oversight

Southeast Alliance of Foreclosure Specialists, LLC.

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-09-15.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                            Issue Date
                                                                     September 15, 2000
                                                            Audit Case Number
                                                                     00-AT-222-1009




TO:            Charles E. Gardner, Director, Homeownership Center, 4AHH


FROM:          Nancy H. Cooper
               District Inspector General for Audit-Southeast/Caribbean, 4AGA


SUBJECT:       Southeast Alliance of Foreclosure Specialists, LLC.

We completed an audit of Southeast Alliance of Foreclosure Specialists, LLC., a Management and
Marketing (M&M) contractor. This report presents the results of our audit of Southeast Alliance’s
ability to manage and market FHA’s single family properties. Southeast Alliance’s comments to
the two findings and associated recommendations are included as Appendix A with excerpts and
the Office of Inspector General’s (OIG) response incorporated into the Findings and
Recommendations section of the report.

Within 60 days, please provide us, for each recommendation in this report, a status report on: (1)
the corrective action taken; (2) the proposed corrective action and a planned completion date; or
(3) why action is considered unnecessary. Also, please furnish us copies of any correspondence
or directives issued as a result of the audit. Note that Handbook 2000.06 REV-3 requires
management decisions to be reached on all recommendations within 6 months of report issuance.
It also provides guidance regarding interim actions and the format and content of your reply.

We provided a copy of this report to Southeast Alliance.

We appreciate your cooperation during the audit. We would also like to thank Southeast Alliance
for its cooperation during the audit and commend the professionalism of its management and staff.
Should you or your staff have any questions, please contact me at (404) 331-3369, or Gerald
Kirkland, Assistant District Inspector General for Audit, at (865) 545-4368.
Management Memorandum




                        (This Page Left Blank Intentionally)




00-AT-222-1009                      Page ii
Executive Summary
Under Secretary Andrew Cuomo, HUD has undergone significant changes in response to the
Secretary’s “HUD 2020 Reorganization Plan.” One major change is the outsourcing of FHA’s
management and marketing of its single family properties. In March 1999, FHA awarded 7
companies a total of 16 Management and Marketing (M&M) contracts to manage its single family
property inventory.

Although FHA outsourced these activities, its program mission did not change. The program
mission is to reduce this inventory in a manner that:

       “(1) expands homeownership, (2) strengthens neighborhoods and communities, and (3)
       ensures a maximum return to the mortgage insurance fund.”

This report presents the results of our assessment of Southeast Alliance of Foreclosure Specialists,
LLC., a M&M contractor, and its ability to manage and market properties in a manner that enables
FHA to accomplish its mission.

The contractor demonstrated success in three key areas. The contractor reduced both the number
of properties in inventory and the number of properties in inventory over 6 months. It also reduced
the average losses from property sales. Despite these accomplishments, improvements are still
needed. The contractor demonstrated the willingness to improve its operations.

Our audit confirmed what FHA repeatedly reported in its monthly performance assessment reports.
As discussed in Finding 1, the contractor did not maintain properties as required. The contractor
did not perform timely initial property inspections, did not always identify serious property
defects, did not conduct routine inspections as required, and did not correct hazardous conditions
within mandatory 24 hours. The poor property conditions decrease marketability; increase FHA’s
holding costs; have negative effects on surrounding communities; reflect poorly on the
Department’s image; and in some cases, threaten the health and safety of neighbors and potential
buyers.

Also, as discussed in Finding 2, the contractor did not comply with other contract requirements.
For example, the contractor did not review HUD-1 Settlement Statements, did not obtain timely
property appraisals, and billed FHA for unauthorized expenses and ineligible expenses. The
noncompliance could significantly increase the risk of loss to the insurance fund.

We recommend you:

   •   Require the contractor to ensure property inspectors are adequately trained;

   •   Require the contractor to develop and implement procedures to perform timely initial and
       routine inspections;




                                           Page iii                           00-AT-222-1009
Executive Summary

   •   Require the contractor to promptly correct hazardous conditions and make necessary
       repairs to preserve and protect properties;

   •   Closely monitor the contractor’s compliance with maintenance requirements and take
       necessary actions to ensure requirements are met; and

   •   Ensure the contractor implements other controls to ensure contract requirements are met.

