oversight

CitiWest New England, Inc., Management and Marketing Contractor, Hartford, Connecticut

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-09-29.

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

   AUDIT REPORT




CITIWEST NEW ENGLAND, INC.

 HARTFORD, CONNECTICUT

       00-BO-222-1005

    SEPTEMBER 29, 2000


 OFFICE OF AUDIT, NEW ENGLAND
    BOSTON, MASSACHUSETTS
                                                                     Issue Date
                                                                            September 29, 2000

                                                                    Audit Case Number
                                                                            00-BO-222-1005




TO: Engram Lloyd, Director, Homeownership Center, 3AHH




FROM: Stephen D. King, Acting District Inspector General, Office of Audit, 1AGA


SUBJECT:       CitiWest New England, Inc.
               Management and Marketing Contractor
               Hartford, Connecticut

We performed an audit of HUD’s Management and Marketing Contractor, CitiWest New England,
Inc. (CitiWest). The objective of our audit was to determine whether CitiWest is managing HUD single
family properties in compliance with HUD policies, procedures, and regulations and with the terms and
conditions of CitiWest’s Management & Marketing (M&M) Contract.

The report contains two findings. We found that CitiWest is not properly inspecting and maintaining
HUD’s property inventory and that CitiWest is not complying with case management processing
requirements cited in their M&M Contract.

Within 60 days, please provide us a status report on: (1) the corrective action taken; (2) the proposed
corrective action and the date to be completed; or (3) why action is not considered necessary. Also,
please furnish us with copies of any correspondence or directives issued as a result of this audit.

Should you have any questions, please contact our office at (617) 565-5259.
Management Memorandum




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00-BO-222-1005            Page ii
Executive Summary
We performed an audit of the M&M Contractor, CitiWest New England, Inc. (CitiWest). The primary
purpose of our audit was to determine whether CitiWest is managing HUD single family properties in
compliance with HUD policies, procedures, and regulations and with the terms and conditions of its
M&M Contract (Contract). This included assessing whether CitiWest’s: (a) operations are effective,
efficient, and economical, and (b) management controls are adequate to effectively identify and address
operational deficiencies and noncompliance with requirements.




                                       On March 29, 1999, CitiWest began to manage and market
 Audit Results
                                       HUD single family properties located in the six New England
                                       states. Since July 1999, CitiWest reduced HUD’s property
                                       inventory from a high of 1,336 to a low of 832 as of July 25,
                                       2000. However, HUD’s Performance Assessment Reports
                                       indicated a concern with CitiWest’s capacity to perform the
                                       Contract requirements for its inventory. Our review confirmed
                                       that CitiWest needs to improve its procedures to ensure HUD
                                       properties in its inventory are properly inspected and
                                       maintained, and that managing and marketing requirements are
                                       fulfilled.

                                       Specifically, our audit disclosed that CitiWest did not: 1)
                                       perform initial property inspections within 24 hours; 2) always
                                       identify imminent hazards through routine property inspections;
                                       3) correct imminent hazards and other deficiencies when
                                       identified through routine property inspections; 4) effectively
                                       identify defective paint; and 5) properly secure its inventory of
                                       properties.

                                       CitiWest is also not complying with other contract requirements.
                                       For example, properties are held off market for unreasonable
                                       periods of time; case management processing is not timely; sales
                                       closing responsibilities are not followed; and unallowable costs
                                       are charged to HUD.

                                       As a result, HUD’s Property Disposition Program in New
                                       England may not be operating efficiently, effectively and
                                       economically. Poor property conditions may contribute to
                                       performance problems such as decreased marketability,
                                       increased costs, and possible conditions that threaten the health
                                       and safety of neighbors and potential homebuyers.



