison and 3years probation and ordered to permanentlyforfeit public employment and pay HUDrestitution in an amount to be determined.Gilbert pled guilty to two counts of theft bydeception on December 9, 2005. Gilbertused BHA checks and BHA’s Home Depotaccount to pay for and obtain more than$7,800 in personal purchases.

Serena Parker, a former GreensboroHousing Authority (GHA) intake specialist,along with Teresa Thomas and VivianPandora Bailey, fictitious GHA landlords,were each indicted in U.S. District Court,Middle District of North Carolina,Greensboro, NC, on seven counts of mailfraud and seven counts of aiding andabetting. Parker allegedly accessed GHA’Scomputer system, illegally added Thomasand Bailey as GHA landlords, and causedthe mailing of 48 fraudulent housingassistance checks totaling more than $70,000to both Thomas and Bailey.

PHA Contract FraudPHA Contract FraudPHA Contract FraudPHA Contract FraudPHA Contract Fraud

In the Eastern District of Michigan,Detroit, MI, LaToya Cotton, a formercontractor for Michigan State HousingDevelopment Authority (MSHDA), enteredinto a plea agreement with the U. S.Attorney’s Office, following the filing of acriminal information charging Cotton withone count of theft/embezzlement and onecount of criminal forfeiture against herproperty valued at $750,780. Cotton, doingbusiness as Washtenaw Payee Services, aformer MSHDA contractor whoadministered the Washtenaw CountySection 8 rental assistance program, createdfalse tenant files and inspections anddiverted $1,052,701 in housing assistancepayments to herself over 10 years.

Nicholas Kastounakis, doing businessas Manny’s Plumbing & Heating, pled guiltyto a six-count information filed in U.S.District Court, District of Massachusetts,Springfield, MA, charging him with threecounts of bribery and three counts of aidingand abetting. Katsounakis, a contractor forSpringfield Housing Authority (SHA), wasinvolved in a kickback scheme withRaymond Asselin, former SHA executivedirector, and Arthur Sotirion, former SHAdeputy director.

William Moorehead, doing business asWilliam Moorehead and Associates (WMA),acknowledged a joint liability of $2.8 millionto the U.S. Government in a stipulation forentry of consent judgment filed in U.S.District Court, Northern District of Illinois,

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


Chicago, IL. Moorehead, a propertymanager for many housing authorities andprivately owned Section 8 developments,created fraudulent records and moneytransfers to hide missing and misusedfunds. Moorehead also directedcodefendants Patricia Taylor and BrianTownsend, accountants at WMA, to createfalse bank records and write checks drawnon accounts containing insufficient funds.

Eric Ackerman, a plumbing contractorfor Buffalo Municipal Housing Authority(BMHA), pled guilty in U.S. District Court,Buffalo, NY, to one count of false statementsto HUD. Ackerman falsely certified hisqualifications as a minority businessenterprise (MBE) and distribution of BMHAwork to other MBE companies. As a result,he received approximately $1.75 millionin BMHA contracts to which he was notentitled.

Fugitive FelonFugitive FelonFugitive FelonFugitive FelonFugitive Felon

Michael Deuso, a Franklin CountyHousing Authority Section 8 recipient andfugitive, was arrested at his apartment inTurners Falls, MA, for probation violations,including smuggling drugs into a NewMexico prison.

Jose Verdejo-Santiago, a public housingtenant, Puerto Rico Housing Authority(PRHA), was arrested at his Covadongapublic housing unit in Trujillo Alto, PR, onan outstanding fugitive-felon arrest warrantrelating to the illegal sale and distributionof firearms and drugs. At the time of hisarrest, 259 heroin decks, 340 units ofmarijuana, and five grams of pure heroinwere seized from his apartment.

Joel Moreno, Ithier Rivera, Jose A.Rivera, Luis Melendez, Jose Ortiz, OmarMoreno, Jose G. Rivera, Jose M. Rivera,Ramon Martinez, Carlos Cruz, LizetteRivera, and Yaritza Franceshi, all PuertoRico Housing Authority (PRHA) public

housing tenants, were arrested at Las Palmaspublic housing complex in Coamo, PR, onoutstanding arrest warrants relating to thesale and distribution of firearms and drugs.

Francisco Frias was arrested at his NewYork City Housing Authority publichousing unit in New York, NY, on a warrantfor making terror threats out of Stamford,CT, by the NY/NJ High Intensity DrugTrafficking Area Regional Fugitive TaskForce. A bullet resistant vest, 64 grams ofcocaine, a 9mm semiautomatic weapon,drug paraphernalia, and $5,945 in cash wereseized during a search of his unit.

Six Chester Housing Authority (CHA)public housing and Section 8 vouchertenants were arrested at CHA publichousing units or subsidized residences inChester, PA, on outstanding warrants,including one warrant charging attemptedmurder.

As a result of an ongoing fugitive feloninitiative, 10 individuals were arrestedthroughout Windham County, VT, onoutstanding State warrants. Severalindividuals arrested received Section 8housing assistance either through theVermont State Housing Authority orBrattleboro Housing Authority.

Juan Almodovar, an illegal resident of apublic housing unit was arrested inWorcester, MA, for failure to register as asex offender. Almodovar, previouslyconvicted of rape in New York, failed toregister as a sex offender in either New Yorkor Massachusetts.

Dashonn Graves, a managementinformation specialist, Plainfield HousingAuthority and City of Orange HousingAuthority, was arrested in Newark, NJ, onan outstanding warrant for failing to fulfillrequirements of his pretrial intervention(PTI) program. Graves, originally arrestedin April 2002 for credit card fraud andlarceny, pled guilty to embezzling $37,000


from his previous employer. Graves wassentenced to 1 year pretrial probation andrestitution of $25,000. In March 2004, afterfailing to meet probation requirements,Middlesex County District Attorney’sOffice, MA, issued an arrest warrant forGraves.

Dion Johnson of Richmond, VA, wasarrested in North Carolina on charges thathe failed to reregister as a sex offender. InApril 1991, Johnson was convicted of felonyrape and breaking and entering; laterconvictions include attempted rape,robbery, assault, grand larceny, and failingto register as a violent sexual offender. InMarch 2005, Johnson registered as a violentsex offender living in a RichmondRedevelopment and Housing Authority(RRHA) unit leased to his mother. Johnsonfailed to reregister after 90 days as required.

HUD OIG participated in a UnitedStates Marshal’s Service (USMS) fugitivefelon apprehension plan dubbed “OperationCity Sweep” from March 6 through March31, 2006, in the Washington, DC,metropolitan area. HUD OIG and othermembers of the Capital Area RegionalFugitive Task Force (CARTF) arrestedfugitives with outstanding warrants oncharges ranging from parole violations tohomicide. Three hundred-fifteen ofWashington, DC’s most notorious criminalswere arrested by CARTF. Some outstandingwarrants included crimes involving sexoffenses, homicides, assault, drugs, andburglary and/or robbery. Many of thearrests occurred in and around DC HousingAuthority public housing properties andHUD multifamily properties located inWashington, DC. In addition to the 315fugitives arrested, CARTF seized nineweapons, various types of narcotics, $28,000cash, and one vehicle. HUD OIG isaccessing HUD rental assistance databasesto identify and investigate numerous casesof rental assistance fraud. Operation CitySweep accounts for the largest multiagencymass arrest plan of its kind in the District ofColumbia during a 3-week period.

Regina Battles, Tashanique Leonard,Brenda Vazquez, and Michael Martin, fourtenants of the Springfield HousingAuthority (SHA), Sullivan Public HousingDevelopment, were arrested on outstandingwarrants in Springfield, MA.

Sixteen individuals were arrested onoutstanding State warrants throughoutWindsor County, VT, as part of an ongoingFugitive Felon Initiative. Several of theindividuals targeted were Vermont StateHousing Authority Section 8 residents.


Veronika Smith-Riley, a loan processorwith Commonwealth United Mortgage, wassentenced in U.S. District Court, SouthernDistrict of Florida, Miami, FL, to 11 monthsimprisonment and 3 years probation andordered to perform 450 hours of communityservice. Smith-Riley previously pled guiltyto one count of conspiracy to commit mailfraud. Smith-Riley, using false loaninformation, enabled a straw-buyer tosecure a mortgage and quit claimed theproperty back to her. Smith-Riley thenleased the property to the Miami-DadeHousing Authority (MDHA) for use in itsrental assistance program. MDHAterminated Smith-Riley’s contract as a resultof her actions.

A 25-count felony criminal complaintwas filed in State Court, Los Angeles, CA,against Anthony Miller, a 12-year publichousing resident, and coconspiratorMarjorie Craddock, a former insuranceagent, Western Southern Life InsuranceCompany. Miller and Craddock were eachcharged with three counts of insurancefraud, two counts of grand theft, and onecount of conspiracy. In addition, Miller wascharged with 10 counts of forgery, andCraddock was charged with nine. OnJanuary 18, 2006, Miller was arrested as aprimary suspect in an unsolved homicide.On January 25, 2006, an arrest warrant wasissued for Craddock. Miller and his family


reside at Jordan Downs Public HousingApartment Complex in Los Angeles. Miller,the alleged beneficiary on 54 life insurancepolicies, including a policy on the murdervictim, paid approximately $2,000 in cashmonthly for the policies, an amount notsupported by his reported Social SecuritySupplemental Security Income (SSI) and Aidto Families with Dependant Children(AFDC) benefits.

Danilo Rico, a former East HartfordHousing Authority (EHHA) Section 8tenant, was indicted in U.S. District Court,District of Connecticut, East Hartford, CT,on one count of possession of a firearm by aconvicted felon for possessing a 9 mmhandgun seized during a Federal searchwarrant at his EHHA Section 8 unit onAugust 31, 2005. EHHA terminated Ricofrom its rental assistance program.

Clarence E. Baker, Jr., a Section 8 tenantat Canterbury Towers Apartments, wascharged in a State criminal complaint, inWorcester, MA, with felony charges ofpresenting a false claim to a governmentagency and larceny over $250 by falsepretense. Baker also failed to report hissexual offender conviction on housingassistance documents.

Louis Hanley was sentenced in U.S.District Court, District of Massachusetts,Worcester, MA, to 4 years incarceration and3 years supervised release following hisOctober 5, 2005, guilty plea to one count ofinterstate travel for the purpose of dealingin firearms without a license. Hanley, aconvicted felon, traveled from Maine to theWorcester Housing Authority (WHA) to

retrieve a shotgun found by WHAmaintenance employees in a WHA AddisonStreet Apartments housing unit formerlyleased to his mother.

Thomas C. McGee and Andrea Wilkswere each indicted by a State of Missourigrand jury, in St. Louis, MO, on one countof second degree robbery, one count ofkidnapping, four counts of falseimpersonation, one count of attemptedstealing, and two counts of stealing over $500by deceit. Allegedly, McGee and Wilksobtained the tenant list of Greater BethlehemElderly, a HUD-funded elderly housingproject and, posing as police officers and/ordetectives, attempted to steal or embezzleassets of the elderly.

Fifteen unauthorized tenants werefound residing at the Worcester HousingAuthority (WHA) Great Brook ValleyGardens Housing Development inWorcester, MA. During the interview of oneunreported tenant, police observedmarijuana in plain view and arrested theunreported tenant on drug charges. Ajuvenile reported missing for 6 months wasfound hiding in another unit.

Louis Douglas, a Section 8 recipient, wascharged in Superior Court, County of LosAngeles, Los Angeles, CA, with three felonycounts of failing to register annually as aconvicted sex offender. Douglas, previouslyconvicted in 1997 of committing lewd andlascivious acts on a child under the age of14, allegedly failed to disclose his status asa lifetime sex offender to the City of LosAngeles Housing Authority beforeobtaining housing assistance benefits.


Chapter 4Chapter 4Chapter 4Chapter 4Chapter 4HUD’s MultifamilyHUD’s MultifamilyHUD’s MultifamilyHUD’s MultifamilyHUD’s MultifamilyHousing ProgramsHousing ProgramsHousing ProgramsHousing ProgramsHousing Programs

In addition to multifamily housingdevelopments with U.S. Departmentof Housing and Urban Development(HUD)-held or HUD-insured mortgages, theDepartment owns multifamily projectsacquired through defaulted mortgages,subsidizes rents for low-incomehouseholds, finances the construction orrehabilitation of rental housing, andprovides support services for the elderlyand handicapped.

AuditsAuditsAuditsAuditsAuditsDuring this period, the Office of

Inspector General (OIG) issued nineexternal reports and one internal report inthe multifamily housing program area.These reports disclosed more than $15million in questioned costs and more than$19 million in recommendations that fundsbe put to better use.

Over the past 6 months, OIG hasaudited owner and management agentoperations with an emphasis on combatingequity skimming. The results of OIG’s moresignificant audits are described below.

Owner and ManagementOwner and ManagementOwner and ManagementOwner and ManagementOwner and ManagementAgent OperationsAgent OperationsAgent OperationsAgent OperationsAgent Operations

HUD OIG audited Mount Saint FrancisHealth Center in Woonsocket, RI, todetermine whether the owner complied withits HUD regulatory agreement and otherapplicable laws and regulations.

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

25,000,000


20,000,000

15,000,000

10,000,000

5,000,000

0

The project had more than $4.4 millionin questionable cash disbursements andaccrued expenses. Under the direction ofthe owner and identity-of-interestmanagement agent, the project madequestionable cash disbursements of morethan $1.6 million and accrued questionableexpenses of more than $192,000 while in anon-surplus-cash position, and the ownerand identity-of-interest management agentbilled HUD more than $2.4 million forservices not provided. In addition, thegeneral manager of the management agentreceived a salary as the assistantadministrator of the nursing home, resultingin more than $112,000 in unnecessaryexpenses.

OIG recommended that HUD 1) pursuethe recovery of double the amount ofquestionable cash disbursements toidentities of interest; 2) obtain support orreimbursements for unsupported andunnecessary disbursements; 3) pursue therecovery of questionable distributions tonon-identities-of-interest; 4) takeappropriate action to prevent payment ofineligible and unnecessary cashdisbursements after the audit period; 5)require the project to develop andimplement procedures that ensure onlyeligible expenses are paid from project fundsand that documentation is maintained tosupport the eligibility of payments made; 6)require the project to replace themanagement agent; and 7) pursue allapplicable administrative sanctions againstthe owner, management agent, and identity-of-interest companies. (Audit Report: 2006-BO-1004)

HUD OIG audited Holiday Apartments,LA Pro 30, and Two Worlds II in LosAngeles, CA, to assess HUD’s concerns overinappropriate disbursements and determinewhether the projects were administered incompliance with HUD requirements.

The owner and identity-of-interestmanagement 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 andunsupported costs, including excessive andunreasonable charges by an identity-of-interest maintenance contractor, excessivecharges for the management agent’spresident, unsupported rent charges andcapital improvement expenses for themanagement agent’s office, and ineligibleownership expenses. OIG anticipatessimilar additional questionable costscontinued after the end of the audit periodthat could cost the projects another $457,000.OIG’s building inspections identified morethan 240 health or safety violations, whichresulted in more than $561,000 in housingassistance payments for units and buildingsthat were not decent, safe, and sanitary. Inaddition, the owner and identity-of-interestmanagement agent did not effectivelymanage the projects, to include notaccurately calculating, reporting, andresolving more than $655,000 in projectliabilities.

OIG recommended that HUD requirethe owner to repay the respective projectsfor the ineligible costs and provide supportfor the reasonableness of unsupported costsor repay the projects. In addition, HUDshould require the owner to correct unitdeficiencies and obtain new management,accounting, and maintenance services.(Audit Report: 2006-LA-1010)

HUD OIG reviewed the books andrecords of Coventry Health Center ofCoventry, RI, to determine whetherCoventry Health Center Associates, L.P.,and/or Sterling Health Care ManagementCompany, an identity-of-interestmanagement agent, used the project’s fundsin compliance with the regulatoryagreement and HUD’s requirements.Coventry was selected for audit because thenursing home was in default.

Coventry’s owner and/or managementagent used project funds for inappropriateand unsupported disbursements.The inappropriate and unsupported

disbursements occurred while the projectwas in a non-surplus cash position and/orin default of its HUD-insured loan. HUDsold the project’s note and lost more than$6.3 million. OIG identified more than $1.8million in questionable cash disbursementsmade by the project’s owner and/ormanagement agent. The disbursementswere used to pay for non-project-relatedexpenses, loan repayments, excessivemanagement fees, and unnecessary serviceswhile the project was in a non-surplus-cashposition and/or in default of its HUD-insured loan.

OIG recommended that HUD pursuethe recovery of double the amount ofquestionable cash disbursements toidentities of interest, support or reimbursethe insurance fund for unsupported costs,and require reimbursement ofdisbursements that were deemedunnecessary to the nursing home. (AuditReport: 2006-BO-1006)

HUD OIG reviewed the books andrecords of the Villas at Camelback CrossingPhase I, a 264-unit multifamily housingproject located in Glendale, AZ, at therequest of HUD. HUD expressed concernsregarding the owner’s use of project funds.The objective was to determine whether theowner and its identity-of-interestmanagement agent used project funds onlyfor reasonable operating expenses andnecessary repairs as required by theregulatory agreement.

The project’s owner, MilleniumCommunities, Inc., and American WestCommunities, LLC, the project’s identity-of-interest management agent, inappropriatelyused more than $1 million in project fundsfor ineligible purposes in violation of theregulatory agreement. The ineligible usesincluded more than $300,000 in internationalwire transfers to unknown entities, morethan $26,000 for payments on unauthorizedloans, and more than $180,000 for paymentof project construction costs. Additional

improper uses included more than $80,000paid to management agent supervisorypersonnel and corporate officers; netpayments of approximately $65,000 to otheridentity-of-interest projects; and paymentsof more than $116,000 for unallocatedpayroll, health insurance, and otherexpenses of the identity-of-interestCamelback II project. The project ownerand/or management agent lackeddocumentation to support additionaldisbursements of more than $165,000 forcredit card expenses, legal expenses,insurance expenses, and other costs.Further, the project did not obtain requiredHUD approval of its management agentsand inappropriately paid approximately$104,000 in management fees.

OIG recommended that HUD ensurethat the owner reimburses the project’soperating account for the inappropriateexpenses and provides documentation forthe unsupported payments or reimbursesthose amounts that cannot be supported tothe project’s operating account. (AuditReport: 2006-LA-1005)

HUD OIG reviewed the books andrecords of the Villas at Camelback CrossingPhase II, a 240-unit multifamily housingproject located in Glendale, AZ, at therequest of HUD. HUD expressed concernsregarding the owner’s use of project funds.The objective was to determine whether theowner and its identity-of-interestmanagement agent used project funds onlyfor reasonable operating expenses andnecessary repairs as required by theregulatory agreement.

The project’s owner, CamelbackCrossing II Limited Partnership, andAmerican West Communities, LLC, theproject’s general partner and identity-of-interest management agent, inappropriatelyused more than $1 million in project fundsfor ineligible purposes during a period whenthe project did not have surplus cashavailable for distribution and/or was in

default on its HUD-insured mortgage. Theineligible uses included $262,000 ininternational wire transfers to unknownentities, more than $101,000 for paymentson unauthorized loans, $100,000 to anunknown certificate of deposit account, andapproximately $79,000 for payment ofproject construction costs. Additionalimproper uses included more than $151,000paid to corporate officers and managementagent supervisory personnel and netpayments of $119,000 to other identity-of-interest projects. The owner and/ormanagement agent also lackeddocumentation to support additionaldisbursements of more than $182,000 forcredit card expenses, real estate taxes, andother costs. Further, the owner did notobtain required HUD approval for AmericanWest to serve as the project’s managementagent and allowed another identity-of-interest project to retain $12,000 in projectrevenue.

OIG recommended that HUD ensurethat the owner reimburses the project’soperating account for the ineligibledisbursements and provides documentationfor the unsupported payments orreimburses those amounts that cannot besupported to the project’s operating account.(Audit Report: 2006-LA-1006)

HUD OIG reviewed the books andrecords of the Villas at Augusta Ranch, a 238-unit multifamily housing project located inMesa, AZ, at the request of HUD. HUDexpressed concerns regarding the owner’suse of project funds. The objective was todetermine whether the owner and itsidentity-of-interest management agent usedproject funds only for reasonable operatingexpenses and necessary repairs as requiredby the regulatory agreement.

The project’s owner, TeganCommunities, Inc., and American WestCommunities, LLC, the project’s identity-of-interest management agent, inappropriatelyused more than $965,000 in project funds for


nonproject (ineligible) purposes in violationof the regulatory agreement. The ineligibleuses included approximately $367,000 inwire transfers to unknown entities,approximately $137,000 for payments on anunauthorized line of credit, and $8,600 forpayment of project construction costs.Additional improper uses included morethan $78,000 paid to management agentsupervisory personnel and corporateofficers and net payments of approximately$72,000 to other identity-of-interest projects.The owner lacked documentation to supportadditional disbursements of more than$246,200 for credit card expenses, legalexpenses, and other costs. Further, theproject did not obtain required HUDapproval of its management agent andinappropriately paid more than $56,000 inmanagement fees.

After OIG’s audit, the project was sold,and the HUD-insured mortgage was paidin full, canceling HUD’s insurance liabilityon the project. Accordingly, OIG did notrecommend repayment of the ineligiblecosts identified but recommended that HUDpursue double damages remedies under theequity skimming statues for the misuse ofproject funds. (Audit Report: 2006-LA-1007)

In response to a request from HUD’sOffice of Multifamily Housing in SanFrancisco, CA, HUD OIG audited TheAvenue, a 145 bed assisted living facility.The objective was to determine whetherproject funds were administered incompliance with the regulatory agreementand HUD requirements.

The project’s owner misused more than$32,800 in project funds by entering into afood service contract that had excessivecosts and paid Feng Shui Consulting forineligible expenses.