Southeast Alliance response to the draft report

We provided the draft report to Southeast Alliance on July 28, 2000. Southeast Alliance provided
written comments to the draft report on August 9, 2000, which are summarized within each finding
and included in their entirety as Appendix A. We also discussed the draft report with Southeast
Alliance officials on August 14, 2000. Although they disagreed with some specific deficiencies
identified in our property inspections, they generally agreed that improvements are needed. They
generally agreed with the recommendations and have implemented, or plan to implement,
procedures to address the recommendations. We considered the comments in preparing our final
report.




00-AT-222-1009                            Page iv
Table of Contents

Management Memorandum                                                                   i


Executive Summary                                                                   iii


Introduction                                                                        1


Findings

1     The Contractor Did Not Properly Maintain Properties                           5


2     The Contractor Violated Contract Requirements                             15



Follow-Up on Prior Audits                                                       19

Appendices
       A        Southeast Alliance Comments                                     21

       B        Distributions                                                   33

Abbreviations

FHA             Federal Housing Administration
HOC             Homeownership Center
HUD             U.S. Department of Housing and Urban Development
M&M             Management and Marketing
OIG             Office of Inspector General
REO             Real Estate Owned




                                         Page v                    00-AT-222-1009
Table of Contents




                    (This Page Left Blank Intentionally)




00-AT-222-1009                 Page vi
Introduction
Background

FHA’s Single Family Mortgage Insurance Program helps low and moderate income families
become homeowners by reducing downpayments and limiting lender fees. Every year, however,
thousands of borrowers default on their FHA-insured loans. When they default, FHA encourages
lenders to work with them to bring their payments current. When they cannot do this, their homes
may be sold to third parties, voluntarily conveyed to the lenders, or surrendered to lenders through
foreclosure. Once lenders obtain the properties, they generally convey title to the Secretary of
HUD in exchange for payment of their insurance claim.

The National Housing Act (Act) of 1934 confers on the Secretary the authority to manage,
rehabilitate, rent, and dispose of its acquired single family properties. Section 204(g) of the Act
governs the management and disposition of single family properties acquired by FHA. Title 24,
Code of Federal Regulations, part 291 implements this statutory authority. Handbook 4310.5
REV-2, dated May 17, 1994, Property Disposition Handbook - One to Four Family Properties,
supplements the regulations.

FHA disposes of properties through its Property Disposition Program. FHA’s mission is to
reduce the property inventory in a manner that expands homeownership opportunities, strengthens
neighborhoods and communities and ensures a maximum return to the insurance fund.

FHA’s Asset Management Division, is responsible for developing property disposition policies
and procedures governing program administration. Each of FHA’s four homeownership centers
(HOCs) is responsible for program operations within its geographical jurisdiction.

In March 1997, as part of HUD’s continuing reinvention efforts, FHA issued its 2020 Field
Consolidation Plan for Single Family Housing. In March 1999, FHA put the final phase of its
reorganization efforts into effect. It awarded 7 companies a total of 16 M&M contracts to manage
and market its properties nationwide.

FHA awarded the contract for the Atlanta HOC Area-3 to Southeast Alliance. The 5-year contract
has an estimated value of $79 million. Area-3 consists of properties located in Florida and Puerto
Rico.

The primary contract objectives are to ensure: (1) properties are protected and preserved,
properly managed, evaluated, and marketed in a manner which produces the highest possible return
to the insurance fund; (2) average losses on sales and the average time properties remain in
inventory are reduced; and (3) the overall program and the image of properties is positive.




                                           Page 1                            00-AT-222-1009
Introduction


Southeast Alliance is a limited liability company that was formed by and between First Preston
Management, Inc., and Just Valuation, Inc., in response to the request for proposal to manage and
market FHA single family properties. Just Valuation, Inc., has the majority membership interest
and Mr. Ron L. Nation is its president. Southeast Alliance’s main office is located in Norcross,
Georgia.