                                            Page iii                                     00-BO-222-1005
Executive Summary




                    We are recommending that you: 1) instruct CitiWest to establish
 Recommendations    procedures to ensure timely initial property inspections; 2)
                    ensure CitiWest monitors its property inspection subcontractors
                    through quality control reviews and discontinues its use of poor
                    performing subcontractors; and 3) ensure imminent hazards and
                    other deficiencies are corrected and defective paint is properly
                    identified and treated. We are further recommending that you
                    require CitiWest to process held off market properties in a
                    reasonable time to reduce applicable holding costs and
                    increased costs to HUD, require CitiWest to accurately review
                    settlement statements and submit weekly reports of closing
                    agent noncompliance, and conduct thorough reviews of all
                    monthly pass through vouchers to ensure late fees, interest and
                    penalties are not included.

                    We discussed the findings in this report with CitiWest staff
 Findings and       during the course of the audit. On August 11, 2000, we
 Recommendations    provided CitiWest a copy of the draft audit report for comment.
 Discussed          We received CitiWest’s written response on September 5,
                    2000. Appropriate revisions were made where deemed
                    necessary. We included CitiWest’s pertinent comments in the
                    Findings section of this report. CitiWest’s full response is
                    included in Appendix B.




00-BO-222-1005          Page iv
Table of Contents

Management Memorandum                                                     i



Executive Summary                                                        iii



Introduction                                                             1



Findings

1     Property Inspections and Maintenance Require Improvement           5


2     Management and Marketing Requirements Not Fulfilled               19



Management Controls                                                     29


Appendices
    A Standard Processing Steps                                         31

    B Auditee Comments                                                  33


    C Distribution                                                      39




                                  Page v                     00-BO-222-1005
Table of Contents


Abbreviations

CitiWest         CitiWest New England, Inc.
Contract         Management and Marketing Contract
FHA              Federal Housing Administration
GTR              Government Technical Representative
HOC              Homeownership Center
HUD              Department of Housing and Urban Development
M&M              Management and Marketing
PAR              Performance Assessment Report
SAMS             Single Family Accounting Management System
SPI              Special Property Inspection Contractor




00-BO-222-1005                            Page vi
Introduction
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 the U.S. Department of
Housing and Urban Development (HUD) in exchange for payment of their insurance claim.

HUD disposes of properties through its Property Disposition Program, administered by the Office of
Single Family Housing Real Estate Owned Division. Its 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 mortgage insurance fund. The National Housing Act (Act) of 1934
confers on the Secretary the authority to manage, rehabilitate, rent, and dispose of any property
acquired under the program. Section 204(g) of the Act governs the management and disposition of
single family properties acquired by FHA. Title 24, Code of Federal Regulations (CFR), 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.

In February 1993, HUD initiated a reinvention effort to streamline operations and reduce costs. HUD
began reducing program staff and consolidating its mortgage insurance processing, claims, and property
disposition activities from the field office into four Homeownership Centers (HOC) located in Santa
Ana, California; Denver, Colorado; Atlanta, Georgia; and Philadelphia, Pennsylvania.

Effective March 1999, HUD contracted out for the management and marketing of properties which are
owned by, or in the custody of, HUD. Seven contractors were awarded a total of 16 Management and
Marketing (M&M) contracts nationwide to manage and market HUD properties as part of a
nationwide restructuring of HUD’s Single Family Property Division. The M&M contractors assumed
full responsibility for the management and marketing functions.

CitiWest New England, Inc. (CitiWest), owned by Remi Geahel, was awarded the M&M contract
(Contract) for the Philadelphia HOC Area-1, which consists of properties located in the six New
England states. Its main office is located at 330 Main Street, Hartford, Connecticut. CitiWest’s
Contract is for one year with 4, one-year renewal options. The total estimated value of the Contract,
including options, is $41.5 million.

During the audit period, CitiWest was responsible for managing and marketing an average inventory of
over 1,100 properties. As of July 25, 2000, CitiWest was managing and marketing 832 properties
across the New England area: 423 - Connecticut; 167- Massachusetts; 110 - Maine; 95 - Rhode
Island; 19 - Vermont; and 18 - New Hampshire. CitiWest successfully sold 976 properties from
January 1, 2000 to June 30, 2000.