OIG recommended that HUD requirethe owner to repay The Avenue more than

$32,800 from nonproject funds. (AuditReport: 2006-LA-1003)

HUD OIG reviewed the books andrecords of The Sanctuary, a 39-bed assistedliving facility located in Geneva, OH. Thereview was part of OIG’s efforts to combatmultifamily equity skimming on HUD’sFederal Housing Administration (FHA)insurance fund. OIG chose the project basedupon its negative surplus-cash positionsince 2002 and indications that project fundsor assets were not used as required. Theobjective was to determine whether theowner/management agent used projectfunds in compliance with the regulatoryagreement and HUD’s requirements.

Eld-Terra, Incorporated, the managinggeneral partner of The Sanctuary of GenevaLimited Partnership, improperly used morethan $43,000 in project funds from February2003 through January 2005, when the projectwas in a non-surplus-cash position. Thegeneral partner inappropriately disbursed$37,000 to repay owner advances to theproject and approximately $1,000 for non-project-related legal services. Also, thegeneral partner lacked documentation tosupport that more than $5,000 in projectfunds was properly used.

OIG recommended HUD require thegeneral partner to reduce the project’smanagement fee liability for theinappropriate payments, providedocumentation to support the unsupportedpayments or reduce the project’smanagement fee liability for the appropriateamount, and implement procedures andcontrols to ensure that future repaymentsof owner advances are made only fromproject surplus cash or with prior HUDapproval and project funds are usedaccording to HUD’s requirements. (AuditReport: 2006-CH-1002)


Section 8 ContractSection 8 ContractSection 8 ContractSection 8 ContractSection 8 ContractAdministratorsAdministratorsAdministratorsAdministratorsAdministrators

In response to a request from HUD, OIGaudited the Idaho Housing and FinanceAssociation in Boise, ID. The objective wasto determine whether Idaho Housingmonitored projects in accordance with itsannual contributions contract with HUD toensure that project funds were expendedappropriately.

Idaho Housing inappropriately allowedexcessive owner distributions; duplicate andother unsupported reimbursements fromreplacement reserves; a conflict-of-interestto exist between itself and The HousingCompany, a nonprofit owner of subsidizedmultifamily projects; and excessivemanagement fees. These deficienciesresulted in questioned costs of more than$3.8 million and unsupported costs of morethan $182,000.

OIG recommended that HUD requireIdaho Housing to reimburse the affectedprojects’ residual receipts accounts for theexcessive distributions, duplicatereimbursement, and excessive managementfees; provide supporting documentation orreimburse the affected projects’ replacementreserve accounts for unsupportedreimbursements; and take corrective actionto resolve the conflict of interest relationship.OIG also recommended that HUD obtain aformal legal opinion to determine whetherthe 1988 housing assistance paymentsamendments subject the owners of theprojects to limitations on distributions inaccordance with 24 CFR 883.702(e). (AuditReport: 2006-SE-1001)



opened 74 investigation cases and closed 105cases in the multifamily housing programarea. Judicial action taken on these casesduring the period included $3,931,894 ininvestigative recoveries, 60 indictments/informations, 30 convictions/pleas/pretrialdiversions, 101 arrests, 1 civil action, 1personnel action, and 81 administrativeactions.

Multifamily rental assistance fraud isone of the investigative priorities for theOffice of Investigation. OIG continues rentalassistance fraud initiatives nationwide thatwill help reduce fraud in HUD rentalassistance programs and support theHUD Rental Housing IntegrityImprovement Project (RHIIP). Some of theinvestigations discussed in this report wereconducted jointly with Federal, State, andlocal law enforcement agencies. Theresults of OIG’s more significantinvestigations are described below.

Rental Assistance FraudRental Assistance FraudRental Assistance FraudRental Assistance FraudRental Assistance Fraud

Olandria Williams, a former Section 8tenant at Shoreview Apartments, a HUD-subsidized housing complex, pled guilty inthe U.S. District Court, Northern District ofCalifornia, San Francisco, CA, to one countof false statements to HUD. Williams

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

Equity Skimming70%

False Statements15%


Davis Bacon3%

Contract Fraud1%Embezzlement

2%Section 89%

falsified her reported income and failed todisclose property she owned in Sacramento,CA. Under the plea agreement, Williamsagreed to pay HUD $45,072 in restitution forSection 8 subsidies to which she was notentitled.

Carsereena Red Dog, a Section 8Moderate Rehabilitation recipient andaccountant for Opportunities Inc. (OI), aHUD funded nonprofit organization inGreat Falls, MT, along with Leslie Red Dog,also an OI Section 8 Moderate Rehabilitationrecipient, were each indicted in U.S. DistrictCourt, District of Montana, Billings, MT, onone count of conspiracy and one count offalse statements to HUD. Carsereena andLeslie Red Dog allegedly failed to report allincome on annual rental assistancerecertification documents submitted to OI.As a result, HUD’s loss is estimated at$36,000.

Rosalyn Tillery, a former Section 8tenant at La Salle Apartments, a HUD-subsidized multifamily housing complex,was indicted in U.S. District Court, NorthernDistrict of California, San Francisco, CA, onone count of making false statements toHUD. From July 1995 through December2001, Tillery allegedly failed to claim heremployment with the County and City ofSan Francisco or her 1997 purchase and co-ownership of a single-family residence inHercules, CA, on HUD documents. As aresult, Tillery received approximately$35,759 in Section 8 housing assistance towhich she was not entitled.

Shaneen Edwards, a Miami Departmentof Community Development (MDCD)Section 8 tenant, was indicted in U.S. DistrictCourt, Southern District of Florida, Miami,FL, on two counts of false statements to HUDand 44 counts of theft of government funds.Edwards allegedly concealed heremployment as a teacher with the Miami-Dade County Public Schools to qualify forcontinued MDCD housing assistance, and


failed to use her subsidized unit as herprimary residence. As a result, HUDrealized losses of $25,445.

Rhonda Olkowski, a former Section 8tenant, South Middlesex OpportunityCouncil (SMOC), was sentenced in the U.SDistrict Court, Boston, MA, to 6 monthsprobation and ordered to pay HUD $30,360in restitution for her guilty plea to one countof false statements on November 9, 2005.From February 2001 to April 2004,Olkowski, whose husband is a U.S. FederalAir Marshal, failed to report her husband’sincome on SMOC documents.

Manila McCloud, a Miami Departmentof Community Development (MDCD)Section 8 tenant, was indicted in U.S. DistrictCourt, Southern District of Florida, Miami,FL, on one count of false statements to HUDand 39 counts of theft of government funds.McCloud allegedly concealed heremployment with Miami-Dade TransitAgency to qualify for MDCD housingassistance and failed to use her subsidizedunit as her primary residence. As a result,HUD realized losses of $22,695.

Alan C. Maki, a Section 8 tenant atCanterbury Towers Apartments, a HUD-assisted multifamily housing complex, wascharged in Worcester District Court,Worcester, MA, with perjury and larcenyover $250 by false pretense. Maki allegedlyfailed to disclose his previous sex offenderconviction on housing assistancedocuments.

Eight Walnut Grove Apartment Section8 tenants were arrested in Kansas City, MO,on outstanding felony warrants involvingfraud, tampering, and other charges by theKansas City, MO, Police Department; Stateof Missouri, Division of Family Services,Department of Social Services InvestigationSection; and HUD OIG. Five of the felonywarrants relate to housing assistance fraudcases filed against Walnut Grove project-based Section 8 tenants for failing to reportincome.

Theft and EmbezzlementTheft and EmbezzlementTheft and EmbezzlementTheft and EmbezzlementTheft and Embezzlement

Golam Mostafa, owner of MostafaContracting and T&MTT, constructioncompanies based in Brooklyn, NY, wasfound guilty in U.S. District Court, SouthernDistrict of New York, New York, NY, on fivecounts of Federal income tax evasion andone count of filing a false Federal IncomeTax 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.


managed Caldwell Houses, Gates AvenueHouses, Jose Diego Beekman, JD Beekman,Medgar Evers, Mott Haven 6, Willow StreetApartments, West Street Apartments,Oxford Knolls Apartments, 31 NorthVirginia Avenue, Willard J. Price, andPueblo, all HUD mortgagee in possession(MIP) multifamily properties. Mostafa’scontract with HUD/ARCO required him tocomplete all building and unit renovationsand rehabilitations on HUD MIPmultifamily properties, but Mostafasubcontracted building and unitrenovations back to ARCO employeesinstead. From 1998 through 2002, whileunder contract with HUD/ARCO, Mostafasent approximately $7 million to Bangladeshvia a money remitter, reporting this amountas a cost-of-goods-sold expense for incometax purposes. Mostafa was arrested onMarch 22, 2005, by HUD OIG and remainsincarcerated.

Jill M. Trayner, former executive director,United Methodist Retirement Center ofTampa, Inc., also known as Methodist Place,a HUD multifamily housing complex for theelderly, pled guilty in U.S. District Court,Middle District of Florida, Tampa, FL, to a one-count information charging her with theft ofgovernment funds. The plea agreementrequires Trayner to pay $366,228 in restitutionto Methodist Place. Trayner divertedMethodist Place program funds into anunknown account and used the funds to payher gambling, vehicle, credit card, and otherpersonal expenses. Trayner was arrestedafter her plea.

Jessica Elaine Thompson Miller, GreenRiver Management, Inc., was charged inState Court, Payne County, OK, Stillwater,OK, with one count of embezzlement. FromMay 1992 until December 2003, Miller wasthe on-site manager for Southern HeightsApartments, a HUD-subsidized multifamilycomplex. Miller allegedly moved tenants intovacant units, reported tenant move outs whentenants remained in their apartments, and

embezzled cash rents from tenants and utilityreimbursements from HUD associated withthese units. HUD’s loss is $87,775.

Other Fraud/Crimes

American Management Incorporated(AMI), a property management company forHUD-owned multifamily properties, wasnamed in a civil complaint filed in U.S.District Court, Eastern District of Michigan,Detroit, MI. AMI and its employeesallegedly fabricated repair and servicesubcontracts totaling $133,364 at HUD-owned multifamily properties managed byAMI. The complaint further alleges AMIfacilitated the issuance of purchase ordersfor employee labor previously paid by HUD.

Mark Rolfsema, a former Section 8tenant, Andover Commons Apartments,was sentenced in U.S. District Court,District of Massachusetts, Andover, MA, to57 months incarceration and 3 yearssupervised release following his previousguilty plea to possession of childpornography. Rolfsema possessed childpornography found during a search of hisSection 8 apartment.

Joel Hernandez Pedroso, was arrestedin Miami, FL, following the unsealing of aFederal indictment charging HernandezPedroso with one count of conspiracy tocommit fraud against the United States.Hernandez Pedroso, in conjunction withemployees of Maloney Properties andUnited Housing Management, allegedlyfacilitated and received approximately$8,000 in cash from at least five individualsin exchange for Section 8 subsidized unitsat several HUD-assisted multifamilyhousing complexes in Boston. During theinvestigation, Hernandez Pedroso fled toMiami where he was arrested by HUD OIG,U.S. Marshal’s Service, and the Miami PoliceDepartment.


Wanda Mercado, former PropertyManager for Peabody Properties, wasindicted in U.S. District Court, Boston, MA,on five counts of bribery. Mercado solicitedand accepted approximately $26,000 inbribes from five Section 8 applicants inexchange for subsidized rental units atSchoolhouse 77, a Boston multifamilycomplex. 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 inBrockton, MA.

Francis Oppong, an illegal resident ofLincoln Village Apartments, a HUD-assistedmultifamily housing complex, was arrestedin Worcester, MA, on an outstandingImmigration and Customs Enforcementdeportation warrant.


Chapter 5Chapter 5Chapter 5Chapter 5Chapter 5HUD’s Community PlanningHUD’s Community PlanningHUD’s Community PlanningHUD’s Community PlanningHUD’s Community Planningand Development Programsand Development Programsand Development Programsand Development Programsand Development Programs

72 HUD’s Community Planning and Development Programs

The Office of Community Planning andDevelopment (CPD) seeks to develop viablecommunities by promoting integratedapproaches that provide decent housing,suitable living environments, and expandedeconomic opportunities for low- andmoderate-income persons. The primarymeans toward this end is the developmentof partnerships among all levels ofgovernment and the private sector.


of Inspector General (OIG) issued eightexternal audit reports in the CPD programarea. These reports disclosed nearly $2million in questioned costs and more than$1 million in recommendations that fundsbe put to better use.

OIG audited Community DevelopmentBlock Grant (CDBG) program, HomeInvestment Partnership program (HOME),and Special Purpose Grants program.

Community DevelopmentCommunity DevelopmentCommunity DevelopmentCommunity DevelopmentCommunity DevelopmentBlock Grant ProgramBlock Grant ProgramBlock Grant ProgramBlock Grant ProgramBlock Grant Program

HUD OIG audited the City of Hartford,CT, Division of Grants Management,regarding its administration of the CDBGprogram in response to a Hotline complaint.The objectives were to determine whetherthe City awarded grants to subrecipients for

Chart 5.1: Community Planning andChart 5.1: Community Planning andChart 5.1: Community Planning andChart 5.1: Community Planning andChart 5.1: Community Planning andDevelopment DollarsDevelopment DollarsDevelopment DollarsDevelopment DollarsDevelopment Dollars

5,000,000


4,000,000

3,000,000

2,000,000

1,000,000

0

eligible activities and adequately monitoredtheir performance to ensure they were paidin accordance with the contract terms, metcontract objectives, and properly accountedfor Emergency Demolition and Repairprogram income.

The City paid more than $1 million inineligible costs associated with 5 of the 17activities reviewed. Of the ineligible costs,more than $831,000 related to activitiesineligible under the CDBG program, andapproximately $207,000 related to an activitythat was ineligible under the cited eligibilitycategory. OIG also identified more than$394,000 allocated for ineligible activities forthe City’s CDBG program year beginningJuly 1, 2005. In addition, although the Citypaid subrecipients in accordance with thecontracts, we could not always determinewhether the contract objectives were met.

The City also did not properly accountfor approximately $147,000 in CDBGprogram income generated through itsEmergency Demolition and Repairsprogram. In addition, more than $525,000in receivables is at risk of not being returnedbecause of ineffective internal controls overthe program receipts.

OIG recommended that HUD requirethe City to develop and implementprocedures to ensure that only eligibleactivities meeting CDBG program objectivesare funded. In addition, HUD shouldrequire the City to repay more than $831,000in ineligible costs, repay approximately$207,000 in costs that were improperlyclassified as direct homeownershipassistance, reprogram more than $394,000allocated for ineligible activities in theprogram year beginning July 1, 2005, repaymore than $62,000 in Emergency Demolitionand Repair program income, and providesupport for or repay the more than $85,000in Emergency Demolition Repair programpayments. (Audit Report: 2006-BO-1001)

HUD’s Community Planning and Development Programs 73

This is the sixth of HUD OIG’s ongoingaudits of the Lower ManhattanDevelopment Corporation’s administrationof the CDBG Disaster Recovery Assistancefunds, which were provided to the State ofNew York as a result of the September 11,2001, terrorist attacks on the World TradeCenter in New York City, NY. The auditeedisbursed $64 million of these funds duringOIG’s audit period of April 1 throughSeptember 30, 2005. The objectives of thecurrent review were to determine whetherthe auditee disbursed the funds inaccordance with HUD-approved actionplans, expended the funds for eligibleplanning and administrative expenses inaccordance with applicable laws andregulations, and maintained a financialmanagement system that adequatelysafeguarded the funds.

The auditee generally disbursedDisaster Recovery Assistance funds inaccordance with the HUD-approved actionplans. The auditee also expended the fundsfor eligible planning and administrativeexpenses in accordance with applicable lawsand regulations and maintained a financialmanagement system that adequatelysafeguarded the funds. However,weaknesses in the auditee’s controlprocedures permitted funds to be disbursedcontrary to the terms of its subrecipientagreements and charged to the wrongprogram. More than $259,000 wasdisbursed contrary to a subrecipientagreement, $7.5 million was disbursed foreligible costs but without auditee approvalas required, and more than $7,000 wascharged to the wrong program.

OIG recommended that HUD requirethe auditee to obtain reimbursement for themore than $259,000 disbursed contrary tothe subrecipient agreement, strengthen itscontrols over the Disaster RecoveryAssistance funds to ensure that funds arenot disbursed without proper approval and/or authorization, and obtain reimbursementfor more than $7,000 charged to the wrongprogram. (Audit Report: 2006-NY-1006)

Special Purpose GrantSpecial Purpose GrantSpecial Purpose GrantSpecial Purpose GrantSpecial Purpose GrantProgramProgramProgramProgramProgram

HUD OIG audited NorthStarCommunity Development Corporation’sEconomic Development Initiative – SpecialPurpose Grant in Detroit, MI, as part of its2005 annual audit plan. OIG choseNorthStar’s Grant because it disbursed 90percent or more of its funds. The objectiveswere to determine whether NorthStar usedits Grant funds in accordance with HUD’srequirements and recorded HUD’s intereston the assisted properties.

NorthStar improperly used more than$123,000 in Grant funds and lackeddocumentation to support that nearly $2,000in Grant funds was used according toNorthStar’s amended budget. In addition,NorthStar used more than $184,000 in Grantfunds to acquire or aid in the acquisition ofand/or rehabilitate real property; however,it did not place covenants on the properties’titles, assuring nondiscrimination based onrace, color, national origin, or handicap.Further, NorthStar did not record HUD’sinterest on the properties’ titles.

OIG recommended that HUDrequire NorthStar to reimburse HUDfrom nonfederal funds for theinappropriate expenses; providesupporting documentation or reimburseHUD for unsupported expenses; implementprocedures and controls to address thedeficiencies identified; and record covenantsand liens on the titles. If the covenants andliens are not recorded, NorthStar shouldreimburse HUD the more than $184,000used 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 2005annual audit plan. OIG chose the City’sgrant because it had disbursed 90 percentor more of its funds. The objectives were to


determine whether the City used its Grantfunds in accordance with HUD’srequirements and recorded HUD’s intereston the assisted property.

The City used the Grant funds inaccordance with HUD’s requirements. Itused the funds to pay for the constructionof the St. Ignace Public Library. However,it did not place a covenant on the propertytitle for the library, assuringnondiscrimination based on race, color,national origin, or handicap.

OIG recommended that HUD assurethe covenant, executed on October 18, 2005,on the library’s property title, ensuringnondiscrimination based on race, color,national origin, or handicap, includes HUD’sremedies in the event that discriminationoccurs. The appropriately executedcovenant with HUD’s remedies should helpensure that the City protects HUD’s interestin the more than $223,000 in Grant fundsused for the library. (Audit Report: 2006-CH-1001)

HUD OIG audited the City ofRhinelander, WI’s Economic DevelopmentInitiative – Special Purpose Grant. OIGchose the City’s grant because it haddisbursed 90 percent or more of its funds.The objectives were to determine whetherthe City used its Grant funds in accordancewith HUD’s requirements and recordedHUD’s interest on the assisted property.

The City used the Grant funds inaccordance with HUD’s requirements. Itused $120,000 in Grant funds to pay for thereconstruction of U.S. Highway 8, whichincluded the construction of a rail spurcrossing and access road. However, it didnot place a covenant on the property titlefor the access road, assuringnondiscrimination based on race, color,national origin, or handicap. Further, HUDdid not request that the City record HUD’sinterest on the access road’s property title.

OIG recommended that HUD requirethe City to record a covenant on the title,assuring nondiscrimination based on race,color, national origin, or handicap andrecord a lien on the property title for theaccess road showing HUD’s interest in theassisted property. If the covenant and lienare not recorded, the City should reimburseHUD approximately $47,600 for the Grantfunds used to pay for the construction of theaccess road. (Audit Report: 2006-CH-1003)

Supportive Housing ProgramSupportive Housing ProgramSupportive Housing ProgramSupportive Housing ProgramSupportive Housing Program

HUD OIG audited the Fontana NativeAmerican Indian Center in Fontana, CA, inresponse to a request from HUD. Theobjectives were to determine whether theCenter administered its Supportive HousingProgram grant in accordance with HUDrequirements and its grant agreement.

The Center spent more than $194,500in grant funds for ineligible, unsupported,and unnecessary expenses. Additionally, theCenter ’s financial management andrecord-keeping systems were inadequate.

HUD OIG recommended that HUDrequire the Center to reimburse the grant orrepay HUD for the ineligible, unsupported,and unnecessary expenses. OIG alsorecommended that HUD require the Centerto establish and implement financialmanagement and record-keeping systemsthat meet Federal requirements and notaward the Center additional funding untilit has implemented adequate systems andcontrols. (Audit Report: 2006-LA-1009)

In response to a complaint from theGovernment Accountability Office (GAO),HUD OIG completed a limited review ofWomen Rising, Inc., located in Jersey City,NJ. The complaint generally alleged that thegrantee was misappropriating funds inregard to reimbursable expenses and thepayment of salaries under its ProgramHome, part of HUD’s Supportive Housingprogram. The review objectives were to


determine whether the allegations in thecomplaint were valid, the grantee hadadequate controls over disbursements anddrawdowns, and the grantee’s costallocation plan was approved by HUD.

The allegations in the complaintregarding HUD funding were not valid. Thegrantee generally had adequate controlsover disbursement and drawdowns;however, more than $94,000 of the finaldrawdown was not supported by invoicesor evidence that costs were incurred.Additionally, the grantee’s cost allocationplan had not been approved by HUD.

OIG recommended that the grantee bedirected to provide documentation tosupport more than $94,000 in drawdownsor reimburse HUD for the unsupportedcosts. In addition, the grantee should ensurethat all drawdowns are properly supportedwith documentation and submit its costallocation plan to HUD for review andapproval. (Audit Report: 2006-NY-1002)



opened 42 investigative cases and closed36 cases in the CPD program area. Judicialaction taken on these cases during theperiod included $8,205,359 in investigativerecoveries, 43 indictments/informations,13 convictions/pleas/pretrial diversions, 49arrests, 2 civil actions, 3 personnel actions,and 17 administration actions.