During the audit period, the contractor was responsible for managing and marketing an average
inventory of over 3,600 properties. This represents about 8 percent of the national inventory. As
of May 31, 2000, FHA had paid the contractor about $22.5 million for its services.

On March 31, 2000, we issued Audit Related Memorandum 00-AT-123-0803 which identified
weaknesses in the contractor’s operations. The memorandum was based on survey results from
our nationwide assessment of the performance and success of the M&M contracting initiative. The
purpose of the memorandum was to give FHA an opportunity to address deficiencies prior to
issuance of the final audit report. The weaknesses identified were: decreased revenues,
decreased sales to owner occupants, properties not maintained according to requirements,
untimely property inspections, and other violations of contract requirements.

In your response to the memorandum you disagreed with our assessment regarding decreased
revenues and sales to owner occupants. You agreed with our assessment that the other areas
needed improvement.

Contractor operations improved in some areas since issuance of the memorandum.



                                     The audit objectives were to determine if: (1) the contractor
 Audit objectives and                managed properties according to HUD policies, procedures
 scope                               and regulations and with the terms and conditions of its
                                     M&M contract; (2) the contractor had adequate controls to
                                     ensure FHA’s assets are adequately protected; and (3)
                                     contractor operations resulted in FHA accomplishing its
                                     mission and performance goals.

                                     To meet our objectives, we:

                                            •      Interviewed Southeast Alliance and HOC
                                                   officials;
                                            •      Reviewed monthly Performance Assessment
                                                   Reports and related correspondence;
                                            •      Reviewed a judgmental sample of 20 active and
                                                   15 closed property cases files;
                                            •      Inspected a judgmental sample of 23 properties;
                                            •      Reviewed a judgmental sample of contractor
                                                   payment vouchers;


00-AT-222-1009                            Page 2
                                                                                              Introduction


                                                    •   Reviewed the contractor’s policies and
                                                        procedures and observed its operations; and
                                                    •   Analyzed inventory and sales trends1.

                                           We assessed management controls over:          (1) property
                                           preservation and protection; (2) billings to FHA for
                                           services; (3) property sales; (4) property appraisals; (5)
                                           review of sales closing documents; and (6) subcontracting.

                                           The audit is one in a series of audits OIG is performing
                                           regarding M&M contractor operations. Each audit is part of
                                           our nationwide assessment of FHA’s ability to meet its
                                           program mission and goals while outsourcing its
                                           management and marketing activities.

                                           Our audit was performed from February through May 2000
                                           and generally covered the activities from contract inception
                                           on March 29, 1999, through May 31, 2000. We expanded
                                           our scope to other periods as necessary to accomplish the
                                           audit objectives.

                                           We conducted our audit in accordance with generally
                                           accepted government auditing standards.




1
    We excluded April and May 1999 from our analysis because data during those initial months of the contract are
    not representative of overall contractor performance.

                                                    Page 3                               00-AT-222-1009
Introduction




                 (This Page Left Blank Intentionally)




00-AT-222-1009              Page 4
                                                                                    Finding 1


      The Contractor Did Not Properly Maintain
                     Properties
The contractor did not maintain properties according to contract requirements. The contractor did
not: (1) perform timely initial property inspections; (2) ensure property inspectors accurately
reported property conditions; (3) perform routine property inspections; (4) correct hazardous
conditions; or (5) make repairs or perform routine maintenance to preserve and protect properties.
This occurred because the contractor did not have adequate controls to ensure requirements were
met. The poor property conditions decreased marketability; increased FHA’s holding costs;
negatively affected surrounding communities; reflected poorly on the Department’s image; and in
some cases, threatened the health and safety of neighbors and potential buyers.


                                     Section C-2 of the M&M contract requires the contractor to:
 Contract requirements               perform an initial inspection of newly acquired properties
 to secure and maintain              within 24 hours of assignment; secure properties to prevent
 properties                          unauthorized entry; protect properties from damage from the
                                     elements; remove and properly dispose of all interior and
                                     exterior debris; maintain the lawn and shrubbery; properly
                                     secure pools and spas; correct any condition that presents a
                                     health or safety hazard to the public within 24 hours of
                                     discovery; and patch roof leaks or other factors which may
                                     cause deterioration of condition of the property.