                                            Page 1                                      00-BO-222-1005
Introduction




                    The primary objective of the audit was to determine whether
 Audit Objectives   CitiWest is managing HUD single family properties in
                    compliance with HUD policies, procedures, and regulations and
                    with the terms and conditions of CitiWest’s Contract. This
                    included assessing whether CitiWest’s: (a) operations are
                    effective, efficient, and economical, and (b) management
                    controls are adequate to effectively identify and address
                    operational deficiencies and noncompliance with requirements.

                    To accomplish our audit objectives, we performed the
 Audit Scope and
                    following:
 Methodology
                    •   Reviewed Federal requirements including 24 CFR Part
                        291, HUD Handbook 4310.5 REV-2, Property
                        Disposition Handbook - One to Four Families, the
                        Monitoring Manual - Management Controls for the
                        Single-Family REO M&M Contracts, and CitiWest’s
                        Contract with HUD.

                    •   Reviewed Performance Assessment Reports and third party
                        contractors’ monitoring reports and any related
                        correspondence, provided by the Philadelphia HOC, for
                        indications of problems with CitiWest’s performance.

                    •   Reviewed CitiWest’s internal controls by interviewing staff
                        and testing transactions where possible, and performed a
                        cursory review of personnel issues to assess whether
                        CitiWest employees appear to be qualified to carry out the
                        Contract.

                    •   Randomly selected a sample of 30 active cases; 15 -
                        Waterbury, Connecticut and 15 New Haven Connecticut,
                        which consisted of 23 newly assigned properties and 7
                        initially assigned properties, for review of the property case
                        files.

                    •   Performed property inspections of the 30 active cases to
                        determine whether CitiWest maintains properties according
                        to requirements.



00-BO-222-1005           Page 2
                                                   Introduction


•   Compared CitiWest’s most recent inspections for the 30
    properties with OIG inspections for any discrepancies.
•   Judgmentally selected 15 closed cases from different cities
    throughout the 6 New England states, for review of the
    property case files to determine if CitiWest is meeting case
    processing requirements.

•   Judgmentally selected and reviewed 10 held-off market
    cases (greater than 6 months) to determine CitiWest’s
    overall handling of the properties.

•   Judgmentally selected and reviewed four vouchers, one
    fixed voucher for the month of November 1999 and three
    “pass through costs” vouchers dated February 1, 2000,
    February 2, 2000, and March 2, 2000 to determine if
    CitiWest followed proper procedures for payment of
    services.

•   Reviewed CitiWest’s subcontracting procedures.

•   Conducted interviews with responsible CitiWest and
    Philadelphia HOC staff and management as necessary.

The audit was conducted between April 2000 and July 2000
and generally covered the period between March 29, 1999 and
June 30, 2000. Where appropriate, the audit was extended to
include other periods.

Our audit was conducted in accordance with generally
accepted government auditing standards.




                 Page 3                           00-BO-222-1005
Introduction




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00-BO-222-1005     Page 4
                                                                                              Finding 1


                  Property Inspections and
              Maintenance Require Improvement
As one of HUD’s Management and Marketing (M&M) Contractors, CitiWest New England, Inc.
(CitiWest) must routinely inspect and take all actions necessary to preserve, protect, and maintain each
property in its inventory in a presentable condition at all times. Our review disclosed the following
deficiencies in CitiWest’s performance and administration of both property inspections and property
maintenance:

       •   Initial property inspections not performed within 24 hours as required;

       •   Imminent hazards not always identified through routine property inspections;

       •   Hazards and other deficiencies, when identified by CitiWest inspections, not always
           corrected;

       •   Defective paint not effectively identified; and

       •   Properties left unsecured.