Some of the investigations discussed inthis report were conducted jointly withFederal, State, and local law enforcementagencies. The results of OIG’s moresignificant investigations are describedbelow.

Public CorruptionPublic CorruptionPublic CorruptionPublic CorruptionPublic Corruption

Jose Cipolla, a contractor with MardellConstruction 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 onecount of perjury for lying to a Federal grandjury by denying they paid kickbacks to Cityof Rochester rehabilitation specialist DavidLippa. Cipolla was sentenced to 6 monthshome confinement and 5 years probationand ordered to pay HUD $5,000 inrestitution; Giudo was sentenced to 5 years

Chart 5.2: Community Planning andChart 5.2: Community Planning andChart 5.2: Community Planning andChart 5.2: Community Planning andChart 5.2: Community Planning andDevelopment RecoveriesDevelopment RecoveriesDevelopment RecoveriesDevelopment RecoveriesDevelopment Recoveries

Public Corruption83%

Kickbacks3%


Embezzlement11%

Theft of GovernmentProperty

2%

False Statements1%

probation and ordered to pay the U.S.Department of Justice (DOJ) $5,000 inrestitution. On December 14, 2005, Lippaand Mark Stedman, former City ofRochester rehabilitation specialists, weresentenced for their earlier guilty pleas to onecount of bribery. Lippa was sentenced to 5months incarceration, 5 months homeconfinement, and 3 years probation; fined$3,000; and ordered to perform 40 hours ofcommunity service. Stedman was sentencedto 2 years probation and 6 months homeconfinement and fined $1,000. Lippa andStedman solicited kickbacks fromcontractors in exchange for City ofRochester rehabilitation contracts. The Cityof Rochester Rehabilitation programreceives $2 million yearly in HUD CDBGand HOME grant funds to rehabilitatehousing for low-income families in the Cityof Rochester.

Emmanuel Onunwor, the former mayorand director of East Cleveland Departmentof Community Development (ECDCD), aHUD-funded organization, and CuyahogaMetropolitan 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 3years probation and ordered to pay theBankruptcy Court and Internal RevenueService (IRS) $5,111,000 in restitution.Onunwor was convicted of violating theRacketeering Influenced CorruptOrganizations Act (RICO), mail fraud,extortion, witness tampering, and filing falseFederal income tax returns from 1998 to2002. Onunwor solicited and receivedbribes, kickbacks, and secret payoffsthrough intermediaries using HUD funds asan inducement for contractor bribes whilehe was director of ECDCD and mayor of EastCleveland. In addition, Onunwor filed falsedisclosure forms with the Ohio EthicsCommission and failed to disclose his receiptof Section 8 housing assistance paymentsfrom CMHA to the Bankruptcy Court or IRS.


Mark Marcucilli, assistant director ofhousing management, New York StateDivision of Housing and CommunityRenewal (DHCR), and his father, FredMarcucilli, were each indicted in U.S.District Court, New York, NY, on eightcounts of conspiracy to commit mail fraudand theft of government funds. TheMarcucillis allegedly deceived and obtainedHUD and Lower Manhattan DevelopmentCorporation (LMDC) funds by falselyclaiming residence in the lower ManhattanWorld Trade Center area. HUD provided$2.7 billion for LMDC, an organizationcreated to coordinate the rebuilding andrevitalization of lower Manhattan after the

September 11, 2001, terrorist attacks. MarkMarcucilli was arrested on December 21,2005.

Warren Godbolt, former executivedirector, Progressive Training Associates(PTA), a non-profit organization receivingfunds through HUD’s Supportive HousingProgram, and Ernest Newton, a former Statesenator, were sentenced in U.S. DistrictCourt, Bridgeport, CT, followingtheirearlier guilty pleas. Godbolt was sentencedto 6 months home confinement, 5 yearsprobation, and ordered to perform 300 hoursof 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.


two counts of bribery and one count ofconspiracy for embezzling more than$100,000 from PTA, which he used for acruise and to purchase a BMW automobileand for paying a $5,000 bribe to Newton forhis assistance in securing a $125,000 grantfor PTA. Newton was sentenced to 5 yearsprison and 3 years probation and orderedto pay the State of Connecticut ElectionsEnforcement Commission approximately$14,000 in restitution. Newton pled guiltyon September 20, 2005, to one count ofbribery, one count of mail fraud and onecount of tax evasion, for accepting a $5,000bribe from Godbolt and assisting PTA insecuring a $125,000 grant.

Francis G. Keough III, the formerdirector of Friends of the Homeless, Inc.(FOH), Angel T. Guzman, and Michael P.Hallahan, former employees of FOH, werecharged in a 50-count supersedingindictment with conspiracy to defraud theU.S. Government, obstruction of justice,extortion, mail fraud, theft of honestservices, false statements, perjury, criminalcontempt, filing false Federal income taxreturns, and witness tampering in U.S.District Court, Springfield, MA. Thesuperseding indictment also seeks morethan $1 million in forfeitures. On January13, 2006, Guzman and Hallahan werearrested; Keough remains in Federalcustody pending trial.

The superseding indictment chargesKeough, Guzman, and Hallahan withreceiving CDBG and Emergency ShelterGrants funds for their personal use andconspiring to produce and issue falsedocuments. Further charges allege Keoughreceived more than $225,000 in salarypayments to which he was not entitled,concealed income and expenses to avoidpaying Federal income tax, pilferedappliances from FOH, used shelter and cityemployees to rehabilitate his beach housein Rhode Island, and provided jobs andhousing in exchange for sex or cash. Theindictment also alleges Raymond Asselin,

the former Springfield Housing Authorityexecutive director, facilitated Keough’sreceipt of $50,000 in consulting fees from apublicly funded housing project fornegotiating a Hampden County position forhis son, James Asselin. James Asselin wasconvicted of embezzling more than $600,000from a CDBG-funded agency in March 2004.

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


Reverend Lamar Wright, president andchief executive officer of Save Our ChildrenCommunity Project (SOCC) and SOCCsubsidiary People United For Change(PUFC), nonprofits funded by HUD, signeda pretrial diversion agreement in U.S.District Court, Eastern District of Arkansas,Little Rock, AR, and agreed to pay theArkansas Department of Human Services$14,000 in restitution and perform 100 hoursof community service in return for 18months deferred adjudication. Wright,previously indicted on June 7, 2005,admitted to aiding and abetting in the theftof Federal grant money. From April 2002through January 2003, Wright transferredFederal grant money from SOCC and PUFCbank accounts to his personal account; wrotechecks from his personal account tocodefendant Lola Thrower, the formerprogram administrator for HumanImmunodeficiency Virus (HIV) Services,Arkansas Department of Health, a HUD-and Health and Human Services (HHS)-funded State organization; and fabricatedinvoices and other documents to hide themoney transfers and personal checks toThrower. In addition, Lee Langston, formerexecutive director of Positive Voices (PV), anonprofit subgrantee of Federal funds

administered by HIV Services, wassentenced to 3 months home confinementand 3 years probation and ordered to paythe Arkansas Department of HumanServices $15,427 in restitution. On October4, 2005, Langston pled guilty to one countof theft of Federal property. From May 2003through March 2004, Langston admittedtaking approximately $16,000 from a PVbank account, creating a false invoice, andgiving $2,000 to codefendant Thrower.Langston kept the remaining funds,approximately $14,000, for services he neverperformed.

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 cashcampaign contributions: one from adeveloper holding a contract withChicopee’s Office of Economic Development(ECD), a HUD funded entity, and the secondfrom a local towing company. In return forthe cash contributions, Goyette allegedlypromised the developer he would intercedeon his behalf in a planned ECD project andpromised the towing company continuationof city contracts. Goyette was arrested onNovember 1, 2005.




Anthony M. Ardolino, formerSpringfield City chief of staff, Chester J.Ardolino, former Springfield police officer,and Matthew D. Campagnari, a real estatedeveloper, were indicted in U.S. DistrictCourt, Springfield, MA, on 16 counts ofconspiracy to defraud the U.S. Governmentfiling false Federal income tax returns, andwitness tampering. A fourth individual,John J. Walsh, doing business as J. Walshand Sons Building and Remodeling, wasalso charged with perjury and obstructionof justice. Anthony Ardolino allegedlyattempted to steer HUD CDBG funds to theFaçade program, a program establishedto renovate downtown Springfieldstorefronts. Several bars owned by theArdolinos and Campagnari were includedin the storefront renovations. Thedefendants were arrested on October 31,2005, after the indictments were unsealed.

Theft/EmbezzlementTheft/EmbezzlementTheft/EmbezzlementTheft/EmbezzlementTheft/Embezzlement

Chang Sheng Yu, a Chinese national andresident of Queens, NY, was arrested andindicted on eight counts of theft ofgovernment funds, mail fraud, andsubmission of false Social Security numbersfor 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 nonprofitestablished to provide assistance tobusinesses in lower Manhattan after theSeptember 11, 2001, terrorist attacks. ShengYu, president of American McKinleyVenture Management, Inc., allegedlyobtained a Business Recovery Grant (BRG)and attempted to fraudulently obtain aSmall Firm Attraction and RetentionGrant (SFARG) through ESDC.

Jarmena To, a General ServicesAdministration (GSA) employee, pled guiltyin U.S. District Court, Southern District ofNew York, New York, NY, to one count oftheft of government funds. To, indicted onJuly 1, 2005, fraudulently obtained LowerManhattan Development Corporation(LMDC) grant funds after subletting andrelocating from a LMDC qualifiedapartment. LMDC, a HUD-fundednonprofit, was created to assist in therevitalization of lower Manhattan after theSeptember 2001 terrorist attacks.

Yvonne Grimes, former executivedirector, Amistad Development Corporation(ADC), a HUD-funded nonprofit, pled guiltyin Court of Common Pleas, Cuyahoga


County, Cleveland, OH, to forgery andtheft. Grimes was sentenced to 2 yearsprobation and ordered to pay HUD $1,200in restitution. Grimes prepared, signed, andsubmitted a claim for a round-trip airlineticket she did not use and expended ADCfunds to pay personal expenses.

Letitia Slack, a former employee of EastSaint Louis Community Development(ESLCD), was sentenced in U.S. DistrictCourt, Southern District of Illinois, East St.Louis, IL, to 18 months in prison andordered to pay HUD $158,279 in restitutionand $41,588 in delinquent taxes. OnNovember 3, 2005, Slack pled guilty to aninformation charging her with mail fraudand tax evasion. Slack admitted sheembezzled $158,279 from ESLCD, anonprofit organization funded by HUDthrough the HOME and CDBG programs.From 2002 to 2005, Slack created falsevendor numbers and invoices to receivechecks for services and materials notprovided. Slack, using her personalchecking account, deposited and spent thefictitious vendor payments.


Mhammad Aziz Abu-Shawish wassentenced in U.S. District Court, EasternDistrict of Wisconsin, Milwaukee, WI, to 3years incarceration and 3 years supervisedrelease, ordered to pay HUD $75,000 inrestitution, and fined $1,000. On July 13,2005, Abu-Shawish was found guilty of

submitting a fictitious HUD block grantstudy and false documentation supporting$30,000 in phony expenses to the City ofMilwaukee.

In a Civil Judgment filed in U.S. DistrictCourt, New York, NY, Arthur Gregoryagreed to pay $36,500 to settle civil fraudcharges filed by the U.S. Government underthe False Claims Act. Gregory submittedfalse lease documents and secured two SmallBusiness grants from the World Trade CenterSmall Firm Attraction and Retention GrantProgram (SFARG), a HUD-funded nonprofitorganization created to redevelop lowerManhattan after the September 11, 2001,terrorist attacks.

James Thomas Jr., owner of ThomasWrecking, pled guilty to an Information filedin U.S. District Court, Eastern District ofMissouri, St. Louis, MO, charging him withone count of Federal income tax evasion.Thomas admitted using his company as the“front company” for Spiritas Wrecking tosatisfy the HUD-funded St. LouisCommunity Development Authority’s(CDA) regulations relating to minoritybusiness participation in the renovation ofold St. Louis City Hospital. Thomasfunneled Spiritas Wrecking payroll checksthrough his company to make it appear as ifa minority contractor was involved in the St.Louis City Hospital project, as certified toCDA. Thomas agreed to run Spiritas’ payrollthrough his company in return for Spiritasforgiving a debt owed by Thomas.

Chapter 6Chapter 6Chapter 6Chapter 6Chapter 6Hurricane Relief OversightHurricane Relief OversightHurricane Relief OversightHurricane Relief OversightHurricane Relief Oversight

84 Hurricane Relief Oversight

“I think it’s important toremember why we’re here.We’re here for one reason: tohelp the citizens andcommunities affected byHurricane Katrina. … Theroad to full recovery is longand I expect that we will bethere every step of the way tosupport the process that helpsthe displaced families anddisaster-stricken communitiesrebuild, recover, and reclaimtheir lives.”Remarks by Inspector GeneralKenneth M. Donohue regardingthe hurricane-affected Stateswhile in Biloxi, MI - March 3, 2006.

Introduction and BackgroundIntroduction and BackgroundIntroduction and BackgroundIntroduction and BackgroundIntroduction and Background

Hurricanes Katrina, Rita, and Wilmahad a dramatic impact on HUD’s Gulf Coastoperations as well as residents, HUDemployees, and the business community.The potential losses to HUD and its housingand community development programs aresignificant. OIG’s Offices of Audit andInvestigation continue to maintain apresence in the Gulf Coast disaster area.HUD OIG has established a base ofoperations in New Orleans and hasestablished new offices in Baton Rouge, LA,and Hattiesburg, MS. To accomplish itsgoals, OIG will readdress its available assetsand will reallocate them as availability anddemand rise. HUD OIG foresees andanticipates a continuing leadership role indetecting and preventing fraud regardingdisaster recovery funding in the Gulf CoastStates and elsewhere.

The destruction and aftereffects ofHurricanes Katrina, Wilma, and Rita willpresent challenges to HUD OIG that will farsurpass the reconstruction of lowerManhattan following the September 11attack. HUD OIG’s continuing oversight ofthe funds allocated to the Lower ManhattanRedevelopment Corporation has become atemplate on how to oversee funds allocatedto recovery from such disasters.Consequently, the HUD OIG audit andinvestigative staffs have started to providea continuing and comprehensive review ofthe expenditure of funds and will standguard against those who would seek todefraud the government.

Hurricane Relief Oversight 85

AuditAuditAuditAuditAuditIn the wake of the Gulf Coast disaster,

the HUD OIG Office of Audit has respondedquickly to establish an office for HurricaneKatrina oversight to prepare for the longprocess of recovery. The Office of Audit andHUD are not generally first responders;however, the Office of Audit has establishedan office, developed an audit plan, andbegun reviews in the disaster areas. TheOffice of Audit’s initial assignment was toevaluate 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 disaster-related procurement activities. Thesereviews are timely and will assist inestablishing a presence and acting as a real-time deterrent to waste and abuse in HUD’sactivities. Below is a summary of theongoing Katrina audit-related activities.

HUD OIG, Office of Audit, HurricaneRecovery Audit Oversight Division

Has started audits of HUD’s use ofREO properties to house disasterevacuees including management andmarketing contractors’ rehabilitationcost billings.

Is currently reviewing twomanagement and marketingcontractors in two States.

Is identifying/analyzing all funddrawdowns (usage) by PHAs in thedisaster areas for audit andinvestigation followup.

Has identified PHAs providingKDHAP vouchers; is planning anaudit of the KDHAP voucher process/matching review.

Has reviewed all HUD waivers toassure that statutory requirements arenot waived.

Is monitoring/analyzing HUDcontracting efforts relating to disasterrecovery efforts as part of the U.S.Department of Health and HumanServices (HHS) Contract OversightTask Force.

Is working with OIG legal counsel togain access to FEMA data formatching purposes.

Is conducting an internal audit of theHUD contracting process relating to di-saster recovery.

Is monitoring the FEMA missionassignment activities and internalcontrols.


InvestigationsInvestigationsInvestigationsInvestigationsInvestigationsThe HUD OIG Office of Investigation

immediately responded to the HUDchallenges and role in rebuilding the GulfCoast by establishing the Hurricane KatrinaFraud Task Force (HKFTF). This task forceworks jointly with the Federal Bureau ofInvestigation (FBI), the U.S. Department ofJustice (DOJ) Command Center in BatonRouge, LA and State investigative agenciesto investigate fraud in all HUD programsaffected by the hurricanes in the Gulf.HKFTF is based in New Orleans withpersonnel also assigned in Arlington andHouston, TX; Baton Rouge, LA; andHattiesburg, MS.

To assist with the many oversightresponsibilities of an endeavor of thismagnitude, the Hurricane RecoveryOversight Division (HROD) was alsoestablished in the Office of InvestigationHeadquarters. HROD is responsible for:(1) liaison; (2) research, analysis andrecommendations; (3) monitoring, reportingand dissemination; and (4) strategicplanning and implementation of Office ofInvestigation directives associated withdisaster assistance and recovery.

The Office of Investigation has createda far-reaching fraud prevention programdesigned to (1) create a training course foragents/auditors and program officials toteach them to identify fraud in CPD/grantprograms; (2) sponsor fraud preventionmeetings between HUD OIG and the majorprograms of HUD; and (3) sponsor fraudprevention meetings between HUD OIG andindustry groups, the Mortgage BankersAssociation, the Public Housing AuthoritiesDirectors Association, the NationalAssociation of Housing and RedevelopmentOfficials, private insurance companies,multifamily owners, public housingexecutive directors, State governments, andeconomic development agencies. As part ofour fraud prevention program, HUD OIGhas created a suspicious activity report

(SAR) that will be given to HUD grantees,subgrantees, and others associated withdelivering disaster funds. The SAR is amethod of informing HUD OIG of suspectedirregularities in the delivery of HUDprogram money. OIG forensic auditors havebeen assigned to review temporary housingprograms and FEMA payments to HUD-assisted housing residents. OIG plans to useforensic auditors to review all programs thatare not audited by the Office of Audit.

HUD OIG opened 18 cases during thesemiannual reporting period, ending March31, 2006, which resulted in six indictments,six arrests, and two convictions.

Hurricane-Related BenefitHurricane-Related BenefitHurricane-Related BenefitHurricane-Related BenefitHurricane-Related BenefitFraudFraudFraudFraudFraud

Carolyn Richard and George Davis IIIwere convicted by a Federal jury inHarrisburg, PA, for providing falseinformation on their applications foremergency housing through the HousingChoice Voucher and public housingprograms. Richard and Davis, whorelocated to Columbia, PA, from NewOrleans, LA, following Hurricane Katrina,applied for housing assistance withLancaster City Housing Authority (LCHA)but failed to report their extensive criminalhistories, including Richard’s incarcerationin Louisiana and later release as a result ofHurricane Katrina flooding.

Gilbert Gasice, a housing choicevoucher recipient, was indicted in U.S.District Court, Eastern District of California,Sacramento, CA, on two counts of mail andwire fraud, and two counts of making falsestatements. Gasice was arrested inGeorgetown, CA, after he allegedly schemedto defraud the County of Sacramento, whenit was discovered that he claimed to havebeen a victim of Hurricane Katrina andreceived monetary and lodging aid from theRed Cross and other charitableorganizations. As a part of his scheme,


Gasice moved from his subsidized unit inSacramento, CA, and relocated toGeorgetown, CA, but failed to report hismove from the subsidized unit as requiredand failed to live in the subsidized unit ashis sole residence. The loss to HUD isapproximately $6,000.

Jermine O. White, Stevie Lawson, andMorris L. Singleton were arrested andindicted in Baton Rouge, LA, for falselyrepresenting themselves as hurricaneevacuees displaced from public housing dueto Hurricane Katrina and using their statusas hurricane evacuees to receive FEMAmonetary assistance. The investigationdetermined that White, Lawson, andSingleton did not live in public housingduring the hurricanes and received benefitsto which they were not entitled.

Hurricane-Related OIGHurricane-Related OIGHurricane-Related OIGHurricane-Related OIGHurricane-Related OIGHotlineHotlineHotlineHotlineHotline

During this reporting period, theHotline received and processed 81complaints related to Hurricanes Katrina,Rita, and Wilma.

Hurricane-RelatedHurricane-RelatedHurricane-RelatedHurricane-RelatedHurricane-RelatedOutreachOutreachOutreachOutreachOutreach

In Gulfport, MS, Inspector General KenDonohue met with the Gulf Coast Stateauditors whose States where damaged bythe Hurricanes of 2005. Assistant InspectorGeneral for Audit (AIGA) James Heist,Deputy Assistant Inspector General forAudit (DAIGA) Bob Gwin, and DeputyAssistant Inspector General forInvestigation (DAIGI) – Inspections andEvaluations John McCarty briefed the Stateauditors from Florida, Alabama, Mississippi,Louisiana, and Texas on HUD programs,audit applications, and fraud prevention.Mississippi State Auditor Phil Bryantchaired the meeting.

In Baton Rouge, LA, Assistant InspectorGeneral for Investigation (AIGI) JosephHaban, DAIGI John McCarty, and AssistantSpecial Agent in Charge (ASAC) ThomasLuke of HKFTF briefed DOJ CommandCenter members consisting of the U.S.Attorneys from Louisiana and Mississippias well as FBI special agents. The CommandCenter is directed by U.S. Attorney DavidDugas of the Middle District of Louisiana.The briefing covered HUD programsaffected by the hurricanes and theopportunity for fraud to be committedwithin FHA single-family and multifamilyprograms, CPD grants, and public housing.Early coordination was established forexchange of data, joint investigations, andstrategies of future initiatives.

AIGI Joseph Haban, DAIGI JohnMcCarty, and ASAC Thomas Luke metthe senior State management teams withboth the Mississippi DevelopmentAuthority and the Louisiana RecoveryAuthority in Jackson, MS, and BatonRouge, LA, respectively, to discuss theiraction plans for the use of HUD CDBGin rebuilding their communities. Theydiscussed means by which to combat fraudopportunities and audit weaknesses withintheir plans. They agreed to develop aproactive program integrity campaigndirected at homeowners, contractors, andemployees of the States.