                                     Our review of property files for 16 newly acquired
 The contractor did not              properties found the contractor did not inspect 14 of the
 perform timely                      properties within 24 hours of assignment. Delays ranged
 property inspections                from 1 to 20 days.

                                     Properties which are not inspected and secured timely are
                                     subject to further deterioration and vandalism and potential
                                     reduced return to the insurance fund. Deteriorated and
                                     vandalized properties also have negative effects on the
                                     surrounding community and reflect poorly on the
                                     Department.




                                          Page 5                            00-AT-222-1009
Finding 1

                          The contractor’s property inspections did not identify
 The contractor did not   serious property deficiencies.       In December 1999, we
 perform adequate         inspected 23 acquired properties in central Florida to
 property inspections     determine if the contractor properly reported property
                          conditions and properly maintained the properties. We
                          compared our inspection results to the most recent contractor
                          inspection reports. For 12 of the 23 properties sampled, the
                          contractor’s reports did not disclose many property
                          deficiencies even though the conditions were easily
                          identifiable. The deficiencies included, for example, broken
                          glass in windows, vandalized HVAC units, an unsecured
                          gate, and interior and exterior debris.

                          The contractor generally agreed with our assessment and
                          took immediate steps to correct deficiencies noted in our
                          inspections.    Although the contractor was aware of
                          requirements, it contended that initially its inspectors were
                          not properly trained to identify and report property
                          conditions.

                          Although the contractor knew its inspectors were not
                          properly trained, it did not take timely action to provide
                          training. The contractor provided training in January 2000,
                          4 months after HUD’s Atlanta, GA Contracting Division
                          issued a “Letter of Concern” to the contractor because of the
                          poor property conditions.

                          The contractor must ensure its inspectors are properly
                          trained to identify and report property deficiencies.
                          Otherwise, the contractor may not be aware of conditions
                          which need correction, including potential health and safety
                          hazards.




00-AT-222-1009                Page 6
                                                        Finding 1

Following are examples of conditions the contractor’s
inspectors did not report.




FHA Case Number 094-184531                         Orlando, Florida

               OIG Inspection December 14, 1999
               Broken glass presents a safety hazard.




 FHA Case Number 094-358716                       Orlando, Florida

               OIG Inspection December 14, 1999
           Exterior debris and a vandalized HVAC unit.




      Page 7                                 00-AT-222-1009
Finding 1




                 (This Page Left Blank Intentionally)




00-AT-222-1009              Page 8
                                                                                       Finding 1


                               The contractor is required by its contract to perform routine
Lack of routine                property inspections. The contractor’s procedures are to
inspections                    inspect properties every 14 days. Forty percent of the
                               properties we inspected did not show evidence of routine
                               inspections. For example, the property located at 7728
                               Fernbrook Way, Winter Park, Florida, was inspected only
                               one half the required number of times from July 29, 1999,
                               through December 14, 1999. When we performed our
                               inspection on December 15, 1999, we noted the contractor
                               had not visited the property since November 2, 1999.
                               FHA’s monthly performance assessments also identified
                               deficiencies in the contractor’s routine inspections.

                               Routine inspections are essential to alert the contractor to
                               property conditions that may need immediate attention.
                               Failure to perform the inspections increases the risk of
                               property damage.

                               The contractor did not correct health and safety hazards
Hazardous property             within 24 hours as required.       We found hazardous
conditions                     conditions, such as missing balusters from a balcony, a
                               porch held up by a broken tree limb, and an improperly
                               covered swimming pool. It appeared these conditions had
                               existed for some time.




                  FHA Case Number 094-214300                       Sanford, Florida

                                                OIG Inspection December 14, 1999
                                               Tree limbs holding up the porch roof.