Poor property conditions contribute to performance problems such as decreased marketability,
increased costs, possible decreased value of surrounding homes, and possible conditions that threaten
the health and safety of neighbors and potential buyers. CitiWest needs to improve its property
inspection and maintenance process to reduce the risk of undetected hazards and deficiencies, and to
maximize the marketability of its property inventory to produce the highest net return to HUD.




                                        On average, 139 properties are assigned to CitiWest on a
 Initial Property Inspections           monthly basis. Upon assignment of a property from a
 Not Performed Timely                   mortgagee and/or HUD, CitiWest is required to perform an
                                        initial property inspection within 24 hours per Section C-2
                                        (V)(B)(3A) of their Management and Marketing Contract
                                        (Contract). The initial property inspection is required to
                                        determine the property condition, occupancy status, whether
                                        personal property remains on the premises, mortgagee
                                        performance, and whether imminent health or safety hazards
                                        exist (HUD Handbook 4310.5 REV-2 (Property Disposition
                                        Handbook), Chapter 3, Paragraph 3-14 (A)).




                                              Page 5                                      00-BO-222-1005
Finding 1


                            CitiWest did not perform initial property inspections within 24
                            hours for 100 percent of the 23 newly assigned properties in
                            our sample. We noted 15 properties in which the inspections
                            were performed one to five days late; 4 properties in which the
                            inspections were performed six to ten days late; 2 properties in
                            which the inspections were performed eleven to fifteen days
                            late; and 2 properties in which the inspections were performed
                            sixteen to twenty days late.

                            CitiWest’s Senior Realty Specialist advised that inspections are
                            not performed within 24 hours as a result of both the inspectors
                            and CitiWest staff. The CitiWest inspectors, at times, have
                            difficulty in locating the properties and CitiWest staff are not
                            always diligent in ordering the property inspections in a timely
                            manner.

                            Delays in performing the initial property inspections lead to
                            delays in the ordering and conducting of property appraisals,
                            delaying the overall case processing of these properties, as
                            outlined in Finding 2. This may result in increased costs and
                            property deterioration. The possibility of identifying mortgagee
                            neglect is also reduced with each passing day beyond the initial
                            24 hour period, which may lead to repair costs passed through
                            to HUD.

                            Section C-2 (V)(B)(5) of the Contract requires CitiWest to
 OIG Inspections Identify   correct ANY condition that presents a health or safety hazard
 Imminent Hazards           (imminent hazard) to the public or to the property within 24
                            hours of discovery. We found that CitiWest property
                            inspections were either not identifying imminent hazards or,
                            when identified, CitiWest was not taking action within the
                            required 24 hours. On average, CitiWest performs routine
                            property       inspections        every       15        days.




00-BO-222-1005                  Page 6
                                                 Finding 1


Of the 30 properties inspected, we found 20% (6 of 30) with
imminent hazards. Examples are as follows:




  FHA Case No. 061-152960 - Improperly covered pool




  FHA Case No. 061-068871 - Decayed front Step

                Page 7                           00-BO-222-1005
Finding 1




                    FHA Case No. 061-069390, Health hazard - Drug paraphernalia

                 CitiWest inspections of the same properties, performed shortly
                 before or after our inspections, identified only 1 imminent
                 hazard, property 061-152960 - uncovered pool. Although a
                 CitiWest property inspection noted the uncovered pool hazard
                 on May 14, 2000 (four days after our inspection) and again on
                 May 25, 2000, CitiWest failed to issue a corrective work order
                 for the hazard until June 6, 2000. The unsigned work order
                 indicated that the hazard was corrected on June 9, 2000, well
                 beyond the 24 hour requirement.

                 In another instance, three consecutive CitiWest inspections on
                 property 061-167193 between October 6, 1999 and
                 November 10, 1999, reported a hazard of dead tree branches
                 hanging over the adjacent property’s driveway. CitiWest
                 issued a work order on October 13, 1999 instructing that the
                 tree be removed. The work order was signed and dated as
                 completed as of October 19, 1999, well beyond the 24 hour
                 requirement. However, the hazard remained an issue on the
                 November 10, 1999 CitiWest property inspection report,
                 which is indicative that the hazard was either not corrected or
                 not corrected adequately. Further, an April 13, 2000 CitiWest

00-BO-222-1005       Page 8
                                                                                 Finding 1


                              property inspection for the same property indicates “large dead
                              branch hangs over the curb - hazard”.