Special Agent in Charge (SAC) JosephClarke and HUD OIG special agents locatedin New Orleans, LA, Atlanta, GA, andArlington, TX, met with HUD KDHAPcoordinators and FEMA Disaster RecoveryCenters. They presented fraud awarenessbriefings and distributed HUD OIG Hotlinematerials to their staffs.

DAIGI John McCarty and SAC JosephClarke led the efforts of special agents andother HUD OIG staff assigned to damageassessment teams, who began at the waterline in New Orleans, LA, and photographed,assessed, and documented hurricane-


related damage to all HUD public housingand multifamily projects in the States ofLouisiana and Mississippi.

In Jackson, MS, ASAC Thomas Luke,SAC Larry Amaker, Supervisory ForensicAuditor Windell Durant, and Senior SpecialAgent Sandra Hackworth addressedthe Southeastern Affordable HousingManagement Association about issuesaffecting multifamily development in theGulf Coast region and opportunities forfraud associated with hurricane recoveryfunding.

ASAC Thomas Luke and SupervisoryForensic Auditor Windell Durant havedeveloped fraud prevention training andscheduled presentations to the MississippiDevelopment Authority’s homeownerservice centers, property appraisers, andcontract employees overseeing qualitycontrol programs. Training seminars arescheduled for Gautier, Gulfport, and BaySt. Louis, MS.

AIGI Joseph Haban and DAIGI JohnMcCarty met with the Mortgage BankersAssociation in Washington, DC, to establishfraud prevention training and fraud-reporting protocols for disaster-relatedmatters.

ASAC Thomas Luke and SAC LarryAmaker are working with LouisianaRecovery Authority officials located inBaton Rouge, LA, to establish lines ofcommunication and coordinate fraudprevention efforts.


Pictures of HUD OIG’s Hurricane Relief andPictures of HUD OIG’s Hurricane Relief andPictures of HUD OIG’s Hurricane Relief andPictures of HUD OIG’s Hurricane Relief andPictures of HUD OIG’s Hurricane Relief andRecovery EffortsRecovery EffortsRecovery EffortsRecovery EffortsRecovery Efforts

HUD OIG special agents at Industrial Canal leveebreach.

HUD Inspector General Kenneth Donohue (center),AIGI Joseph Haban, and DAIGI Lester Davis surveydamage at Abundance Development

HUD OIG special agents at the Industrial Canallevee breach overlooking lower 9th Ward.

SAC Joseph Clarke organizing HUD OIG’sOperation Hurricane Assessment in New Orleans,LA.

HUD OIG special agents assessing damage in NewOrleans, LA.

HUD Inspector General Kenneth Donohue standsbelow waterline viewing damage at AbundanceDevelopment.


Christopher Homes

AIGI Haban (left) and IG Donohue (right) outside ofthe Housing Authority of New Orleans.

Malta Square

B.W. Cooper Extention

Chapter 7Chapter 7Chapter 7Chapter 7Chapter 7Other Significant HUD AuditsOther Significant HUD AuditsOther Significant HUD AuditsOther Significant HUD AuditsOther Significant HUD Audits

and Investigations/OIG Hotlineand Investigations/OIG Hotlineand Investigations/OIG Hotlineand Investigations/OIG Hotlineand Investigations/OIG Hotline

92 Other Significant HUD Audits and Investigations/OIG Hotline

AuditAuditAuditAuditAuditDuring this reporting period, the Office

of Inspector General (OIG) issued nineinternal reports involving areas of U.S.Department of Housing and UrbanDevelopment (HUD) operations that do notfall under major HUD programs reportedin previous chapters.

OIG’s more significant audits arediscussed below.

Audit of HUD’s FinancialAudit of HUD’s FinancialAudit of HUD’s FinancialAudit of HUD’s FinancialAudit of HUD’s FinancialStatementsStatementsStatementsStatementsStatements

HUD OIG audited HUD’s fiscal year(FY) 2005 consolidated financial statementsin accordance with the Chief FinancialOfficers Act of 1990, and the report on thosefinancial statements is included in HUD’s FY2005 Performance and Accountability Report.In OIG’s opinion, HUD’s FY 2005 financialstatements were presented fairly. Inconjunction with OIG’s audit of HUD’s FY2005 financial statements, OIG also reportedon two material weaknesses related toHUD’s need to

Incorporate better risk factors andmonitoring tools into Federal HousingAdministration’s (FHA) single-familyinsured mortgage program risk

analysis and liability estimationprocess and

Continue to improve its review over theFHA credit reform estimation process.

OIG also reported on six reportableconditions in internal controls related to theneed to

Comply with Federal FinancialManagement System requirementsand continue to enhance FHA’smanagement of controls over itsportfolio of integrated insurance andfinancial systems,

Improve oversight and monitoringof subsidy calculations andintermediaries’ program performance,

Further strengthen controls overHUD’s computing environment,

Improve personnel security practicesfor access to the Department’s criticalfinancial systems,

Improve processes for reviewingobligation balances, and

Improve controls for developingestimates of budget authority requiredfor the Section 236 Interest ReductionProgram.

In addition, HUD did not substantiallycomply with the Federal FinancialManagement Improvement Act (FFMIA)regarding system requirements. The auditalso identified more than $377 million inexcess obligations recorded in HUD’srecords, which represent funds that HUDcould put to better use. (Audit Report: 2006-FO-0003)

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

450,000,000400,000,000350,000,000300,000,000250,000,000200,000,000150,000,000100,000,000

50,000,0000


Other Significant HUD Audits and Investigations/OIG Hotline 93

Audit of the Process HUD Used toAudit of the Process HUD Used toAudit of the Process HUD Used toAudit of the Process HUD Used toAudit of the Process HUD Used toAward its FY 2004 HealthyAward its FY 2004 HealthyAward its FY 2004 HealthyAward its FY 2004 HealthyAward its FY 2004 HealthyHomes and Lead Hazard ControlHomes and Lead Hazard ControlHomes and Lead Hazard ControlHomes and Lead Hazard ControlHomes and Lead Hazard ControlProperlyProperlyProperlyProperlyProperly

In response to a number ofcongressional inquiries and complaints,HUD OIG audited the process HUD usedto award its FY 2004 Healthy Homes andLead Hazard Control grants. The objectiveof the audit was to determine whether thegrants were properly awarded.

HUD did not properly evaluate 34 of 72successful applications reviewed,representing $92.7 million of the $168million (55 percent) awarded. HUDimproperly awarded eight grants for $20.5million. OIG could not determine thepropriety of the remaining 26 grantapplications receiving $72.3 million becausethe documents needed to support HUD’saward decisions could not be provided. Inaddition, HUD files pertaining to 54 of 55applications (98 percent) reviewed forapplicants that did not receive funding didnot support the decision to reject the grantapplications. Of these 54 applicants, HUDdenied one applicant approximately$365,700 in grant funds that it was eligibleto receive.

OIG recommended that HUD (1)implement controls to ensure it properlyevaluates the grant applications andsupports all awards; (2) continue recoveryefforts or obtain a legal opinion to determinewhether it can pursue recovery of the $20.5million in improperly awarded grants itprovided to eight applicants; (3) dependingon the legal opinion, obtain the necessarydocumentation to support the awarddecisions relating to 26 other applicantsreceiving $72.3 million in grant funds andrecover the amounts it determines wereimproperly awarded; and (4) review theremaining 135 applications that did notreceive awards to ensure these applicants

were not denied awards they should havereceived. (Audit Report: 2006-PH-0001)

HUD’s Information SecurityHUD’s Information SecurityHUD’s Information SecurityHUD’s Information SecurityHUD’s Information SecurityProgram and PracticesProgram and PracticesProgram and PracticesProgram and PracticesProgram and Practices

HUD OIG performed an annualindependent evaluation of HUD’sinformation security program and practicesas directed by the Federal InformationSecurity Management Act of 2002 (FISMA).

HUD has made significant efforts toimprove its system security program, butcontinued progress is needed to fullycomply with Federal requirements. HUDhas appointed a chief information securityofficer, revised its information securitypolicy, and completed certification andaccreditation for more than 90 percent of itsapplications. However, the quality of theunderlying documents and the certificationand accreditation process vary byapplication. While a number ofvulnerabilities have been corrected,additional vulnerabilities, identifiedthrough oversight activities, were notcorrected before accreditation.

HUD program officials and systemowners have not fully met theirresponsibilities as specified in FISMA,section 3544(a). Also, HUD has not fullyimplemented an agencywide informationsystem security program as specified inFISMA, section 3544(b). Improvements areneeded in maintaining an adequate systeminventory, categorizing security impact levelproperly for information systems, providingsufficient training to program officials andcontractor staff, and developing and testingcontingency plans. (Audit Report: 2006-DP-0801)

HUD’s Financial SystemHUD’s Financial SystemHUD’s Financial SystemHUD’s Financial SystemHUD’s Financial System

HUD OIG audited certain componentsof HUD’s financial system to determine


whether it is capable of performing the costmanagement function as defined in JointFinancial Management ImprovementProgram (JFMIP) publication JFMIP-SR-02-01, “Core Financial System Requirements,”dated November 2001.

HUD’s core financial systems (1) cannotperform all of the mandatory costmanagement functions specified in JFMIPSR-02-01 and (2) cannot accumulatenonfinancial data that would be needed tointernally calculate cost managementinformation. Without these capabilities,HUD’s core financial system does notprovide all of the nonfinancial data elementsneeded to support the integration of budget,cost, and performance measures. Thisinformation is obtained from sources thatinclude both automated and manualprocesses, procedures, controls, data,software, and support personnel that are notintegrated through a common database orelectronically interfaced with the corefinancial system.

OIG recommended that HUD developcompliant cost management functionalrequirements that support the integrationof budget, cost, and performance measuresas part of the HUD Integrated FinancialManagement Improvement Project.While HUD disagreed with OIG’srecommendation, OIG obtaineddocumentation from the Project thatincludes mandatory functionalrequirements for the accumulation ofnonfinancial data. (Audit Report: 2006-DP-0001)

Security ConfigurationSecurity ConfigurationSecurity ConfigurationSecurity ConfigurationSecurity ConfigurationAssessment of HUD’s ServersAssessment of HUD’s ServersAssessment of HUD’s ServersAssessment of HUD’s ServersAssessment of HUD’s Servers

HUD OIG completed a securityconfiguration assessment of HUD’s serverson which FHA financial applications reside.The objective of the audit was to review useraccess, security controls to files and

directories, and configuration of networkservices of HUD’s Unix operating system.

HUD has generally implemented theUnix operating system configurationsettings properly. However, weaknesses inthe configuration of network services stillexist, and user access and security controlsto files and directories are not sufficientlytightened.

OIG’s report presents detailed results ofour assessment and appropriaterecommendations for corrective action thatwill improve HUD’s overall security posturethrough recommended configurations. OIGhas determined that the contents of thisreport would not be appropriate for publicdisclosure; therefore, it has limited itsdistribution to selected HUD officials.(Audit Report: 2006-DP-0002)

FHA Financial StatementsFHA Financial StatementsFHA Financial StatementsFHA Financial StatementsFHA Financial Statements

Urbach, Kahn, and Werlin, LLP (UKW),audited FHA’s financial statements for theyear ending September 30, 2005.

UKW concluded that FHA’s fiscal year2005 principal financial statements werepresented fairly, in all material respects, inconformity with accounting principlesgenerally accepted in the United States ofAmerica.

UKW’s consideration of internal controlover financial reporting resulted in thefollowing matters being identified asreportable conditions and with respect to thefirst two items, material weaknesses:

FHA must incorporate better riskfactors and monitoring tools into itssingle-family insured mortgageprogram risk analysis and loanliability estimation process.


FHA management must continue toimprove its review over the creditreform estimation process.

FHA must continue to enhance themanagement of controls over itsportfolio of integrated insurance andfinancial systems.

UKW found no reportable instances ofnoncompliance with certain provisions ofapplicable laws, regulations, contracts, andgrant agreements. (Audit Report: 2006-FO-0002)

Audit of the GovernmentAudit of the GovernmentAudit of the GovernmentAudit of the GovernmentAudit of the GovernmentNational Mortgage Association’sNational Mortgage Association’sNational Mortgage Association’sNational Mortgage Association’sNational Mortgage Association’s(Ginnie Mae) Financial(Ginnie Mae) Financial(Ginnie Mae) Financial(Ginnie Mae) Financial(Ginnie Mae) FinancialStatementsStatementsStatementsStatementsStatements

HUD OIG audited the GovernmentNational Mortgage Association’s (GinnieMae) financial statements for FY 2005.

The financial statements present fairlythe financial position of Ginnie Mae in allmaterial respects. There were no materialweaknesses or reportable conditions inGinnie Mae’s internal controls or reportableinstances of noncompliance with laws,regulations, and provisions or contracts.(Audit Report: 2006-FO-0001)

Network VulnerabilityNetwork VulnerabilityNetwork VulnerabilityNetwork VulnerabilityNetwork VulnerabilityAssessmentAssessmentAssessmentAssessmentAssessment

HUD OIG completed a networkvulnerability assessment of HUD to evaluatewhether its network security systems,including security controls and practices,adequately protect the integrity,confidentiality, and availability of data andinformation from unauthorized access to its

systems through the performance ofpenetration testing.

Although HUD has implementedcontrols to protect its network from externalintruders, internal penetration testingidentified security configuration andtechnical controls deficiencies.

OIG has determined that the contentsof this report would not be appropriate forpublic disclosure; therefore, it has limitedits distribution to selected HUD officials.(Audit Report: 2006-DP-0003)

Audit of HUD’s InformationAudit of HUD’s InformationAudit of HUD’s InformationAudit of HUD’s InformationAudit of HUD’s InformationSecurity Program ComplianceSecurity Program ComplianceSecurity Program ComplianceSecurity Program ComplianceSecurity Program Compliancewith Federal Requirementswith Federal Requirementswith Federal Requirementswith Federal Requirementswith Federal Requirements

HUD OIG audited HUD’s informationsecurity program compliance with Federalrequirements. OIG evaluated (1) theadequacy of the categorization of HUD’smajor systems, (2) whether HUD’s Office ofthe Chief Information Officer has developedsecurity policies and implemented andmonitored enterprisewide controls, and (3)whether HUD program officials and systemowners have properly implementedinformation security responsibilitiesassigned to them.

HUD has made considerable progressin implementing a comprehensive,entitywide information system securityprogram. However, there are severalmatters that require management attention:(1) HUD’s program officials and systemowners have not properly categorizedHUD’s application systems and utilities,which could result in unnecessaryexpenditure of funds; (2) HUD’s Office of theChief Information Officer has not fullyimplemented an effective entitywideinformation security program; and (3)HUD’s program officials and system ownershave not complied with security


InvestigationInvestigationInvestigationInvestigationInvestigationDuring this reporting period, OIG

opened 19 investigation cases and closed 6cases involving areas of HUD operationsthat do not fall under specific programcategories. Judicial action taken on thesecases during the period included $30,685 ininvestigative recoveries, three indictments/informations, five arrests, and twoconvictions/pleas/pretrial diversions.

Some of the investigations discussed inthis report were conducted by OIG, whileothers were conducted jointly with Federal,State, and local law enforcement agencies.The results of OIG’s more significantinvestigations are described below.

James Joyce, a HUD employee, wasindicted in U.S. District Court, District ofNew Hampshire, Manchester, NH, on twocounts of possession of firearms anddangerous weapons in Federal facilities.Joyce allegedly carried a knife and firearminto the HUD office at the ManchesterFederal building.

Toulu Thao, a HUD housing specialist,was indicted in U.S. District Court, EasternDistrict of California, Fresno, CA, on fourcounts of false statements. Thao allegedlyreceived $125,000 from organizations doingbusiness with HUD but failed to discloseincome, business arrangements, and/orbusiness agreements he had with theseorganizations on his Office of GovernmentEthics (OGE) Form 450, “ConfidentialFinancial Disclosure.” Thao was arrested onFebruary 13, 2006.

OIG HotlineOIG HotlineOIG HotlineOIG HotlineOIG HotlineThe HUD OIG Hotline is operational 5

days a week, Monday through Friday, from10:00 a.m. to 4:30 p.m. The Hotline is staffedby seven full-time OIG employees, who takeallegations of waste, fraud, abuse, or seriousmismanagement in HUD or in HUD-fundedprograms from HUD employees,contractors, and the public and coordinatereviews with internal audit and investigativeunits or with HUD program offices.

During this reporting period, theHotline received and processed 9,416complaints – 73 percent received bytelephone, 22 percent by mail, and 5 percentby e-mail. Every allegation received by theHotline is logged into a database andtracked.

Of the complaints received, 1,270 wererelated to the mission of the OIG and wereaddressed as Hotline cases. Hotline casesare referred to OIG’s Offices of Audit andInvestigation or to HUD program offices foraction and response. The followingillustration shows the distribution of Hotlinecase referrals by percentage.

Hotline closed 918 cases this reportingperiod. The closed Hotline cases included146 substantiated allegations. Thesubstantiated allegations resulted in fouradministrative sanctions against HUDemployees for personnel violations oragainst investors for improprieties involvedin the purchase of a home. The Departmentalso took 142 corrective actions that resultedin $82,697 in recoveries of losses and$2,352,885 in HUD funding that could be putto better use. The recoveries included anunsupportable appraisal which resulted inan overinsured FHA-insured mortgage.Some of the funds that could be put to betteruse were the result of cases in which tenantsimproperly reported their incomes or familycomposition to qualify for rental assistance.


Chart 7.2: Hotline Cases Opened by Program AreaChart 7.2: Hotline Cases Opened by Program AreaChart 7.2: Hotline Cases Opened by Program AreaChart 7.2: Hotline Cases Opened by Program AreaChart 7.2: Hotline Cases Opened by Program Area

Public and IndianHousing

67%

OIG Audit andInvestigation

9%

MultifamilyHousing

13%


6%

Other HUDOffices

5%

Chart 7Chart 7Chart 7Chart 7Chart 7.4.4.4.4.4: Substantiated Cases by Type of Complaint Received by Hotline: Substantiated Cases by Type of Complaint Received by Hotline: Substantiated Cases by Type of Complaint Received by Hotline: Substantiated Cases by Type of Complaint Received by Hotline: Substantiated Cases by Type of Complaint Received by Hotline

Rental Fraud andImproprieties

93%

Other1%

Conflict ofInterest

2%

Mismanagement2%

Owner/OccupantViolations

2%

Chart 7Chart 7Chart 7Chart 7Chart 7.3.3.3.3.3: Hotline Dollar Impact from Program Offices: Hotline Dollar Impact from Program Offices: Hotline Dollar Impact from Program Offices: 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

0Single-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 8Chapter 8Chapter 8Chapter 8Chapter 8Outreach EffortsOutreach EffortsOutreach EffortsOutreach EffortsOutreach Efforts

100 Outreach Efforts

To foster cooperative, informative, andmutually beneficial relationships withagencies and organizations whose intent isto assist the accomplishment of the U.S.Department of Housing and UrbanDevelopment’s (HUD) mission, the Office ofInspector General (OIG) participates in anumber of special outreach efforts. Theseefforts, as described below, are in additionto OIG’s regular coordination with Federal,State, and local law enforcement agencies,other OIGs, and various congressionalcommittees and subcommittees. Duringthese outreach efforts, OIG presented theresults of its audit and investigative workand discussed its goals, objectives, andprovided information about its role andfunction.

Assistant Inspector General forInvestigations (AIGI) R. Joseph Haban,Assistant Special Agent in Charge (ASAC)Robert Gale, and Special Agent (SA) LindaCisco attended a press conference headedby Senator Barbara Mikulski in Baltimore,MD. This press conference, used topublicize the final report prepared by theBaltimore City Flipping and PredatoryLending (BCFPL) task force, announced thatBaltimore property flipping had dropped 77percent since 1999. The BCFPL task forcefocuses on five fronts in the war on flipping:law enforcement, implementing regulatoryreforms, education and prevention efforts,victims’ assistance, and rebuildingneighborhoods. Since 2000, the U.S.Attorney’s Office, District of Maryland, hassought criminal charges against 104defendants who participated in mortgagefraud within Baltimore City and PrinceGeorges County. The results include 100convictions and four acquittals. SenatorPaul Sarbanes, Congressman ElijahCummings, and U.S. Attorney RodRosenstein were also in attendance.

Regional Inspector General for Audit(RIGA) Joan Hobbs of Los Angeles, CA,spoke at the Northern California/NevadaChapter of the National Association of

Housing and Redevelopment Officials(NAHRO) on February 5, 2006. Ms. Hobbswas a member of a three-person panel todiscuss housing oversight by the boardof commissioners. Approximately 20commissioners attended the session,which included a discussion regardingthe growing amount of fraud being detectedin housing authorities.

RIGA Frank Baca, Assistant RegionalInspector General (ARIG) Will Nixon, andSenior Auditor Beth Howard gave apresentation on Single Family MortgageFraud to the Oklahoma City, OK,Greater Metropolitan Title Association.Approximately 425 realtors and titlecompany representatives attended themeeting. Other speakers included officialsfrom the Federal Bureau of Investigation(FBI) and First Fidelity Bank.

Special Agent in Charge (SAC) RobertBrickley, ASAC Rene Febles, and SeniorSpecial Agent (SSA) Daniel Ellis participatedin two presentations at Penn Del AssociatedHousing Management Association’s(AHMA) annual seminar in Lancaster, PA.SAC Brickley described HUD OIG’sinvestigative process and procedures tofollow when documenting files and referringmatters for investigation. ASAC Febles andSSA Ellis participated in a HUD MultifamilyRental Housing Integrity ImprovementProject (RHIIP) workshop to promotecooperative working relationships amongHUD, HUD OIG, and rental housing ownersand/or managers.