                                      Page 9                                 00-AT-222-1009
Finding 1

                        On December 15, 1999, we inspected the property located at
                        2992 Chantilly Avenue, Winter Park, Florida. A swimming
                        pool on the property was not properly covered and needed
                        to be drained. Also, the fence around the pool was heavily
                        damaged allowing easy access to the pool. There was
                        nothing to prevent children from entering the pool area and
                        falling into the pool.

                        The contractor’s November 23, 1999, inspection report
                        showed the pool was unsecured and needed to be drained.
                        The report did not identify the damaged fence. Since the
                        conditions still existed at the time of our inspection, 22 days
                        later, the contractor clearly had not complied with the
                        contract requirement.

                        The contractor must identify and correct all health and safety
                        hazards within 24 hours to reduce the risk of harm to the
                        public and liability.

                        FHA’s monthly assessment reports repeatedly showed the
 History of             contractor was not complying with property maintenance
 maintenance problems   requirements. A September 1999 Letter of Concern stated in
                        part, “This letter is to express our serious concerns with the
                        inadequate progress of Southeast Alliance of Foreclosure
                        Specialists in maintaining properties in presentable
                        conditions at all times. We have brought this to your
                        attention repeatedly in our monthly Performance
                        Assessments, without satisfactory improvement. Although
                        you have offered a variety of explanations for the conditions
                        of specific properties, the pattern of findings continues to be
                        far below our expectations.”

                        Our property inspections confirmed what FHA reported in
                        its assessment reports. Seventeen of the 23 properties, 74
                        percent, we inspected were in “poor” condition. In addition
                        to hazardous conditions, we found the contractor did not
                        make needed repairs or perform routine maintenance to
                        preserve and protect properties. We found deteriorated
                        stucco on the exterior of one property that allowed water
                        damage to the interior, excessive yard growth, interior and
                        exterior debris and various other conditions.




00-AT-222-1009               Page 10
                                                                                                               Finding 1

      The following table provides examples of our inspection
      results.

                                                                                                      Percent
                     Deficiency                                                                     Noncompliant
                     Interior or Exterior Debris                                                         52
                     Health and Safety Hazards                                                           39
                     Roof Leaks                                                                          30
                     Vandalism                                                                           26
                     Lawn Not Maintained                                                                 12

      The following chart shows the results of FHA’s monthly
      performance assessment reports.         The percentage of
      properties found to be in “poor” condition from May 1999
      through March 2000 ranged from a high of about 62 percent
      in July 1999 to a low of about 37 percent in February 2000.


                                                 Property Inspection Results


          80



          60
Percent




          40



          20



               -                                                                                                                POOR
                   May-99




                                                                                                                           FAIR
                            Jun-99

                                     Jul-99

                                              Aug-99

                                                       Sep-99

                                                                Oct-99




                                                                                                                         GOOD
                                                                         Nov-99

                                                                                  Dec-99

                                                                                           Jan-00

                                                                                                      Feb-00


                                                                                                                Mar-00




      The chart also indicates the contractor’s performance
      improved substantially from December 1999 through
      February 2000.       However, we believe additional
      improvements are needed.




                        Page 11                                                                     00-AT-222-1009
Finding 1




                 (This Page Left Blank Intentionally)




00-AT-222-1009              Page 12
                                                      Finding 1

The following pictures show examples of the contractor’s
failure to perform needed repairs and routine maintenance.




FHA Case Number 094-331712                        Orlando, Florida

             OIG Inspection December 15, 1999
       Damaged stucco allowed water damage to interior walls.




 FHA Case Number 094-272346                      Apopka, Florida

                OIG Inspection December 13, 1999
                Overgrown grass, shrubs, and trees.




      Page 13                                00-AT-222-1009
Finding 1



 Southeast Alliance   The contractor disagreed with some of the specific
 comments             deficiencies identified in our property inspections and
                      provided explanations for the conditions. However, it
                      agreed that its property maintenance procedures need
                      improvement. The contractor generally agreed with the
                      recommendations and has, or plans to implement procedures
                      to address the recommendations. It held additional training
                      for its property inspectors and other personnel and will
                      continue intense training. It also implemented additional
                      procedures to ensure properties are inspected timely and
                      implemented an oversight division to review compliance
                      and contract procedures.



 OIG response to      We commend the contractor’s efforts to improve its
 comments             maintenance procedures. We reviewed the contractor’s
                      explanations for the property conditions and do not believe
                      the explanations justify the conditions we identified. For
                      example, the contractor stated some conditions were due to
                      recent vandalism. However, the property files and our
                      visual observations of property conditions did not support
                      the statements. Thus, we did not revise the finding.



 Recommendations      We recommend

                      1A.         Require the contractor to ensure property
                              inspectors are adequately trained to perform
                              inspections and accurately report conditions.

                      1B.     Require the contractor to develop and implement
                              procedures to perform timely initial and routine
                              inspections.

                      1C.     Require the contractor to promptly correct hazardous
                              conditions and make necessary repairs to preserve
                              and protect properties.

                      1D.     Closely monitor the contractor’s compliance with
                              maintenance requirements and take necessary actions
                              to ensure requirements are met.




00-AT-222-1009              Page 14
                                                                                   Finding 2


 The Contractor Violated Contract Requirements
The contractor violated several contract requirements. This occurred because the contractor’s
internal controls were not adequate. The noncompliance could significantly increase the risk of
loss to the insurance fund. Specifically, the contractor:

       •   Did not review HUD-1 Settlement Statements;
       •   Did not obtain timely property appraisals;
       •   Billed FHA for unauthorized expenses and ineligible expenses; and
       •   Did not follow prescribed procedures for submitting vouchers for payment.


                                    Section 8 of the contract requires the contractor to review
 The contractor did not             the form HUD-1, Settlement Statement, to ensure only
 review HUD-1                       eligible expenses are charged to FHA and to ensure the form
 settlement statements              is accurately completed. The contract provides specific
                                    instructions for reviewing the form.

                                    None of the 15 closed case files we reviewed showed
                                    evidence the contractor reviewed the form HUD-1. The
                                    contractor stated it did not review the forms because it was
                                    the closing agents’ responsibility.         Following our
                                    discussions, the contractor attempted to require the closing
                                    agents to submit the closing package for review prior to
                                    closing. The closing agents did not comply with the request
                                    because it would delay loan closings. The contract
                                    specifically requires the contractor to review, correct and
                                    certify the closing documents within 5 days after receipt. In
                                    order to perform the required review, it must be performed
                                    after the loan closing.

                                    Although our review did not identify significant
                                    discrepancies, the risk to FHA and the insurance fund is
                                    increased because of the contractor’s failure to perform the
                                    reviews. Considering the contractor sold an average of
                                    about 660 homes a month during the audit period, the risk
                                    could be significant.

                                    The contractor did not obtain property appraisals timely.
 The contractor did not             Contract section C-2 requires the contractor to obtain an
 obtain property                    appraisal within 10 business days of assignment. Our
 appraisals timely                  review of 17 applicable cases showed the contractor did not
                                    meet the 10-day requirement for 10 cases. The delays
                                    ranged from 1 to 26 days.



                                         Page 15                           00-AT-222-1009
Finding 2
                       The contractor cannot list properties for sale without an
                       appraisal. Delayed listings may result in delayed sales, thus
                       increasing holding costs and reducing the return to the
                       insurance fund.

                       The contractor charged FHA for unauthorized termite
 Unauthorized and      inspection expenses and ineligible late fees and costs
 ineligible expenses   associated with property liens. These expenses were
                       incurred after the respective properties were assigned to the
                       contractor. Under certain conditions, FHA will reimburse
                       the contractor for termite inspection fees. However, the
                       contractor must obtain prior approval from FHA’s
                       responsible Government Technical Representative prior to
                       incurring the cost. The contract specifies that costs for late
                       fees and property liens incurred after assignment are to be
                       borne by the contractor.

                       We reviewed a judgmental sample of charges on the
                       contractor’s March and April 2000 vouchers. We found the
                       contractor improperly billed FHA $875 for initial termite
                       inspections. The contractor did not obtain prior approval
                       for the costs. According to the contractor, FHA had not paid
                       the $875. We did not verify whether FHA made the
                       payment.