SAC Peter Emerzian, ASAC DianeDeChellis, ASAC Maureen Nelting, and SAJessica Piecuch participated in aMassachusetts Anti-Gang Conferencesponsored by the Massachusetts U.S.Attorney’s Office in Boston, MA. Keynotespeakers included the Massachusettslieutenant governor, current and formerBoston police commissioners, andrepresentatives from various Federal lawenforcement agencies in Washington, DC.

Outreach Efforts 101

SAC Peter Emerzian discussing HUD OIG’srelocation program

SAC Emerzian, a panelist addressing victimintimidation, discussed HUD OIG’srelocation program. More than 300members representing Massachusetts’ local,State, and Federal law enforcement andprosecutive agencies attended theconference.

SAC James Beaudette and ASAC LoriChan provided an overview of HUD OIGand mortgage fraud schemes toapproximately 35 Institute of Appraisers,Northwest regional members in SanFrancisco, CA. After the presentation, SACBeaudette and ASAC Chan hosted aquestion and answer forum.

SAC Robert Brickley presented HUDOIG’s background, mission, and role incriminal investigations at the MarylandChapter Appraisal Institute meeting held inAtlantic City, NJ. SAC Brickley illustratedFederal Housing Administration (FHA)fraud and predatory lending schemes,explained specific FHA violations, describedcivil and administrative remedies, andexpanded on appraisers’ responsibilities toreport wrongdoing. Approximately 30individuals attended.

SAC Barry McLaughlin hosted thequarterly Northern Illinois Real EstateFraud Working Group meeting in Chicago,IL. This group, created by SAC McLaughlin

in conjunction with other agencies,discussed current schemes affecting the realestate industry and ways to coordinateefforts to prevent duplication wheninvestigating fraud. Keynote speakers at themeeting included representatives from theCity of Chicago Division of Housing andUnited States Attorney’s Office. TheWorking Group is comprised ofrepresentatives from HUD, the State ofIllinois/Division of Banks and Real Estate,the Internal Revenue Service (IRS), FannieMae, the Financial Crimes EnforcementNetwork (FINCEN), the HUD QualityAssurance Division, the Illinois AttorneyGeneral’s Office, the FBI, Freddie Mac, theChicago Police Department, the CookCounty States Attorney’s Office, the U.S.Postal Inspection (USPIS), and the UnitedStates Trustee’s Office.

SAC James Beaudette, ASAC Lori Chan,and SA Jason Constantine offered anoverview of HUD OIG, information onrental assistance initiatives, a presentationentitled “Trends in Housing Fraud,” andcase studies to Federal and local fraudinvestigators in Seattle, WA. Those inattendance included special agents from theSocial Security Administration (SSA) OIG,the Washington Department of Social andHealth Services, and investigators assignedto housing authorities.

ASAC Larry Amaker and SA MichaelWagenhauser spoke at the NationalAffordable Housing ManagementAssociation (NAHMA), Mid AtlanticRegion, annual conference in Richmond,VA. ASAC Amaker and SA Wagenhauserexplained HUD OIG’s mission and ways inwhich NAHMA can assist with identifying,investigating, and prosecuting rentalassistance fraud in multifamily housing.ASAC Amaker and SA Wagenhauser alsopresented an overview of HUD OIG’sfugitive felon and RHIIP initiatives.Approximately 250 individual attended theconference.


ASAC Ray Espinosa participated inNorthern Illinois University’s CriminalJustice Career Fair in Dekalb, IL. ASACEspinosa, along with representatives fromthe U. S. Secret Service and FBI, provided apresentation describing career andinternship opportunities with various lawenforcement agencies.

ASAC Brad Geary, along withrepresentatives from the FBI, the U.S.Department of Veterans Affairs (VA) OIG,and a private security firm, participated ina panel discussion at a REO MACconference in New York City, NY. REOMAC is a national organization specializingin the purchase of HUD real estate owned(REO) properties. More than 50 peopleattended a breakout session discussingvarious schemes and frauds affecting thereal estate industry. SSA Kevin McBridefrom HUD OIG Headquarters also attended.

ASAC Brad Geary presented a fraudawareness briefing at the Appraisal Institutein Chicago, IL. ASAC Geary discussedfraud schemes affecting HUD and the realestate trade, along with newly implementedchanges in FHA underwriting and theirimpact on the appraisal industry. More than30 appraisers attended the meeting.

Assistant Regional Inspector Generalfor Audit (ARIGA) Tom Towers and ASACGeorge Dobrovic presented an overview ofcurrent OIG goals and initiatives to HUDemployees at the Detroit, MI, field office.The presentation also focused on how OIGcan be a resource to supplement theirdetection of fraud, waste, and abuse.

ARIGAs Tanya Schulze and VinceMussetter gave a presentation to theCalifornia State University, Los Angeles,CA, Accounting Society. In response to theirrequest, ARIGAs Schulze and Mussettergave a presentation to about 30 students onthe background of HUD and OIG’s mission,organization, and responsibilities. ARIGAMussetter also discussed some recent audit

results to illustrate the nature of OIG’s work.The ARIGAs also talked about theenvironment and culture of OIG and careeropportunities in the auditing field.

ARIGA Ed Schmidt, along with SAsJason Constantine and Charles Grace, gavea presentation describing the functions ofHUD OIG to a group of newer employees atthe HUD regional office in Seattle, WA. Thepresentation was part of HUD’s worldtraining program in the HUD Seattleregional office. ARIGA Schmidt describedHUD OIG’s statutory missions, how HUDOIG is organized, the divisions andresponsibilities between the Offices of Auditand Investigation, areas of audit work, andthe audit reporting process. SAsConstantine and Grace explained the workof the Office of Investigation.

ARIGA Ron Farrell and Auditor KimToler, Region 5, participated in ClevelandState University’s 27th Annual Spring CareerFair in Cleveland, OH, on March 3, 2006,along with more than 150 other employers.Mr. Farrell and Ms. Toler spoke with morethan 100 students about OIG’s mission andthe benefits of pursuing a student volunteerposition/career with HUD OIG. Theyaccepted resumes from students interestedin a student volunteer position with HUDOIG/Audit in Columbus, OH, or Detroit, MI.

ARIGA Fred Smith spoke to the BetaAlpha Phi accounting association at theUniversity of Northern Colorado in Denver,CO. ARIGA Smith presented HUD’smission statement and strategic goals anddiscussed ways in which OIG interacts withHUD to accomplish its mission and goals.ARIGA Smith also discussed HUD’s missionof increasing home ownership, supportingcommunity development, and increasingaccess to affordable housing free fromdiscrimination, as well as the benefits of acareer in the Federal Government. ARIGASmith fielded questions from theapproximately 20 student and professors inthe audience.


ASAC Michael Wilson provided anoverview of HUD OIG and single-familyfraud schemes at the Appraisal Institute inDallas, TX. ASAC Wilson describedcommon criminal schemes and presentedcase studies of single-family fraudinvestigations. Approximately 30 membersof the Appraisal Institute attended.

ASACs Brad Geary and Ray Espinosaprovided a presentation on the role andrelationship of HUD OIG and JointTerrorism Task Force (JTTF) investigationsat the Anti-Terrorism Advisory Committeemeeting sponsored by U. S. Attorney PatrickFitzgerald and the Chicago Office of the FBIin Chicago, IL. In addition to discussingHUD’s four major program areas and fraudsassociated with each, current JTTF/HUDOIG investigations from Detroit,Milwaukee, and Indianapolis werepresented to the 75 law enforcementattendees.

ASAC Lori Chan presented HUD OIGinitiatives at a Law Enforcement DatabaseSeminar hosted by the Northern District ofCalifornia U.S. Marshal’s Service (USMS)and Western Regional Inspector GeneralCouncil in Oakland, CA. ASAC Chanresponded to inquiries during a questionand answer session. Approximately 150individuals representing about 50 State,county, and local law enforcement agenciesattended.

ASAC Herschell Harvell, Jr., and SADavid Carter attended the SouthernCalifornia Housing Authority Manager’sAssociation (SCHAMA) meeting atRiverside County Housing Authority,Riverside, CA. ASAC Harvell presentedHUD OIG’s mission and strategies for aneffective alliance between housingauthorities and HUD OIG and provided anoverview of HUD OIG’s Sex Offender andFugitive Felon initiatives and U.S. PostalService (USPS) OIG iiitiatives. SA Carterprovided a brief overview of Section 8program fraud, “Red Flag” fraud indicators,

and various schemes used by criminals.ASAC Harvell and SA Carter responded toquestions and encouraged reporting orcontacting HUD OIG with waste, fraud,and/or abuse issues involving any HUDprogram.

SAs Gary Diers and Kris Kanakaresaddressed the 2005 Annual Kansas NAHROconvention held in Topeka, KS. SAs Diersand Kanakares presented an overview ofsuccessful fraud investigations in the GreatPlains Region. Approximately 50 public andassisted housing professionals attended thisseminar.

SAs Jason Constantine and CharlesGrace presented HUD OIG’s role regardingSeattle Housing Authority (SHA) crime andfraud at a conference held at the KingCounty Police Academy, Burien, WA. Thosein attendance included representatives fromthe Seattle Police Community PolicingDivision, Seattle Police Patrol Division, andSeattle City Prosecutors Office. SAsConstantine and Grace responded toquestions and provided information onreferring SHA crimes to HUD OIG.

SA Heather Yanello providedinformation on property flipping andmortgage fraud at the Suspicious ActivityReports (SAR) training seminar hosted bymembers of the Western New York SARreview team in Buffalo, NY. SAR reviewteam members include personnel from theU.S. Attorney’s Office, IRS CriminalInvestigation Division (CID), New YorkState Attorney General’s Office of theInspector General, and U.S. Secret Service.The SAR training covered general guidelinesin preparing SARs, SAR legal requirementsestablished by FINCEN, and information onproperty flipping and mortgage fraud. SAYanello also discussed mortgage fraud as afinancial crime, how mortgage fraud relatesto the Bank Secrecy Act, and a propertyflipping scheme shown on the HBOseries “The Sopranos.” Approximately 100bank compliance and bank investigators


attended this training in person and viateleconferencing.

SAs Donald Varner and Brian Caldwellpresented information on fraud scemes to45 senior appraisers at the AppraisalInstitute for Region IX in Atlanta, GA. Anextensive question and answer forumfollowed the presentation.

SA Louis Mancini attended a U.S.Department of Justice (DOJ)-sponsoredconference in Philadelphia, PA, to exchangeideas and best practices for the DOJ-sponsored Public Housing Safety Initiatives(PHSI) under development in major USmetropolitan areas. The purpose of theconference was to facilitate continuity andcooperation among all agenciesparticipating in the various PHSI withregard to law enforcement, communitybuilding, and crime prevention. ThePhiladelphia PHSI includes HUD OIG,USMS, the Bureau of Alcohol, Tobacco, andFirearms (ATF), the Drug EnforcementAdministration (DEA), and the PhiladelphiaPolice Department.

SA David Carranza provided anoverview of HUD OIG’s mission, structure,and resources to police officers anddetectives from the Ventura, CA, PoliceDepartment, Narcotics and InvestigationsDivision, Crimes Suppression Team. SACarranza also discussed HUD OIG’sauthority in the Fugitive Felon, SexualOffender, and Rental Assistance initiatives,along with the need for networking andinformation sharing to achieve commongoals. In addition to SA Carranza, theVentura Housing Authority’s deputydirector and housing manager providedinformation and answered questionsrelating to housing eligibility, narcotic andviolent crimes leading to terminations,sexual offender policies, and annualcertifications and inspections of tenants andtheir housing units.

SAs Keith Fong and Eric Huhtalapresented an overview of HUD OIG’smission and role in investigating andprosecuting fraud to 25 attendees at aSacramento County District Attorney’sOffice training seminar in Sacramento, CA.The audience included investigators fromthe Sacramento County Department ofHuman Assistance, Investigations Division,along with Child Action, Inc., a nonprofitcontractor for Sacramento County childassistance programs. Information ondetecting, preventing, and reporting fraudwas also provided by SAs Fong and Huhtala.

A Weed and Seed Panel, comprised ofDonna Schulz, Law EnforcementCoordinator Manager and William Daniels,Law Enforcement Coordinator, U.S.Attorney’s Office; Delores McLaughlin,Brevard County Weed and SeedCoordinator; and ASAC Timothy Mowery,HUD OIG, made individual presentationsfor the Public Housing Authorities DirectorsAssociation (PHADA) during the 2006PHADA National Conference in St.Petersburg, FL. ASAC Mowery’spresentation reflected HUD OIG’s effort toidentify and remove sexual offenders,fugitive felons, and HUD programparticipants committing illicit drug offensesfrom HUD-funded programs. Conferenceattendees were advised on how local andnational HUD OIG initiatives complimentthe overall objective of the Weed and SeedProgram, a HUD-funded DOJ-administeredprogram.

On October 5, 2005, Senior AuditorAnthony Anderson and Auditor LanreIwayemi represented OIG at a career fair atSouthern Illinois University inEdwardsville, IL. Anthony and Lanre metwith students during the event, offeringinformation about OIG and explaining howOIG hires employees and where it currentlyhas openings. They collected about a dozenresumes and, as requested by the students,forwarded two of the resumes to the RegionIII Office of Audit and two to the Region VIIOffice of Investigation.


SA Joshua Stockman gave apresentation to the Identity TheftInvestigators of Arizona (IDTIA) at theMaricopa County Sheriff ’s TrainingAuditorium in Phoenix, AZ. SA Stockman’spresentation focused on HUD OIG’smortgage and rental assistance fraudinitiatives and included examples ofsuccessful HUD OIG investigations in thePhoenix metropolitan area. Approximately75 representatives from varied lawenforcement agencies, including theMaricopa County Sheriff ’s Office, theArizona Department of Public Safety, USPIS,the Social Security Administration OIG, theMaricopa County Attorney’s Office, theArizona Attorney General’s Office, andpolice departments from Phoenix, Mesa,and Chandler, attended. SA Stockmanresponded to questions relating to HUDrental assistance programs, FHA mortgageinsurance, and the Real Estate SettlementProcedures Act (RESPA).

SA James Carrieres gave presentationsto the San Diego, CA, Appraisal Instituteand Phoneix, AZ, Appraisals, a privategroup of residential appraisers. SACarrieres presentations included anoverview of HUD OIG and successfulsingle-family fraud cases prosecuted inArizona. Approximately 110 appraisersattended these events.

ASAC Brad Geary, along with arepresentative from the United StatesTrustee’s Office, Northern District of Illinois,provided three break-out presentations at aBankruptcy Fraud Training seminar held atDepartment of Justice National AdvocacyCenter, Columbia, SC. The presentationsfocused on the relationship between single-family loan fraud and fraud within thebankruptcy courts. Those attendingincluded Federal agents, assistant UnitedStates attorney’s, and trial attorneys fromUnited States Trustee’s offices throughoutthe country.

SA Scott Savedow discussed fraudulentschemes and the impact and consequencesof loan origination fraud on the FHA to theMortgage Bankers Association during theirtwo-day Fraud Detection seminar in Miami,FL. Approximately 40 bank and mortgagecompany executives attended the seminar.

SA Charles Grace presented theInspector General’s role in HUD programsat the Association of Oregon HousingAuthorities (AOHA) biannual meeting, heldat the Portland Housing Authority inPortland, OR. The attendees includedOregon housing authorities executivedirectors and an Oregon State lobbyist fromSalem, OR. SA Grace responded toquestions involving Section 8 tenant/landlord fraud, prosecutorial advice, fraudindicators, budgetary items, and contactinformation and advised AOHA membersof HUD OIG’s active pursuit of fraudinvestigations.

ARIGA Fred Smith spoke to the BetaAlpha Phi accounting association at theUniversity of Northern Colorado, Greeley,CO. ARIGA Smith discussed HUD’smission statement and strategic goals andhow OIG interacts with HUD to accomplishits mission and goals. ARIGA Smithdiscussed how OIG accomplishes itsmission by conducting independent andobjective audits, investigations, and otheractivities relevant to the HUD mission andhow OIG keeps the Secretary of HUD,Congress, and the American public fully andcurrently informed.

SA Neil McMullen met with membersof the Hill Street Community Association(HSCA) in Inglewood, CA. HSCA membersinclude homeowners and landlords whoparticipate in the Inglewood HousingAuthority’s (IHA) rental assistance programby providing housing for Section 8recipients. SA McMullen provided anoverview of HUD OIG’s mission andauthority, described ways in which HSCAmembers may assist IHA in preventing


Section 8 fraud, and explained HUD OIG’ssuccessful partnership with the InglewoodPolice Department in addressing gang anddrug activity through Section 8fraud prosecutions. Both SA McMullenand Inglewood Police Departmentrepresentatives emphasized the importanceof community involvement in reducingviolent criminal activity in subsidizedhousing.

SA Malinda Antonik presented HUDOIG’s mission and role in preserving theintegrity of the HUD-funded programs atthe Florida Association of Homes for theAging’s (FAHA) 2006 Legislative Workshopin Tallahassee, FL. Topics discussedincluded HUD OIG’s efforts to identify andeliminate fraudulent schemes in HUD’sRental Assistance, Fugitive Felon, Missing

Children, FHA, and Hurricane Reliefprograms. Approximately 35 FAHAmembers attended.

SA James Carrieres met with membersof the Hispanic Association of Real EstateProfessionals and provided an overviewof HUD OIG’s mission, HUD’s FHAprograms, and successful single-familyfraud prosecutions in Phoenix, AZ.Approximately 100 real estate agents,appraisers, loan officers, and escrow officersattended.

HUD Newark Field Office Director,Diane Johnson, presented the Newark, NJ,HUD OIG Office of Investigation with acertificate of appreciation in recognition ofthe “blue ribbon service” provided to HUDclients in New Jersey.

Chapter 9Chapter 9Chapter 9Chapter 9Chapter 9Policy DirectivesPolicy DirectivesPolicy DirectivesPolicy DirectivesPolicy Directives

108 Policy Directives

Reviewing and makingrecommendations on legislation,regulations, and policy issues is a criticalpart of the Office of Inspector General’s(OIG) responsibilities under the InspectorGeneral Act. During this 6-monthreporting period, OIG reviewed 120 policynotices. This chapter highlights some ofOIG’s recommendations on thesenotices as well as other policy directives.

Proposed RulesProposed RulesProposed RulesProposed RulesProposed Rules

HUD’s Proposed Interim Rule forHUD’s Proposed Interim Rule forHUD’s Proposed Interim Rule forHUD’s Proposed Interim Rule forHUD’s Proposed Interim Rule forProject-Based Voucher Rents forProject-Based Voucher Rents forProject-Based Voucher Rents forProject-Based Voucher Rents forProject-Based Voucher Rents forUnits Receiving Low-IncomeUnits Receiving Low-IncomeUnits Receiving Low-IncomeUnits Receiving Low-IncomeUnits Receiving Low-IncomeHousing Tax Credits--24 CFRHousing Tax Credits--24 CFRHousing Tax Credits--24 CFRHousing Tax Credits--24 CFRHousing Tax Credits--24 CFRPart 983Part 983Part 983Part 983Part 983

This rule relates to project-basedvouchers in low-income housing tax creditprojects. HUD OIG did not concur with theproposed interim rule since it did notallow for a comment period beforeimplementation and also because it did notprovide support for the proposed action.

The Department was reviewing OIG’scomments at the end of this semiannualreporting period.

Housing Opportunities forHousing Opportunities forHousing Opportunities forHousing Opportunities forHousing Opportunities forPersons with AidsPersons with AidsPersons with AidsPersons with AidsPersons with Aids

This rule is proposed for the HousingOpportunities for Persons with Aids(HOPWA) program. OIG commentedbecause the proposed rule change does notaddress several requirements that theInspector General believes are important.

The Department is incorporating OIGchanges but has not published the proposedrule as of the end of this semiannualreporting period.

Use of Capital and OperatingUse of Capital and OperatingUse of Capital and OperatingUse of Capital and OperatingUse of Capital and OperatingFunds for Financing ActivitiesFunds for Financing ActivitiesFunds for Financing ActivitiesFunds for Financing ActivitiesFunds for Financing Activities

Conversion of Developments fromConversion of Developments fromConversion of Developments fromConversion of Developments fromConversion of Developments fromPublic Stock: Methodology forPublic Stock: Methodology forPublic Stock: Methodology forPublic Stock: Methodology forPublic Stock: Methodology forComparing Costs of PublicComparing Costs of PublicComparing Costs of PublicComparing Costs of PublicComparing Costs of PublicHousing and Tenant-BasedHousing and Tenant-BasedHousing and Tenant-BasedHousing and Tenant-BasedHousing and Tenant-BasedAssistanceAssistanceAssistanceAssistanceAssistance

Public Housing Capital FundPublic Housing Capital FundPublic Housing Capital FundPublic Housing Capital FundPublic Housing Capital Fund

The following information about theabove three subject draft rules was includedin the March 31, 2005, Semiannual Report toCongress, and HUD has not reached a finaldecision. Therefore, OIG is repeating theissues in this report.

For the three subject draft rules, theOffice of Public and Indian Housing (PIH)has not conducted a risk assessment. TheAppropriations Act mandates that a riskassessment be conducted on each program.The Department policy and handbooksprovide the method for meeting thestatutory requirement relating to a riskassessment and provide that a riskassessment must be completed beforeissuing a rule. Additionally, HUD OIG hascommunicated other issues on each draftrule and cannot concur in the proposed rulesuntil the issues are addressed.

For the conversion of developmentsfrom public stock, HUD incorporated OIGcomments and issued its final rule on March21, 2006, to become effective April 20, 2006.The Department is still considering OIG’scomments on the other two rules.

Policy Directives 109

Revision to the Public HousingRevision to the Public HousingRevision to the Public HousingRevision to the Public HousingRevision to the Public HousingOperating Fund Program (FinalOperating Fund Program (FinalOperating Fund Program (FinalOperating Fund Program (FinalOperating Fund Program (FinalRule)Rule)Rule)Rule)Rule)

The proposed final rule amends theregulations of the Public Housing OperatingFund program to provide a new formula fordistributing operating subsidies to publichousing agencies and to establishrequirements for housing agencies toconvert to asset management. Annually,about $3 billion in operating subsidies isdisbursed through the formula. OMBidentified the draft rule as beingeconomically significant.