                       The contractor also charged for late fees (administrative
                       collection fees) associated with homeowner association
                       monthly property maintenance fees. The late fees occurred
                       because the contractor failed to timely pay the fees. Thus,
                       these costs should be borne by the contractor.

                       In some cases, vouchers included both FHA and contractor
                       costs. Rather than pro-rating the costs, the contractor billed
                       FHA for the entire costs. Other ineligible costs included
                       filing fees and interest resulting from a property lien.

                       Although the unauthorized and ineligible expenses identified
                       in our sample were minimal, this demonstrates a systemic
                       control weakness that allowed the contractor to either
                       knowingly or inadvertently charge ineligible costs to FHA.




00-AT-222-1009              Page 16
                                                                      Finding 2

                      Section G of the contract requires the contractor to submit a
The contractor        single monthly voucher for payment of pass-through
submitted multiple    expenses. However, the contractor continued to submit
vouchers each month   multiple vouchers for pass-through expenses each month.
                      For example, in October 1999 the contractor submitted 16
                      separate vouchers. This requires additional FHA staff
                      resources to review the vouchers, thus increasing costs.


                      The contractor stated that termite inspection costs on
Southeast Alliance    uninsured properties are eligible for reimbursement
comments              provided proper approval is provided by the Government
                      Technical Representative.          The contractor provided
                      documentation to support that such costs are eligible.
                      However, the contractor did not obtain approval for $875 of
                      termite inspection costs. FHA did not pay the $875. Also,
                      the contractor is working with Atlanta HOC towards a
                      solution regarding the review of HUD-1, Settlement
                      Statements, and has implemented a checklist for reviewing
                      the forms. The contractor has provided appraisal training
                      seminars and has retained new appraisers. It does not
                      believe it is realistic to submit pass-through vouchers once a
                      month and suggested a contract modification to permit
                      weekly or daily submittals.


                      We made appropriate changes to the finding and
OIG response to       recommendations regarding termite inspection costs and
comments              revised the recommendation regarding submission of
                      vouchers.



Recommendations       We recommend that you ensure the contractor:

                      2A.    Properly reviews HUD-1, Settlement Statements.

                      2B.    Obtains property appraisals within prescribed time
                             limits.

                      2C.    Ensure all pass-through expenses are eligible and
                             properly approved.

                      2D.    Submit monthly vouchers for pass-through expenses
                             unless FHA agrees to revised submission
                             procedures.



                             Page 17                           00-AT-222-1009
Finding 2




                 (This Page Left Blank Intentionally)




00-AT-222-1009              Page 18
Follow-Up on Prior Audits
This is the first OIG audit of Southeast Alliance of Foreclosure Specialists. No financial statement
or other audit reports have been issued pertaining to its operations.




                                           Page 19                            00-AT-222-1009
Follow-Up on Prior Audits




                            (This Page Left Blank Intentionally)




00-AT-222-1009                         Page 20
                                  Appendix A


Southeast Alliance Comments




                   Page 21    00-AT-222-1009
Southeast Alliance Comments




00-AT-222-1009                Page 22
          Southeast Alliance Comments




Page 23               00-AT-222-1009
Southeast Alliance Comments




00-AT-222-1009                Page 24
          Southeast Alliance Comments




Page 25               00-AT-222-1009
Southeast Alliance Comments




00-AT-222-1009                Page 26
          Southeast Alliance Comments




Page 27               00-AT-222-1009
Southeast Alliance Comments




00-AT-222-1009                Page 28
          Southeast Alliance Comments




Page 29               00-AT-222-1009
Southeast Alliance Comments




00-AT-222-1009                Page 30
          Southeast Alliance Comments




Page 31               00-AT-222-1009
Southeast Alliance Comments




00-AT-222-1009                Page 32
                                                                             Appendix B


Distribution
Southeast Alliance of Foreclosure Specialists, LLC.
Deputy Secretary, SD (Room 10100)
Chief of Staff, S (Room 10000)
Special Assistant to the Deputy Secretary for Project Management, SD (Room 10100)
Acting Assistant Secretary for Administration, S (Room 10110)
Assistant Secretary for Congressional and Intergovernmental Relations, J (Room 10120)
Senior Advisor to the Secretary, Office of Public Affairs, S, (Room 10132)
Deputy Assistant Secretary of Administrative Services/Director of Executive Secretariat, AX
    (Room 10139)
Director of Scheduling and Advance, AL (Room 10158)
Counselor to the Secretary, S (Room 10234)
Deputy Chief of Staff, S (Room 10226)
Deputy Chief of Staff for Operations, S (Room 10226)
Deputy Chief of Staff for Programs and Policy, S (Room 10226)
Director, Office of Special Actions, AK (Room 10226)
Deputy Assistant Secretary for Public Affairs, W (Room 10222)
Special Assistant for Inter-Faith Community Outreach, S (Room 10222)
Executive Officer for Administrative Operations and Management, S (Room 10220)
Senior Advisor to the Secretary for Pine Ridge Project, W, (Room 10216)
General Counsel, C (Room 10214)
Director, Office of Federal Housing Enterprise Oversight, O (9th Floor Mailroom)
Assistant Secretary for Housing/Federal Housing Commissioner, H (Room 9100)
Office of Policy Development and Research, R (Room 8100)
Inspector General, G (Room 8256)
Assistant Secretary for Community Planning and Development, D (Room 7100)
Assistant Deputy Secretary for Field Policy and Management, SDF (Room 7108)
Government National Mortgage Association, T (Room 6100)
Assistant Secretary for Fair Housing and Equal Opportunity, E (Room 5100)
Chief Procurement Officer, N (Room 5184)
Assistant Secretary for Public and Indian Housing, P (Room 4100)
Chief Information Officer, Q (Room 3152)
Director, Office of Departmental Equal Employment Opportunity, U (Room 5128)
Director, Office of Departmental Operations and Coordination, I (Room 2124)
Chief Financial Officer, F (Room 2202)
Director, HUD Enforcement Center, X, 1250 Maryland Avenue, SW, Suite 200
Director, Real Estate Assessment Center, X, 1280 Maryland Avenue, SW, Suite 800
Director, Office of Multifamily Assistance Restructuring, Y, 1280 Maryland Avenue, SW, Suite
4000




                                        Page 33                         00-AT-222-1009
Distribution




Deputy Chief Financial Officer for Finance, FF (Room 2202) (2)
Director, Office of Budget, FO (Room 3270)
Secretary's Representative, 4AS
Director, Homeownership Center, 4AHH
Audit Liaison Officer, 3AFI
Audit Liaison Officer, Office of Public and Indian Housing, PF (Room P8202)
Departmental Audit Liaison Officer, FM (Room 2206)
Acquisitions Librarian, Library, AS (Room 8141)
Counsel to the IG, GC (Room 8260)
HUD OIG Webmanager-Electronic Format Via Notes Mail (Cliff Jones@hud.gov)
Public Affairs Officer, G (Room 8256)
Director, Housing and Community Development Issue Area, U.S. GAO, 441 G Street N.W.,
  Room 2474, Washington DC 20548 ATTN: Judy England-Joseph
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs,
  United States Senate, Washington DC 20510-6250
The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs,
  United States Senate, Washington DC 20510-6250
The Honorable Dan Burton, Chairman, Committee on Government Reform,
  United States House of Representatives, Washington DC 20515-6143
The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform,
  United States House of Representatives, Washington, DC 20515-4305
Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212,
  O'Neil House Office Building, Washington, DC 20515-6143
Steve Redburn, Chief, Housing Branch, Office of Management and Budget, 725 17th Street, NW,
  Room 9226, New Executive Office Bldg., Washington, DC 20503
Sharon Pinkerton, Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug
  Policy and Human Resources, B373 Rayburn House Office Bldg., Washington, DC 20515




00-AT-222-1009                          Page 34
Page 35   00-AT-222-1009