OIG provided the following commentsto PIH concerning the proposed rule.

Executive Order 12898 requires HUD toidentify and address human health andenvironmental effects of its policies,programs, and activities on minoritypopulations and low-income populations.Additionally, it requires HUD to collect,maintain, and analyze information assessingenvironmental and human health risksborne by populations identified by race,national origin, or income. This is importantto ensure that nonassisted low-incomefamilies are not adversely affected by theplacement of assisted families.

The Department issued the “RegulatoryImpact Analysis of Revisions to theOperating Fund Program,” subject to OMBCircular A-4. It specified the proposed needfor the formula as required by the circular.However, its discussion on the differentalternative approaches to the proposed ruledid not comply with the circular regardingthe enforcement methods, different degreesof stringency, different requirements fordifferent geographic regions, performancestandards, market versus direct controls,and informational measures rather thanregulations. Also, its cost-benefit analysisdid not comply with the circular regarding

baseline comparisons, cost savings, finaloutcomes, and quality of life issues.

The United States Housing Act of 1937as amended states that to ensure theaccuracy of any housing agencycertification, HUD is authorized to requirean independent auditor to substantiate eachcertification submitted by the agency andwithhold assistance to pay for the review.The statutory requirement extends beyondthe single audit compliance supplementscope and will generate a separateprocurement for an attestation engagement.The draft rule does not provide theorganizational element accountable forprocuring this attestation engagement, theindicators identifying the need for theattestation engagement, and therequirement for withholding funds.

Further, the United States Housing Actof 1937 as amended states that the formulashould provide an incentive to encouragehousing authorities to facilitate increases inearned income by families in occupancy andthe incentive may be used only to benefitlow-income housing or residents of theagency. The draft rule does not provide forcontrol measures to ensure the benefitsaccruing to the agency are used for low-income housing or for residents of theagency.

The Office of Public and Indian Housingrevised the draft rule and is currentlyissuing additional guidance to clear theremainder of our comments.

Proposed NoticesProposed NoticesProposed NoticesProposed NoticesProposed Notices

Project-Based Voucher UnitsProject-Based Voucher UnitsProject-Based Voucher UnitsProject-Based Voucher UnitsProject-Based Voucher Unitswith Low-Income Housing Taxwith Low-Income Housing Taxwith Low-Income Housing Taxwith Low-Income Housing Taxwith Low-Income Housing TaxCredit AllocationsCredit AllocationsCredit AllocationsCredit AllocationsCredit Allocations

The HUD draft notice was to supersedeNotice PIH 2002-22 and add requirementsfor public housing agencies to cap rent


amounts under the project-based voucherprogram for units receiving low-incomehousing tax credits so as not to exceed thetax credit rent based on the project-basedfinal rule effective November 14, 2005. Italso addressed applicability based on theeffective date of the rule.

OIG commented that the notice was notclear in its language on the applicability aswell as all of the terminology included inthe notice. Also the notice incorrectly statedin the subject line and purpose that itapplied to project-based and tenant-basedprograms.

Based on OIG’s comments, HUDeliminated confusing and unnecessarywording and issued an amendment toNotice PIH 2002-22 rather than supersedingthe notice. The language regardingapplicability was clarified to ensure the newfinal rule requirements are only applied toprojects selected after the effective date ofthe final rule.

Using HOME Tenant-BasedUsing HOME Tenant-BasedUsing HOME Tenant-BasedUsing HOME Tenant-BasedUsing HOME Tenant-BasedAssistance to MitigateAssistance to MitigateAssistance to MitigateAssistance to MitigateAssistance to MitigateDisplacementDisplacementDisplacementDisplacementDisplacement

The OIG did not concur with HUD’sdraft notice for using HOME InvestmentPartnership funds to mitigate thedisplacement of low-income tenants whoare losing their monthly housing choicevoucher rental subsidy because the localhousing authority must terminate housingassistance payments contracts with thetenants’ landlords due to insufficientsubsidy funds.

OIG did not concur with the proposednotice for the following reasons:

The HOME Investment Partnership Actstates funds may not be used to providetenant-based rental assistance or extend orrenew tenant-based assistance underSection 8 of the United States Housing Act

of 1937. In OIG’s opinion, the draft notice iseffectively extending the vouchers and iscontrary to the provision on prohibitingfunding for the Section 8 program in thestatute.

The Appropriation Acts for both fiscalyears (FY) 2004 and 2005 state that no partof the appropriation shall be available forany program, project, or activity in excessof amounts set forth in the budget estimatessubmitted to Congress. HUD estimated inthe budget to Congress that HOME tenant-based assistance funds would assist 13,335families. The notice does not provide acontrol measure for limiting tenant-basedassistance to 13,335 families and obtainingcompliance with the Appropriation Acts.

Executive Order 12898 requires HUD toidentify and address human health andenvironmental effects of its policies,programs, and activities on minoritypopulations and low-income populationsand to collect, maintain, and analyzeinformation assessing environmental andhuman health risks borne by populationsidentified by race, national origin, or income.The draft notice does not specify thereporting methodology to obtain compliancewith this executive order.

HUD regulations state that it is thepolicy of the Department to provide forpublic participation in rule making withrespect to all HUD programs and functions,including matters that relate to grants, eventhough such matters would not otherwisebe subject to rule making by law or executivepolicy. Therefore, HUD publishes notices ofproposed rule making in the FederalRegister and gives interested persons anopportunity to participate in the rule makingthrough submission of written data andarguments. Rules are defined as all or partof any HUD statement of general orparticular applicability and future effectdesigned to (1) implement, interpret, orprescribe law or policy or (2) describe HUD’sorganization or its procedure or practice


requirements. Rule making is defined as theprocess for considering and formulating theissuance, modification, or repeal of a rule.In OIG’s opinion, this draft notice meets thestandard as a rule and should be publishedin the Federal Register for comment.

The Department decided not to issue theproposed notice based on OIG’s comments.

Establishment of AmnestyEstablishment of AmnestyEstablishment of AmnestyEstablishment of AmnestyEstablishment of AmnestyProgram at Public HousingProgram at Public HousingProgram at Public HousingProgram at Public HousingProgram at Public HousingAgencies Resulting fromAgencies Resulting fromAgencies Resulting fromAgencies Resulting fromAgencies Resulting fromInspections of Family IncomeInspections of Family IncomeInspections of Family IncomeInspections of Family IncomeInspections of Family Income

The OIG reported on this issue in theMarch 31, 2005, Semiannual Report toCongress, and HUD had not reached a finaldecision as of that date.

The draft Notice PIH 2004 providesrequirements to housing agencies that planto offer tenants amnesty as a result of theUpfront Income Verification Systemdetecting a difference between the tenants’claim of income and the income reported bytheir employers or agencies providingincome assistance. The Departmentinitiated the Upfront Income VerificationSystem to reduce subsidy errors resultingfrom tenants underreporting or notreporting their income.

OIG did not concur with this draftnotice because it inappropriately empowershousing agencies to decide who will beprosecuted. The U.S. Code states that theAttorney General of the United States isresponsible for deciding who will beprosecuted for a Federal offense. In theTenth Amendment to the United StatesConstitution, the determination on who willbe prosecuted under State law is reservedto State authorities.

OIG has investigated numerous casesinvolving tenants who falsely reported theirincomes. These investigations resulted in

successful prosecutions or other remedialactions. OIG has pending investigationsinvolving tenants who have defrauded PIHassistance programs. The draft noticethreatens to jeopardize currentinvestigations and to undermine the fairnessof past convictions.

The Office of Public and Indian Housingdecided not to issue the draft notice basedon OIG’s comments.

Mortgagee LettersMortgagee LettersMortgagee LettersMortgagee LettersMortgagee Letters

Special Authority for Use of DeedSpecial Authority for Use of DeedSpecial Authority for Use of DeedSpecial Authority for Use of DeedSpecial Authority for Use of Deedin Lieu of Foreclosure to Assistin Lieu of Foreclosure to Assistin Lieu of Foreclosure to Assistin Lieu of Foreclosure to Assistin Lieu of Foreclosure to AssistVictims of HurricanesVictims of HurricanesVictims of HurricanesVictims of HurricanesVictims of Hurricanes

HUD drafted a mortgagee letter to makeit easier for mortgagees to accept voluntaryconveyances of property from borrowers inthose cases in which, due to storm damage,the home is not habitable and will not berestored. The proposed change included a$5,000 incentive payment to the borrower ormortgagee, as applicable, to complete adeed-in-lieu agreement. OIG commentedthat the $5,000 payment constituted anenhanced entitlement and an unexpectedwindfall to the borrowers but at a cost toHUD that simply increased claim losseswithout a material corresponding benefit.HUD believes this cost is more than offsetby a decrease in the interest and other coststhat would be payable in an insurance claimif the loans foreclose. OIG recommendedthat the deed-in-lieu transactions be trackedso that the Department could evaluate theparticipation levels and borrower eligibility.

It is not known if the Department willmonitor the transactions. The proposedletter was published May 3, 2006, after theend of this semiannual period as MortgageeLetter 2006-10.


Expanded Streamline (K) LimitedExpanded Streamline (K) LimitedExpanded Streamline (K) LimitedExpanded Streamline (K) LimitedExpanded Streamline (K) LimitedRepair ProgramRepair ProgramRepair ProgramRepair ProgramRepair Program

HUD drafted a mortgagee letter tomodify documentation and controlrequirements over 203(k) RehabilitationMortgage loans, an acknowledged higherrisk Federal Housing Administration (FHA)insurance program. The proposed changeeliminated the $5,000 repair minimum andraised the maximum to $35,000. OIGcommented that financing as muchas $35,000 of “minor repairs” couldexpose unwary borrowers to problemsassociated with past program abuses andrecommended that the Department requirea final inspection of the work when repaircosts exceeded $15,000.

HUD agreed and included theinspection requirement when it publishedMortgagee Letter 2005-50, dated December29, 2005.

Tax-Exempt Status for NonprofitTax-Exempt Status for NonprofitTax-Exempt Status for NonprofitTax-Exempt Status for NonprofitTax-Exempt Status for NonprofitDownpayment Gift ProvidersDownpayment Gift ProvidersDownpayment Gift ProvidersDownpayment Gift ProvidersDownpayment Gift Providers

HUD drafted a mortgagee letterregarding nonprofit “downpaymentassistance providers”. OIG nonconcurred.

The Department was reviewing OIG’snonconcurring comments at the end of thesemiannual reporting period.

Special Authority for Use ofSpecial Authority for Use ofSpecial Authority for Use ofSpecial Authority for Use ofSpecial Authority for Use ofPartial Claims and LoanPartial Claims and LoanPartial Claims and LoanPartial Claims and LoanPartial Claims and LoanModifications to Assist Victims ofModifications to Assist Victims ofModifications to Assist Victims ofModifications to Assist Victims ofModifications to Assist Victims ofHurricane KatrinaHurricane KatrinaHurricane KatrinaHurricane KatrinaHurricane Katrina

HUD drafted a mortgagee letter toprovide financial relief to victims ofHurricane Katrina who owned FHA-financed homes. The mortgagee letterwould allow lenders to advance up to 12months of principal, interest, taxes, and

insurance and file a partial claim for theamount of the advance. Homeowners wouldbe required to sign a repayment agreement.

OIG commented that the agreementshould be securitized through a promissorynote or other appropriate instrument andrecorded as a lien against the property.Without a lien, recovery of the advancewould not occur as a distribution from theclosing of a future property sale, and theagreement would not provide a strong andenforceable legal document in seekingrepayment directly from the borrower.

The Department addressed our issuesand published this proposal underMortgagee Letter 2005-46 on December 1,2005.

Late Request for EndorsementLate Request for EndorsementLate Request for EndorsementLate Request for EndorsementLate Request for EndorsementProcedures/CertificationProcedures/CertificationProcedures/CertificationProcedures/CertificationProcedures/CertificationEliminated, Proposed MortgageeEliminated, Proposed MortgageeEliminated, Proposed MortgageeEliminated, Proposed MortgageeEliminated, Proposed MortgageeLetterLetterLetterLetterLetter

HUD drafted a mortgagee letter toremove the certification requirement fromFHA’s late endorsement procedures. HUDbelieves the certification requirement doesnot materially contribute to reducinginsurance risk.

OIG nonconcurred because thecertification is a critical document insupporting and enforcing departmentalremedies for noncompliance, and, therefore,OIG disagrees with its proposedelimination. OIG has done significanttesting of “late endorsement” compliance bymajor direct endorsement lenders as part ofits audit focus on FHA single-family lendingpractices beginning in 2004. OIG found thatlenders certified full compliance andeligibility for FHA insurance, when someloans were not eligible because theborrowers were in arrears on their mortgagepayments. OIG recommended that HUDtake appropriate remedies to reduce

noncompliance, including loanindemnifications and Program Fraud CivilRemedies Act recoveries. It remains aconcern because these ineligible late-endorsed loans were early defaults that weresubsequently endorsed for insurance.

The Department issued MortgageeLetter 2005-23, which modified lateendorsement procedures but retained acertification requirement.


Premium Pricing on FHA-InsuredPremium Pricing on FHA-InsuredPremium Pricing on FHA-InsuredPremium Pricing on FHA-InsuredPremium Pricing on FHA-InsuredMortgagesMortgagesMortgagesMortgagesMortgages

OIG reported on premium pricing onFHA-insured mortgages in the March 31,2005, Semiannual Report to Congress, andHUD had not reached a final decision.

Department action on the proposedletter was still pending at the end of thissemiannual reporting period.

Chapter 10Chapter 10Chapter 10Chapter 10Chapter 10Audit ResolutionAudit ResolutionAudit ResolutionAudit ResolutionAudit Resolution

116 Audit Resolution

In the audit resolution process, Officeof Inspector General (OIG) and U.S.Department of Housing and UrbanDevelopment (HUD) management agreeupon the needed actions and timeframes forresolving audit recommendations. Throughthis process, OIG hopes to achievemeasurable improvements in HUDprograms and operations. The overallresponsibility for assuring that the agreed-upon changes are implemented rests withHUD managers. This chapter describessignificant pending issues for whichresolution action has been delayed. It alsocontains a status report on HUD’simplementation of the Federal FinancialManagement Improvement Act of 1996(FFMIA). In addition to this chapter on auditresolution, see appendix 2, table A, “AuditReports Issued before Start of Period withNo Management Decision as of March 31,2006,” and table B, “Significant AuditReports Described in Previous SemiannualReports in Which Final Action Had Not BeenCompleted as of March 31, 2006.”

Delayed ActionsDelayed ActionsDelayed ActionsDelayed ActionsDelayed Actions

Audits of HUD’s FY 1991 throughAudits of HUD’s FY 1991 throughAudits of HUD’s FY 1991 throughAudits of HUD’s FY 1991 throughAudits of HUD’s FY 1991 through1995 Financial Statements1995 Financial Statements1995 Financial Statements1995 Financial Statements1995 Financial Statements

First issued June 30 1992. HUD has beenpreparing consolidated financial statementsunder the requirements of the ChiefFinancial Officers Act for 15 years beginningwith fiscal year (FY) 1991. Various internalcontrol weaknesses have been reported inthese audits. As a result of the FY 2005financial audit process, OIG reported HUD’sneed to (1) incorporate better risk factors andmonitoring tools into the Federal HousingAdministration’s (FHA) single-familyinsured mortgage program risk analysis andliability estimation process and (2) improveFHA’s management review of the creditreform estimation process. Corrective actionplans to resolve these issues have final actiontargeted by the end of calendar year 2006.

Audits of FHA’s FY 1991 throughAudits of FHA’s FY 1991 throughAudits of FHA’s FY 1991 throughAudits of FHA’s FY 1991 throughAudits of FHA’s FY 1991 through1995 Financial Statements1995 Financial Statements1995 Financial Statements1995 Financial Statements1995 Financial Statements

First issued March 27, 1992. FHA hasprepared financial statements for 15 yearsunder the Chief Financial Officers Act,beginning with FY 1991. The audit of FHA’sFY 2005 financial statements discussedFHA’s need to improve its review of thecredit reform estimation process as amaterial weakness. The finding revealed thatFHA management did not adequatelyreview the underlying data supporting theassumptions in the estimation cash flow orfunctionality models. This resulted inmaterial errors in the FHA mark-to-marketloan loss reserve and the liability for loanguarantee subsidy re-estimates. The auditcontinues to recognize that FHA needs to (1)improve its information technology(primarily accounting and financialmanagement systems) to more effectivelysupport FHA’s business and budgetprocesses and (2) continue to improve earlywarning and loss prevention for single-family insured mortgages through moreemphasis on monitoring lenderunderwriting and more effective use of loanportfolio risk assessment tools. A weaknessreported since the FY 1992 financialstatement audit relates to the need for FHAto more effectively manage controls over itsinformation systems’ general andapplication level security controls. FHA’slatest action plan continues to reportprogress toward resolving these remaininglong-standing issues, with final actionstargeted over the next 3 years.

Guild Mortgage Company DBA,Guild Mortgage Company DBA,Guild Mortgage Company DBA,Guild Mortgage Company DBA,Guild Mortgage Company DBA,Residential Mortgage Bankers,Residential Mortgage Bankers,Residential Mortgage Bankers,Residential Mortgage Bankers,Residential Mortgage Bankers,Nonsupervised Direct Endorser -Nonsupervised Direct Endorser -Nonsupervised Direct Endorser -Nonsupervised Direct Endorser -Nonsupervised Direct Endorser -Downey, CADowney, CADowney, CADowney, CADowney, CA

Issued July 9, 2004. Guild MortgageCompany (Guild) allowed predatorylending practices, a prohibited net brancharrangement, and did not always follow

Audit Resolution 117

prudent lending practices. Guild allowed itsbranch, Residential Mortgage Bankers, tocharge excessive fees for underwriting andprocessing, as well as allowing loan discountpoints and premium rate pricing for whichthe interest rates were not reduced and theborrowers did not receive any value orservices for the charges. In addition,Residential Mortgage Bankers wasestablished as an independent mortgagecorporation originating FHA loans withoutmeeting HUD’s application and assetrequirements. Guild also failed to establishappropriate loan processing andunderwriting controls to ensure HUDrequirements were followed during the loanorigination process. OIG recommended thatGuild (1) be referred to the MortgageeReview Board and assessed civil moneypenalties for engaging in predatory lendingpractices, (2) be required to review andanalyze all FHA loans originated byResidential Mortgage Bankers in which loandiscount points were charged and there wasno interest rate reduction, (3) make refundsas required by HUD regulations, (4) repayHUD losses totaling more than $811,000,and (5) indemnify the remaining loansamounting to more than $159 million.

OIG received a management decision,dated November 8, 2004, which included adecision for recommendation 1C, whichstates that a written legal opinion would berequested from the Office of GeneralCounsel regarding loan discount points andpremium rate pricing. A legal opinion, datedDecember 7, 2004, from the Office of GeneralCounsel only addressed the issue ofpremium rate, pricing but the opinion wenton to state that issues regarding discountpoints would be addressed by the Office ofReal Estate Settlement Procedures Act/Office of Land Sales. HUD, however, closedthe recommendation on February 7, 2005,as having been satisfied. On March 29, 2005,OIG reopened this recommendation andissued a memorandum to the AssistantSecretary for Housing, explaining that theoriginal recommendation had not been fully

satisfied and giving HUD 30 days to providean action plan. On June 8, 2005, we receiveda response from the General DeputyAssistant Secretary for Housing-DeputyFederal Housing AdministrationCommissioner stating that the Office ofHousing did not agree that loans withdiscount point charges, in which there wasno interest rate reduction, were a HUD orReal Estate Settlement Procedures Actrequirement. Further, the memorandumstated that the Real Estate SettlementProcedures Act Office would provide theofficial written confirmation response on itsdecision regarding this issue by June 30,2005.

In November 2005, OIG received thereferenced legal opinion, dated November3, 2005, whose subject line was – Availabilityof Enforcement Action Under RESPA Basedon Discount Points Charged in Above-ParLoans. The opinion memorandumconcluded that Guild’s charging of discountpoints in these transactions is contrary toHUD’s regulations and statements of policyinterpreting Section 8(b) of RESPA. It alsonoted that the statute of limitations expiredbefore our audit and several appellate courtshave questioned aspects of HUD’sinterpretation of Section 8(b). The opinionalso concluded there may be a violation ofSection 4 of RESPA if the disclosuresprovided did not accurately describe thefunction of the discount points. OIG’sconclusion, as described in the audit report,was that the fees labeled as discount pointswere actually unearned fees disguised asdiscount points on the HUD-1 SettlementStatements. As a result, neither the GoodFaith Estimates nor the HUD-1 SettlementStatements accurately described thefunction of the fees labeled as discountpoints that went to the lender as additionalcompensation instead of providing interestrate deductions to the borrowers.

In a letter, dated December 22, 2005,OIG asked the Assistant Secretary forHousing to refer the lender to the Mortgagee


Review Board for civil money penalties forthe violations cited for the loans in question,and we are still awaiting a reply. OIGfollowed up with more correspondence onFebruary 8, 2006, with notification that noneof the targeted action dates have been metfor the recommendations in the July 9, 2004,audit report. As of March 31, 2006, none ofthe borrowers have received refunds and nocivil money penalties have been assessed tothe lender. The maximum civil moneypenalty assessment is $6,500 per violationup to a limit of $1.25 million for all violationscommitted during any 1-year period.(Report No. 2004-LA-1005)

United States Veterans Initiative,United States Veterans Initiative,United States Veterans Initiative,United States Veterans Initiative,United States Veterans Initiative,Inc. - Supportive HousingInc. - Supportive HousingInc. - Supportive HousingInc. - Supportive HousingInc. - Supportive HousingProgram Grantee - Inglewood,Program Grantee - Inglewood,Program Grantee - Inglewood,Program Grantee - Inglewood,Program Grantee - Inglewood,CACACACACA

Issued September 27, 2004. UnitedStates Veterans Initiative, Inc. – SupportiveHousing Program Grantee

Issued September 27, 2004. Contrary toFederal regulations and grant requirements,U.S. Veterans Initiative was unable tosupport that it met cash matching fundsrequirements for any of the $7,222,590 inSupportive Housing Program (SHP) grantfunds 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 foundthat U.S. Veterans Initiative did notadminister its SHP grants in accordancewith requirements because it failed to (1)develop an adequate financial managementsystem, (2) comply with procurement andcontract administration requirements, (3)establish and implement indirect cost ratesas required, and (4) close out expired grants.

OIG recommended that HUD require U.S.Veterans Initiative and/or its continuumsLos Angeles Homeless Services Authorityand City of Long Beach to (1) repay HUDfrom nonfederal funds for the $6,589,242 inSHP grant expenditures that did not havethe required matching funds unless it canprovide the supporting documentation, (2)comply with Federal requirements incarrying out its SHP grant activities, (3)reimburse the SHP grants and/or repayHUD from nonfederal funds for the $633,348in ineligible and unsupported expenses, (4)revise U.S. Veterans Initiative’s financialmanagement system, (5) competitivelyprocure the services in the business servicesagreement, (6) develop and/or update theindirect cost rates, and (7) submit financialcloseout reports for expired grants.

On April 4, 2005, the Deputy Secretarymade final management decisions1 for thisaudit and the Office Community Planningand Development (CPD) agreed to completefinal actions by March 17, 2006. As part ofthe management decision for finding 1, CPDagreed to contact the U.S. Department ofLabor (DOL), the U.S Department ofVeterans Affairs (VA), and Americorp todetermine whether their funds can be usedas match for the SHP. If the funds can beused, CPD agreed to request a legal opinionfrom HUD’s Office of General Counsel(OGC) regarding (1) the definition of“budget line item” and (2) whether matchmay be applied project to project or usedbased on budget line item or must be appliedto the lower accounting level. If the fundscannot be used as match, $1,254,570 will bedisallowed. With regard to finding 2, CPDagreed to request a legal opinion from OGCto determine whether approval can begranted after the fact for expenditures thatwere not included as budget line items butwere 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 thisaudit.


any new grant agreements until the auditissues have been resolved. The DeputySecretary also determined that grantrenewals, subsequent to those awardedunder the 2004 Continuum of Carecompetition, will not be funded untilmanagement decisions from the audit areresolved. Final action was scheduled to becompleted for findings 1 and 2 by January4, 2006, and for finding 3 by March 17, 2006.

On February 7, 2006, CPD sent amemorandum to provide a status updateand request revisions to the managementdecisions and attached a December 19, 2005,legal opinion from OGC. With regard tofinding 1, CPD had not yet determinedwhether funds from DOL, VA, andAmericorp could be used as match for theSHP. CPD explained that it had receivedinconsistent responses from the agencies;therefore, on December 13, 2005, it hadrequested opinions from the agencies’counsels and is currently waiting for theirresponses. CPD requested an extensionuntil June 30, 2006, to complete final action.With regard to finding 2, OGC ruled thatCPD could grant approval for grantexpenditures that were not included asbudget line items but were SHP eligible.Based on this opinion, CPD requested arevised management decision to revise thedisallowed amounts and request ourconcurrence to allow U.S. veterans to repaythe disallowed costs through (1) arepayment plan, (2) recovery through offsetson active grants, and (3) recovery throughproperty in lieu of cash. On finding 3, CPDrequested concurrence to close therecommendation based on the receipt of theOGC legal opinion.

On February 22, 2006, OIG respondedto CPD’s memorandum and advised that forfinding 1, OIG cannot extend the final actiontarget date since there was no change in themanagement decision. Therefore, finalaction is considered past due after March31, 2006. With regard to finding 2, OIGrequested supporting documentation to

determine the appropriateness of the courseof action for these recommendations. Inaddition, OIG advised CPD to obtain awritten legal opinion from OGC todetermine the allowability of the debtrepayment proposal to allow some of thedebt to repaid with payment in kind to athird party grantee and whether suchpayments in kind, in the absence of areduction by an equal amount of HUD’sliability to the third party grantee, constitutean augmentation of HUD’s appropriation orviolation of the HUD Reform Act.Regarding finding 3, we advised that themanagement decision required all the auditissues to be resolved before the correctiveaction can be considered complete.Therefore, final action was past due as ofMarch 31, 2006. (Report No. 2004-LA-1008)

Significant ManagementSignificant ManagementSignificant ManagementSignificant ManagementSignificant ManagementDecision with Which theDecision with Which theDecision with Which theDecision with Which theDecision with Which theOIG DisagreesOIG DisagreesOIG DisagreesOIG DisagreesOIG Disagrees

Section 5(a)(12) of the Inspector GeneralAct, as amended, requires that OIG reportinformation concerning any significantmanagement decisions with which OIG isin disagreement. During the currentreporting period, OIG disagreed withsignificant management decisions for oneaudits.

Idaho Housing and FinanceIdaho Housing and FinanceIdaho Housing and FinanceIdaho Housing and FinanceIdaho Housing and FinanceAssociation - Boise, IDAssociation - Boise, IDAssociation - Boise, IDAssociation - Boise, IDAssociation - Boise, ID

Issued September 16, 2005. Idaho Housingand Finance (Idaho Housing), Boise, ID, didnot follow Federal regulations and HUDguidelines when it allowed 10 projectowners to prepay project mortgages.According to the Housing AssistancePayment (HAP) contracts for these projects,the prepayment of the projects’ permanentfinancing cancels the HAP contracts.However, Idaho Housing did not enforce theHAP contract termination, causing HUD to


pay more than $8.5 million in rent subsidiesin excess of fair market rents.

OIG found no documentation showingIdaho Housing informed HUD of theprepayments for 7 of the 10 projects itreviewed. As a result, Idaho Housing didnot give HUD the opportunity to offer anyoptions regarding the rent subsidies. IdahoHousing’s failure to notify HUD of theseprepayments is a violation of HUDregulations at 24 CFR 883.307(b)(2) and abreach of its annual contributions contract,which requires compliance with the U.S.Housing Act of 1937 and all applicableregulations and requirements.

OIG recommended that HUD requireIdaho Housing to reimburse HUD for the$8.5 million in excessive subsidy paymentsfor the projects without valid HAP contracts.OIG also recommended that HUDrenegotiate the terminated HAP contractswith the owners and Idaho Housing, takinginto consideration the projects’ conditionand fair market rents. The Office ofMultifamily Housing disagreed with bothrecommendations. Subsequently, OIG helddiscussions with the Deputy AssistantSecretary for Multifamily Housing todiscuss issues relating to HUD’s policy onextending HAP contracts upon contracttermination due to prepayment.

Regarding the issue of prepaid projects,the Office of Multifamily Housing statedthat HUD’s practice since 2002 is to offerowners who contact HUD the options of (1)extending the term of the HAP contract tothe originally scheduled maturity date of thepermanent financing, (2) renewing the HAPcontract under the provisions of theMultifamily Assisted Housing Reform Act(MAHRA), or (3) opting out of the Section 8program. According to the Office ofMultifamily Housing, it would have allowedthe HAP contract extensions using existingterms if Idaho Housing had (1) recognizedthe termination provision at the time of therefinancing and (2) sought and received, on

behalf of the owners, HUD’s writtenapproval to prepay.

OIG believes the Office of MultifamilyHousing’s policy of allowing the owners ofnoninsured subsidized projects tounilaterally choose one of the three optionsdoes not protect HUD’s interests and complywith amendments made to Section 524 ofMAHRA, effective September 30, 2001.

The HAP contract termination for the 10projects in OIG’s report is covered underMAHRA Sections 524(b)(1) and 524 (b)(2).Therefore, by statute, HUD can only offerthe HAP renewal option stated in Section524(b)(1). Due to the application of anannual adjustment factor through March1995, the 10 prepaid Idaho Housing projectsin OIG’s report had subsidized rents thatwere as much as 191 percent of applicablefair market rents. OIG estimates that HUDwould save more than $1.3 million in excesssection 8 subsidy payments over the nextyear if it renegotiated the HAP contracts inconformance with MAHRA.

Initially, OIG agreed to modify its tworecommendations and eliminate $8.5 millionin ineligible costs if the Office of MultifamilyHousing would commit to changing itspolicy of allowing project owners tounilaterally choose the option of extendingHAP contracts that terminated due toprepayment. OIG stated that any new policymust be in conformance with the applicableprovisions of MAHRA. On March 14, 2006,the Assistant Inspector General for Auditreferred the issue to the Assistant Secretaryfor Housing because OIG could not reachan agreement with the Office of MultifamilyHousing on the two recommendationswithin established timeframes.

On March 31, 2006, the InspectorGeneral received a memorandum from theDeputy Secretary stating that he agreed withthe Office of Housing’s proposedmanagement decision. This decision statesthat the Office of Housing will not require


Idaho Housing to reimburse HUD for theexcessive subsidy payments and renegotiatethe subsidy contracts with the 10 projectowners. OIG disagrees with the DeputySecretary’s management decision andquestion HUD’s reluctance to commit tochanging its policy on prepaid, noninsuredmultifamily housing projects to conform toMAHRA. OIG has asked for a formal Officeof General Counsel legal opinion on thisissue. (Report No. 2005-SE-1008)

Federal FinancialFederal FinancialFederal FinancialFederal FinancialFederal FinancialManagementManagementManagementManagementManagementImprovement Act of 1996Improvement Act of 1996Improvement Act of 1996Improvement Act of 1996Improvement Act of 1996

FFMIA requires that HUD implementa remediation plan that will bringfinancial systems into compliance withFederal Financial Management System

requirements within 3 years or obtain Officeof Management and Budget concurrence ifmore time is needed. FFMIA requires OIGto report in its semiannual reports to theCongress instances and reasons when anagency has not met the intermediate targetdates established in its mediation planrequired by FFMIA. In April 1998, HUDdetermined that 38 of its systems were notin substantial compliance with FFMIA. Atthe end of 2005, the Department continuedto report that 2 of its 44 financialmanagement systems were not insubstantial compliance with FFMIA. Thesetwo systems are Loan AccountingSystem(LAS), and Facilities IntegratedResources Management System (FIRMS).HUD is in the process of replacing LAS witha commercial off-the-shelf software packagein the second quarter of 2006. HUDreported FIRMS as noncompliant in its2005 self-assessment.

Appendix 1Appendix 1Appendix 1Appendix 1Appendix 1Audit Reports IssuedAudit Reports IssuedAudit Reports IssuedAudit Reports IssuedAudit Reports Issued

124 Audit Reports Issued

Internal ReportsInternal ReportsInternal ReportsInternal ReportsInternal Reports

11 Audit Reports11 Audit Reports11 Audit Reports11 Audit Reports11 Audit ReportsChief 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 2005and 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, andAssessed 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; BetterUse: $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 ReportsExternal ReportsExternal ReportsExternal ReportsExternal Reports

66 Audit Reports66 Audit Reports66 Audit Reports66 Audit Reports66 Audit ReportsCommunity 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 andHOME Program Administrative Funds, Malden, MA, 01/23/2006.

2006-CH-1001 HUD’s Interest in More Than $220,000 in Economic DevelopmentInitiative-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-SpecialPurpose Grant Funds Awarded to the City of Rhinelander, WI, Was NotSecured, 12/05/2005. Better Use: $47,668.

2006-CH-1006 Northstar Community Development Corporation Inappropriately UsedMore Than $120,000 in Economic Development Initiative-SpecialPurpose Grant Funds and HUD’s Interest in More Than $180,000 inGrant 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 AdministerIts 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 SupportiveHousing Program, Jersey City, NJ, 01/31/2006. Questioned: $94,759;Unsupported: $94,759.

2006-NY-1006 Lower Manhattan Development Corporation, CDBG Disaster RecoveryAssistance 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; BetterUse: $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, ImproperlyUsed 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, SubstantiallyComplied with Requirements Regarding Late Requests for Endorsementsand 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 Compliedwith Requirements Regarding Submission of Late Requests forEndorsement 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’sRequirements Regarding Late Requests for Endorsements andUnderwriting 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 Requirementsin 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 forClosing Sales of HUD Homes, Greenwood Village, CO, 02/01/2006.Questioned: $6,858.

2006-FW-1004 K Hovnanian American Mortgage, LLC, Violated UnderwritingRequirements and Did Not Meet All Quality Control or BranchRequirements, Plano, TX, 01/26/2006. Questioned: $608,333; Better Use:$736,517.

2006-FW-1006 America’s Mortgage Resource, Inc., Branch Manager Formed anIdentity-of-Interest Entity That Provided Gift Funds; and Did NotAlways Meet HUD Loan Origination and Quality Control PlanRequirements, Metairie, LA, 03/28/2006. Questioned: $708,258; BetterUse: $6,904,509.

2006-FW-1007 BSM Financial LP Originated Loans on Overvalued Properties to LessThan 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 RegulationsWhen 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 Endorsementof 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 NotProperly 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 DidNot 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 theOrigination 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.


2006-LA-1007 The Villas at Augusta Ranch Used Project Funds Totaling $965,316 forIneligible 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 TwoWorlds II Mismanaged Project Finances and Operations, Los Angeles,CA, 03/03/2006. Questioned: $3,097,469; Unsupported: $719,899; BetterUse: $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 Loanswith 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 Loanswith 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 AmericanMortgage, Inc., Did Not Comply with HUD Regulations andRequirements, Cherry Hill, NJ, 02/15/2006. Questioned: $4,589; BetterUse: $1,632,468.

2006-PH-1008 1st Preference Mortgage Corporation, York, PA, and Greenbelt, MD,Did Not Originate All FHA Loans in Accordance with HUDRequirements, York, PA, 03/23/2006.

2006-SE-1001 Idaho Housing and Finance Association Did Not Monitor SubsidizedMultifamily Projects in Accordance with Regulations or Its AnnualContributions 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 Saleof Affordable Housing Units, Use of Sales Proceeds, and Expenditureof 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 Section8 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 EnsureSection 8 Assisted Units Were Decent, Safe, and Sanitary, Winston-Salem, NC, 01/18/2006. Better Use: $6,435,360.

2006-AT-1006 The Municipality of San Juan Housing Authority Did Not EnsureSection 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, Winston-Salem, NC, 03/30/2006. Questioned: $4,976,616; Better Use: $475,000.



2006-BO-1002 Review of Worcester Housing Authority Identified $1.9 million of ItsPublic 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 ProgramDeficiencies 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 ContributionsContract Funds for Development Activities Outside Its AnnualContributions Contract, Lancaster, OH, 12/30/2005. Questioned:$543,483.

2006-DE-1003 The Housing Authority of the City and County of Denver ProperlyAssigned 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 Section8 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, andEncumbered 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’sStandards, Palacios, TX, 12/22/2005. Better Use: $44,657.

2006-FW-1005 Albuquerque Housing Services Generally Complied with HUD’sStandards, Albuquerque, NM, 02/16/2006.

2006-KC-1001 The Columbia Housing Authority Is Unnecessarily Paying HousingChoice 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 HaveAdequate Controls Over Its Housing Quality Standards Process andTenant Eligibility Verification Procedures, Omaha, NE, 01/12/2006.Questioned: $58,511.

2006-KC-1006 The Housing Authority of Kansas City Unnecessarily Paid HousingChoice 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 theSection 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 AdequatelyDetermine 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 ItsSection 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 AdequatelyAdminister and Maintain Its Section 8 Waiting List, 03/01/2006.


2006-NY-1003 The Housing Authority of the City of Newark’s Controls Over BondFinancing Activities, Obtaining Supporting Documentation, and LegalSettlements 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 ChoiceVoucher Program Has Administrative and Financial ManagementWeaknesses, 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 AdministrativeWeaknesses Have Resulted in Unsupported and IneligibleExpenditures, Utica, NY, 02/21/2006. Questioned: $758,087;Unsupported: $237,957; Better Use: $33,150.

2006-PH-1001 The Alexandria Redevelopment and Housing Authority ImproperlyUsed 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 AlwaysFollow 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 NotAdequately 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 AssetsImproperly to Develop and Support Its Nonfederal Entities, Butler,PA, 01/10/2006. Questioned: $205,875; Unsupported: $205,875; BetterUse: $973,982.

2006-PH-1009 The Housing Authority of the City of Annapolis Did Not AdequatelyAdminister Its Section 8 Waiting List, Annapolis, MD, 03/23/2006.

2006-SE-1002 Northeast Washington Housing Solutions Improperly AdministeredHousing Choice Vouchers, Spokane, WA, 02/27/2006. Questioned:$460,319; Unsupported: $460,319.

Appendix 2Appendix 2Appendix 2Appendix 2Appendix 2TablesTablesTablesTablesTables

132 Tables

Table ATable ATable ATable ATable AAudit Reports Issued Prior to Start of Period with NoAudit Reports Issued Prior to Start of Period with NoAudit Reports Issued Prior to Start of Period with NoAudit Reports Issued Prior to Start of Period with NoAudit Reports Issued Prior to Start of Period with No

Management Decision at March 31, 2006Management Decision at March 31, 2006Management Decision at March 31, 2006Management Decision at March 31, 2006Management 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 BroadStreet MortgageCompany,Subsidiary ofFieldstone MortgageCompany,San Antonio, TX

Management decision has not beenreached on one of the three reportedrecommendations. The Inspector Generalreferred the issue to the Deputy Secretary inJanuary 2006 because agreement could not bereached with the Office of Housing. Therecommendation relates to concerns that wehave with this particular mortgagee’s loanorigination practices as they relate to the useof downpayment assistance from seller-funded nonprofit organizations. Theconcerns we have with these downpaymentassistance transactions have beenlong-standing and are consistent withconcerns reported by others, including theGovernment Accountability Office.Moreover, we have other mortgagee auditreports that have been issued or are inprocess that have similar issues with sellersincreasing the original sales price to coverthe buyer’s required downpayment and thenonprofit downpayment assistanceprovider’s fee. The Office of Housing hastaken the position that, based on a 1998legal opinion, if the gift of downpaymentassistance is made by the nonprofit entity tothe buyer before closing, and the seller’scontribution to the nonprofit entity occursafter the closing, then the buyer has notreceived funds that can be traced to theseller’s contribution. The OIG believes thatHUD should establish specific standardsregarding a borrower’s investments in themortgaged property when a gift is providedby a nonprofit organization. As a result ofthe impasse, we have asked the DeputySecretary to provide a final managementdecision.

05/26/200511/22/2005

Tables 133

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

Decision

2005-NY-1008 LowerManhattanDevelopmentCorporation,CommunityDevelopment BlockGrant ProgramDisaster AssistanceFundNew York, NY

Management decision has not beenreached on one of the four reportedrecommendations. On March 31, 2006,the General Deputy Assistant Secretaryfor Community Planning and Developmentindicated that he agreed with the auditrecommendation that the auditee consideradditional action to recover $6 million inoutstanding receivables from recipients ofthe Residential Grant Program. However,he did not agree that this amount shouldbe shown as “funds to be put to better use”in our report. OIG maintains that while theauditee may not be able to collect thisentire amount from the recipients, anyamounts collected by the auditee wouldrepresent amounts that would be availablefor other eligible program purposes.Accordingly, we believe that some amountshould be recorded as “funds to be put tobetter use.” The Inspector General referredthe issue to the Assistant Secretary,Community Planning and Development,on April 7, 2006.

09/27/200503/26/2006

Table BTable BTable BTable BTable BSignificant Audit Reports Described in Previous Semiannual Reports in Which Final ActionSignificant Audit Reports Described in Previous Semiannual Reports in Which Final ActionSignificant Audit Reports Described in Previous Semiannual Reports in Which Final ActionSignificant Audit Reports Described in Previous Semiannual Reports in Which Final ActionSignificant Audit Reports Described in Previous Semiannual Reports in Which Final Action

Had Not Been Completed as of March 31, 2006Had Not Been Completed as of March 31, 2006Had Not Been Completed as of March 31, 2006Had Not Been Completed as of March 31, 2006Had Not Been Completed as of March 31, 2006Report Report Title Issue Decision FinalNumber Date Date Action

1997-CH-1010 Major Mortgage Corporation, 09/17/1997 01/06/1998 10/15/2006Section 203(K) RehabilitationHome Mortgage InsuranceProgram, 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 12/21/2006Statements

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

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

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

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

2002-FO-0003 HUD, Financial Statements 02/27/2002 08/16/2002 11/15/2006FY 2001 and 2000

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

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

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

2002-KC-0002 Nationwide Survey of HUD’s 07/31/2002 11/22/2002 06/30/2006Office of Housing Section 232Nursing Home Program

2002-FW-1002 Houma, LA, Housing Authority, 09/18/2002 01/16/2003 04/15/2006Low Rent Housing Program,Cash & Procurement Controls

2002-FW-1003 New Mexico Public Interest 09/30/2002 03/31/2003 Note 1Education Fund, Outreach andTraining Assistance Grant andPublic Entity Grant,Albuquerque, NM

134 Tables

Tables 135

Report Report Title Issue Decision FinalNumber Date Date Action

2002-PH-1004 Tenants’ Action Group of 09/30/2002 03/31/2003 03/29/2007Philadelphia, PA, Outreach andTraining Assistance Grant

2002-PH-1006 Legal Aid Bureau, Inc., 09/30/2002 03/31/2003 Note 1Outreach and TrainingAssistance Grant NumberFFOT0020MD, Baltimore, MD

2002-PH-1007 Legal Aid Bureau, Inc., 09/30/2002 03/31/2003 Note 1Outreach and TrainingAssistance Grant NumberFFOT98012MD, Baltimore, MD

2002-SF-1006 Legal Aid Society of Honolulu, 09/30/2002 03/31/2003 03/29/2007HI, Outreach and TrainingAssistance Grant

2003-SE-1002 Tenants Union, Seattle, WA, 12/02/2002 03/31/2003 03/29/2007Outreach and Training AssistanceGrant and Intermediary TrainingAssistance Grant

2003-AT-1001 Northwestern Regional Housing 01/09/2003 06/02/2003 10/01/2006Authority, Public HousingPrograms, Boone, NC

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

2003-FW-1001 Housing Authority of the City 02/21/2003 06/20/2003 04/15/2006of Morgan City, LA, Low-RentProgram

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

2003-NY-1003 Empire State Development 03/25/2003 07/16/2003 06/30/2006Corporation, CDBG DisasterAssistance Funds, New York, NY

2003-CH-1014 Coshocton, OH, Metropolitan 03/28/2003 07/28/2003 04/30/2047Housing Authority, PublicHousing Program

2003-DE-0001 HUD Office of Multifamily 03/31/2003 03/31/2003 Note 1Housing AssistanceRestructuring’s Oversight ofthe Sec 514 Program Activities

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

2003-CH-1017 Housing Continuum, Inc., 06/13/2003 10/10/2003 Note 1Homebuyers AssistanceProgram, Geneva, IL

136 Tables


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 03/31/2007Corporation, CDBG DisasterAssistance Funds, New York, NY

2003-BO-1002 Family Living Adult Care 11/04/2003 03/04/2004 09/30/2006Center, Biddeford and Saco, ME

2004-KC-1001 East Meyer Community 11/24/2003 03/29/2004 04/14/2006Association, Kansas City, MO

2004-CH-1001 Kankakee, IL, County Housing 11/26/2003 03/24/2004 Note 2Authority, Section 8 HousingProgram

2004-DP-0001 FY 2003 Review of Information 12/01/2003 05/28/2004 12/31/2006Systems Controls in Supportof the Financial Statements Audit

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

2004-FO-0003 HUD Financial Statements 12/19/2003 07/20/2004 11/15/2006FY 2003 and 2002

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

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

2004-AO-0001 Award and Administration of 02/06/2004 06/30/2004 Note 2Lead-Based Paint HazardReduction Grants

2004-DP-1002 Application Control Review of 02/25/2004 07/14/2004 10/15/2006the Tenant Rental AssistanceCertification System

2004-FW-1003 City of New Orleans, LA, 03/15/2004 09/07/2004 04/15/2006Section 108 Loan Program,Jazzland Theme Park

2004-AT-1006 Puerto Rico Public Housing 04/22/2004 07/12/2004 07/31/2006Administration, San Juan, PR

2004-LA-1003 Homewide Lending 05/19/2004 09/01/2004 10/15/2006Corporation, NonsupervisedMortgagee, Los Angeles, CA

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

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

Tables 137


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

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

2004-LA-1005 Guild Mortgage Company DBA, 07/09/2004 11/06/2004 Note 2Residential Mortgage Bankers,San Diego, CA

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

2004-KC-1003 Wells Fargo Home Mortgage, 07/16/2004 10/08/2004 Note 2Nonsupervised DirectEndorsement Lender,Des Moines, IA

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

2004-PH-1010 Lambeth Apartments, Section 08/04/2004 10/02/2004 06/30/2006236/Section 8, MultifamilyHousing Review, Pittsburgh, PA

2004-CH-1803 Somerset Point Nursing Home, 08/09/2004 08/09/2004 06/29/2006Multifamily Equity Skimming,Shaker Heights, OH

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

2004-CH-1008 Cornerstone Mortgage Group, 09/10/2004 01/05/2005 Note 2Limited Nonsupervised LoanCorrespondent, Inverness, IL

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

2004-NY-1004 Lower Manhattan Development 09/15/2004 01/12/2005 06/30/2006Corporation, CDBG DisasterAssistance Funds, New York, NY

2004-FW-1009 Mays Property Management, Inc., 09/17/2004 02/23/2005 Note 2Multifamily Management Agent,Little Rock, AR

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

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

138 Tables


2004-DE-1004 New Freedom Mortgage 09/29/2004 01/28/2005 06/30/2006Corporation, Single-FamilyDirect Endorsement Mortgagee,Salt Lake City, UT

2005-KC-1001 Karim Enterprises, DBA Prime 10/04/2004 12/22/2004 06/30/2006Mortgage, Did Not Follow FHARequirements, St. Charles, MO

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

2005-DP-0001 FY 2004 Review of Information 10/19/2004 02/16/2005 08/30/2006Systems Controls in Support ofthe Financial Statements Audit

2005-SE-1001 Tulalip Tribes Housing 10/21/2004 02/02/2005 06/30/2006Authority Cannot Account forGrant Funds, Marysville, WA

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

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

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

2005-FO-0002 FHA’s Financial Statements for 11/15/2004 11/15/2004 12/31/2006FY 2004 and 2003

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

2005-CH-1003 Royal Oak Township Housing 11/29/2004 03/29/2005 10/31/2006Commission, Public HousingProgram, Ferndale, MI

2005-PH-1003 The Town of Clifton, Single- 12/21/2004 04/19/2005 04/19/2006Family Property DispositionDiscount Sales Program, Clifton, VA

2005-PH-1004 Corrective Action Verification 12/21/2004 04/20/2005 04/30/2007Review of the Housing Authorityof Baltimore, MD, Section 8Certificate and Voucher Programs,Audit Report No. 2001-PH-1003

2005-CH-1004 Lakewood Care Center, 12/22/2004 10/07/2005 12/31/2006Multifamily Equity Skimming,Milwaukee, WI

Tables 139


2005-CH-1801 RVA Properties Inc., 12/22/2004 12/26/2004 06/30/2006Multifamily Equity Skimming,Farmington Hills, MI

2005-CH-1005 Wood Hills Assisted Living 01/12/2005 10/07/2005 12/31/2006Facility, Multifamily EquitySkimming, Kalamazoo, MI

2005-LA-1805 Housing Authority of the City of 01/21/2005 04/05/2005 10/05/2006Los 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 2Did Not Follow HUDRequirements When ProcessingLoans, Lenexa, KS

2005-AT-1005 Pan American Financial 01/27/2005 05/17/2005 05/31/2006Corporation, NonsupervisedDirect Endorsement Lender,Guaynabo, PR

2005-FW-1004 American Property Financial, 01/28/2005 05/27/2005 05/31/2006Nonsupervised LoanCorrespondent, San Antonio, TX

2005-SE-1003 Oregon Housing and 02/09/2005 05/27/2005 05/01/2006Community Services, Salem, OR

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

2005-FW-1005 New Orleans African-American 02/25/2005 05/12/2005 04/15/2006Museum Mismanaged its CDBGand Did Not Comply with itsGrant Agreements, New Orleans, LA

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

2005-PH-1007 Lehigh County Housing 03/09/2005 05/02/2005 01/30/2017Authority Could Not SupportAll Costs and Used HUD Fundsto Support its Nonfederal Entities,Emmaus, PA

2005-LA-1002 Housing Authority of Maricopa 03/14/2005 07/11/2005 08/31/2007County, Mixed FinanceDevelopment Activities,Phoenix, AZ

2005-AT-1007 Interstate Financial Mortgage 03/15/2005 08/04/2005 07/31/2006Group Corporation, NonsupervisedDirect Endorsement Lender,Miami, FL

140 Tables


2005-PH-1008 The Housing Authority of the 03/24/2005 07/13/2005 12/31/2006City of Pittsburgh Did NotEffectively Implement its MTWDemonstration Program,Pittsburgh, PA

2005-AT-1008 Trust America Mortgage, Inc., 03/25/2005 07/25/2005 04/30/2006Nonsupervised Direct EndorsementLender, Cape Coral, FL

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

2005-PH-1001 Criteria Governing Local 03/29/2005 07/27/2005 01/02/2007Government Participation inHUD’s Single-Family PropertyDisposition Discount Sales Program

2005-CH-1010 Kankakee County Housing 04/08/2005 08/05/2005 05/10/2006Authority, Low-Rent HousingProgram, Kankakee, IL

2005-FW-1008 City of New Orleans, Did Not 04/08/2005 05/26/2005 04/15/2006Contribute Approximately $3.6Million in HOME Funds,New Orleans, LA

2005-PH-1009 Richmond Development and 04/08/2005 07/28/2005 10/31/2006Housing Authority Did NotAlways Properly Use HUDFunds, Richmond, VA

2005-SE-0001 Design and Implementation 04/12/2005 04/12/2005 04/12/2006of the Public Housing/Section 8MTW Demonstration Program

2005-AT-1009 The Housing Authority of 04/21/2005 08/09/2005 04/30/2006Fulton County, Atlanta, GA

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

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

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

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

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

Tables 141


2005-KC-1006 Corinthian Mortgage 05/13/2005 09/09/2005 09/30/2006Corporation Did Not AlwaysComply with FHA Requirements,Mission, KS

2005-NY-1005 The Housing Authority of the 05/26/2005 09/23/2005 12/31/2006City of Newark, Bond FinancingActivities and Section 8 HousingChoice Voucher Administrative FeeReserves, Newark, NJ

2005-CH-1011 Stark Metropolitan Housing 05/31/2005 08/31/2005 05/10/2006Authority, Nonprofit DevelopmentActivities, Canton, OH

2005-PH-1012 The Lycoming County Housing 06/06/2005 07/12/2005 06/01/2006Authority Risked HUD Assetsfor the Benefit of Its AffiliatedNonfederal Entity,Williamsport, PA

2005-AT-1010 The Chattanooga Housing 06/09/2005 10/06/2005 06/30/2006Authority Did Not EnsureSection 8 Assisted Units WereDecent, Safe, and Sanitary,Chattanooga, TN

2005-AT-1011 The Housing Authority of 06/27/2005 10/24/2005 06/27/2006High Point Did Not ProperlyProcure Goods and Services,High Point, NC

2005-AT-1012 Crossville Housing Authority 07/06/2005 10/31/2005 10/31/2008Improperly Used Public HousingFunds for Other Activities,Crossville, TN

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

2005-FW-1012 The Housing Authority of the 07/20/2005 10/05/2005 05/31/2006City of Houston Did Not FollowIts Section 8 Abatement andTermination Policies andProcedures, Houston, TX

2005-LA-1006 Maricopa Home Consortium 07/28/2005 11/22/2005 08/31/2007Home Program, Mesa, AZ

2005-BO-1004 Housing Choice Voucher and 03/09/2005 06/29/2005 12/31/2010Low-Income Public HousingProgram Deficiencies at theBridgeport Housing AuthorityResulted in $3.8 Million inQuestioned Costs, Bridgeport, CT

142 Tables


2005-PH-1013 Review of the Commonwealth 07/29/2005 11/22/2005 11/21/2006of Pennsylvania’s HOMEInvestment Partnership Program,Harrisburg, PA

2005-PH-1014 Review of the McKeesport 07/29/2005 11/21/2005 11/01/2006Housing Authority’s Section 8and Public Housing Programs,McKeesport, PA

2005-CH-1012 Savanna Trace Apartments, 08/04/2005 12/28/2005 12/28/2006Multifamily Equity Skimming,Kalamazoo, MI

2005-CH-1013 Ivan Woods Senior Apartments, 08/05/2005 12/28/2005 12/28/2006Multifamily Equity Skimming,Lansing, MI

2005-CH-1014 Kankakee County Housing 08/05/2005 12/28/2005 04/30/2006Authority’s Low-Rent UnitConditions, Kankakee, IL

2005-NY-1006 Syracuse Housing Authority, 08/10/2005 09/20/2005 05/31/2006Section 8 Housing ChoiceVoucher Program, Syracuse, NY

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

2005-BO-1005 Inappropriate Use of Federal 08/31/2005 12/29/2005 07/30/2006Funds Led to $3.5 MillionDeficit in HUD ProgramsAdministered by Fall RiverHousing Authority, Fall River, MA

2005-BO-1006 The Hartford Housing Authority 09/06/2005 01/03/2005 06/30/2006Improperly Used $3.7 Millionin Public Housing OperatingSubsidies for Its State and OtherFederal Programs, Hartford, CT

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

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

2005-AT-1013 Corporacion Para el Fomento 09/15/2005 01/11/2005 11/30/2006Economico de la Ciudad CapitalDid Not Administer Its IndependentCapital Fund in Accordance withHUD Requirements, San Juan, PR

Tables 143


2005-AT-1014 National City Mortgage 09/15/2005 11/14/2005 10/31/2006Company Did Not Complywith FHA Requirements,Miamisburg, OH

2005-DE-1005 The Housing Authority of the 09/16/2005 11/22/2005 12/31/2006County of Salt Lake AdequatelyControlled Occupancy Functionsbut Inappropriately LoanedFunds, Salt Lake, UT

2005-NY-1007 Security Atlantic Mortgage 09/16/2005 01/13/2006 01/31/2007Company, Inc. Did Not AlwaysComply with HUD/FHA LoanOrigination 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 3Association, Boise, ID

2005-FW-1017 Allied Home Mortgage 09/22/2005 01/05/2006 06/30/2006Corporation Did Not FollowHUD Requirements WhenProcessing Four Loans,Houston, TX

2005-CH-1017 Flint Housing Commission, 09/23/2005 01/20/2006 01/20/2016Section 8 Housing Program,Flint, MI

2005-LA-1010 First Magnus Financial 09/23/2005 01/19/2006 09/23/2006Corporation, Las Vegas, NV

2005-BO-1007 Fairfield Financial Mortgage 09/26/2005 01/20/2006 09/30/2006Group, Inc., Did Not AlwaysComply with FHA Requirements,Danbury, CT

2005-LA-1011 KB Home Mortgage Company 09/26/2005 01/23/2006 01/15/2007Did Not Follow HUDRequirements When OriginatingInsured Loans, Phoenix, AZ

2005-FW-1018 The Housing Authority of the 09/27/2005 01/24/2006 09/15/2006City of Houston Violated HUDRegulations Concerning Section 8Housing Choice Voucher Tenantsand Units, Houston, TX

2005-FW-1019 Wells Fargo Did Not Follow 09/28/2005 01/05/2006 06/30/2006HUD Requirements WhenProcessing 10 Loans,Des Moines, IA

144 Tables


2005-NY-1009 Golden First Mortgage 09/28/2005 01/20/2006 10/15/2006Corporation, NonsupervisedDirect Endorsement Lender,Great Neck, NY

2005-AT-1015 The Municipality of San Juan 09/29/2005 01/12/2006 12/29/2006Housing Authority Did NotProperly Administer Its Section 8Housing Choice Voucher Program,San Juan, PR

2005-CH-1020 Housing Authority of the City 09/29/2005 01/25/1006 12/31/2052of Gary, Section 8 HousingProgram, Gary, IN

2005-BO-0002 HUD Did Not Conduct a 09/30/2005 12/20/2005 10/01/2006Front-End Risk Assessmentand, Therefore, Fully ImplementControls for the Public HousingMortgages and Security InterestProgram

2005-KC-1009 Washington Mutual Bank Did 09/30/2005 01/11/2006 09/30/2006Not Follow HUD RegulationsWhen Underwriting Six Loans,Seattle, WA

NOTES:

1 Management did not meet thetarget date. Target date is over1 year old.

2 Management did not meet thetarget date. Target date isunder 1 year old.

3 No Management decision.

REPORTS EXCLUDED FROM TABLE:

28 audits under repayment plans

32 where HUD management cannotcomplete final action since recommendedaction is pending formal judicial review,investigation, or legislative solution

Tables 145

Table CTable CTable CTable CTable CInspector General Issued Report with Questioned andInspector General Issued Report with Questioned andInspector General Issued Report with Questioned andInspector General Issued Report with Questioned andInspector General Issued Report with Questioned and

Unsupported Costs at March 31, 2006Unsupported Costs at March 31, 2006Unsupported Costs at March 31, 2006Unsupported Costs at March 31, 2006Unsupported Costs at March 31, 2006(Thousands)

Report s Number of Questioned UnsupportedAudit Reports Costs Costs

A1 For which no management 41 52,969 16,871decision had been made by thecommencement of the reportingperiod

A2 For which litigation, legislation, 10 18,568 8,135or investigation was pending atthe commencement of thereporting period

A3 For which additional costs were - 1,485 0added to reports in beginninginventory

A4 For which costs were added to 2 111 0noncost reports

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

B2 Which were reopened during the 0 0 0reporting period

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

C For which a management 571 58,627 16,022decision was made during thereporting 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 9,667had been made not to determinecosts until completion of litigation,legislation, or investigation

E For which no management 39 46,020 16,682decision 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 DTable DTable DTable DTable DInspector General Issued Report with Recommendations That Funds BeInspector General Issued Report with Recommendations That Funds BeInspector General Issued Report with Recommendations That Funds BeInspector General Issued Report with Recommendations That Funds BeInspector General Issued Report with Recommendations That Funds Be

Put to Better Use at March 31, 2006Put to Better Use at March 31, 2006Put to Better Use at March 31, 2006Put to Better Use at March 31, 2006Put to Better Use at March 31, 2006(Thousands)

Report s Number of Dollar Value Audit Reports

A1 For which no management decision had been 41 184,495made by the commencement of the reportingperiod

A2 For which litigation, legislation, or investigation 5 15,102was pending at the commencement of thereporting period

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

A4 For which costs were added to noncost reports 0 0B1 Which were issued during the reporting period 49 553,315B2 Which were reopened during the reporting period 0 0

Subtotals (A + B) 95 825,937

C For which a management decision was made 521 549,804during 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 7 105,692not to determine costs until completion oflitigation, legislation, or investigation

E For which no management decision had been 36 170,441made 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 DExplanations of Tables C and DExplanations of Tables C and DExplanations of Tables C and DExplanations of Tables C and DThe 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. Thecurrent 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, anaudit “report” does not have a management decision or final action until all questionedcost items or other recommendations have a management decision or final action. Underthese circumstances, the use of the “report” based rather than the “recommendation”based method of reporting distorts the actual agency efforts to resolve and complete actionon audit recommendations. For example, certain cost items or recommendations couldhave a management decision and repayment (final action) in a short period of time. Othercost items or nonmonetary recommendation issues in the same audit report may be morecomplex, 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 manyrecommendations in an audit report, the current “all or nothing” reporting format doesnot 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 OperationsHUD OIG OperationsHUD OIG OperationsHUD OIG OperationsHUD OIG OperationsTelephone ListingTelephone ListingTelephone ListingTelephone ListingTelephone Listing

150 HUD OIG Operations Telephone Listing

Office of AuditOffice of AuditOffice of AuditOffice of AuditOffice of AuditHeadquarters Office of Audit, Washington, DC 202-708-0364

Region 1 Boston, MA 617-994-8380Hartford, CT 860-240-4800

Region2 New York, NY 212-264-4174Albany, NY 518-464-4200Buffalo, NY 716-551-5755Newark, NJ 973-622-7900

Region 3 Philadelphia, PA 215-656-3401Baltimore, MD 410-962-2520Pittsburgh, PA 412-644-6372Richmond, VA 804-771-2100

Region 4 Atlanta, GA 404-331-3369Miami, FL 305-536-5387Greensboro, NC 336-547-4001Jacksonville, FL 904-232-1226Knoxville, TN 865-545-4369San Juan, PR 787-766-5202

Region 5 Chicago, IL 312-353-7832Columbus, OH 614-469-5745Detroit, MI 313-226-6190

Region 6 Fort Worth, TX 817-978-9309Houston, TX 713-718-3199Oklahoma City, OK 405-609-8606San Antonio, TX 210-475-6895

Regions 7/8 Kansas City, KS 913-551-5870St. Louis, MO 314-539-6339Denver, CO 303-672-5452

Regions 9/10 Los Angeles, CA 312-894-8016Phoenix, AZ 602-379-7243San Francisco, CA 415-489-6400Seattle, WA 206-220-5360

Hurricane Recovery Oversight 504-589-7267

HUD OIG Operations Telephone Listing 151

Office of InvestigationOffice of InvestigationOffice of InvestigationOffice of InvestigationOffice of InvestigationHeadquarters Office of Investigation, Washington, DC 202-708-0390

Region 1 Boston, MA 617-994-8450Hartford, CT 860-240-4800Manchester, NH 603-666-7988

Region 2 New York, NY 212-264-8062Buffalo, NY 716-551-5755Newark, NJ 973-622-7900

Region 3 Philadelphia, PA 215-656-3410Baltimore, MD 410-962-4502Pittsburgh, PA 412-644-6598Richmond, VA 804-771-2100

Region 4 Atlanta, GA 404-331-3359Miami, FL 305-536-3087Greensboro, NC 336-547-4000Nashville, TN 615-736-7000San Juan, PR 787-766-5868Tampa, FL 813-228-2026

Region 5 Chicago, IL 312-353-4196Cleveland, OH 216-522-4421Columbus, OH 614-469-6677Detroit, MI 313-226-6280Indianapolis, IN 317-226-5427Minneapolis-St. Paul, MN 612-370-3130

Region 6 Arlington, TX 817-652-6980Houston, TX 713-718-3197Little Rock, AR 501-324-5409Oklahoma City, OK 405-609-8601San Antonio, TX 210-475-6822

Region 7/8 Kansas City, KS 913-551-5866St. Louis, MO 314-539-6559Denver, CO 303-672-5350Billings, MT 406-247-4080Salt Lake City, UT 801-524-6090

Region 9/10 Los Angeles, CA 213-894-0219San Francisco, CA 415-489-6683Phoenix, AZ 602-379-7251Sacramento, CA 916-930-5693Las Vegas, NV 702-366-2144Seattle, 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: [email protected]

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

All information is confidential,and you may remain anonymous.

Semiannual Report to CongressSemiannual Report to CongressSemiannual Report to CongressSemiannual Report to CongressSemiannual Report to CongressOcober 1, 2005 through March 31, 2006Ocober 1, 2005 through March 31, 2006Ocober 1, 2005 through March 31, 2006Ocober 1, 2005 through March 31, 2006Ocober 1, 2005 through March 31, 2006

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