                              The importance of correcting hazards posing a health or safety
                              threat to the public or to the property itself cannot be
                              overstated. Without proper identification and correction, these
                              hazards may cause severe injury and/or death, or deterioration
                              of the property.

                              Section C-2 (V)(B)(5) of the Contract requires CitiWest to
Identified Deficiencies Not   routinely inspect and take all actions necessary to preserve,
Always Corrected              protect, and maintain each property in a presentable condition
                              at all times. This includes, but is not limited to the removal and
                              proper disposal of all interior and exterior debris both after
                              property assignment and on a continual basis, and lawn,
                              shrubbery and tree maintenance consistent with neighborhood
                              standards.

                              Our inspections of 30 properties found 71% (20 of 28) of the
                              properties had uncut lawns. Two of the thirty properties were
                              located in condominium complexes and the lawn maintenance
                              was not a CitiWest responsibility.

                              Just as our own property inspections indicated a severe
                              problem in the area of lawn maintenance, CitiWest’s property
                              inspections often cited uncut lawns in consecutive reports. The
                              fee inspector wrote such statements as; “front cut by neighbor,
                              not cut by Contractor this year - property 061-144252”, and
                              “not cut this year - property 061-092079”. CitiWest was not
                              responsive to these deficiencies. An example follows:




                                                Page 9                           00-BO-222-1005
Finding 1




                    FHA Case No. 061-134647 - Overgrown grass and Shrubbery



                 We further found that 30% (9 of 30) of the properties had
                 interior and/or exterior debris. Successive CitiWest inspection
                 reports identified numerous instances of the presence of debris
                 indicating that CitiWest was not responsive to addressing these
                 deficiencies. During a span of five consecutive CitiWest
                 inspections of property 061-096618, covering the period of
                 March 20, 2000 through May 13, 2000, the fee inspector
                 indicated that the yard and debris needed to be cleaned up and
                 referred to the prior inspection reports noting the same
                 deficiency. In a similar instance, during a span of four
                 consecutive CitiWest inspections of property 061-076836,
                 covering the period of April 2, 2000 through May 16, 2000,
                 the fee inspector again indicated that the yard and debris
                 needed to be cleaned.




00-BO-222-1005       Page 10
                                                                          Finding 1


                         Exhibit 15, paragraph 15-1 of the Contract defines a defective
Defective Paint Not      paint surface as cracking, scaling, chipping, peeling or loose
Effectively Identified   paint on all interior and exterior surfaces of a residential
                         structure. Exhibit 15, paragraph 15-4 of the Contract states
                         that treatment necessary to eliminate the immediate hazards
                         must, at a minimum, consist of the covering or removal of the
                         defective paint surfaces.

                         Of the 30 properties inspected, we found 89% of the properties
                         (25 of 28) had defective paint on their interiors (one property
                         was a vacant lot and access was not gained to another
                         property) and 41% of the properties (11 of 27) had defective
                         paint on their exterior (one property was a vacant lot and two
                         properties were located within condominium complexes where
                         the exterior paint was not CitiWest’s responsibility). The
                         following are examples of defective paint:




                            FHA Case No.    061-070356 - Defective paint, water in light
                            fixture




                                         Page 11                          00-BO-222-1005
Finding 1




                    FHA Case No. 061-071714 - Defective paint


                 Although Exhibit 15, paragraph 15-6 of the contract states that
                 defective paint may be treated prior to offering properties for
                 sale or at any reasonable time prior to the closing of a sale,
                 CitiWest property inspections shortly before or after our
                 inspections identified only 32% of the properties with defective
                 interior paint (9 of 28) and only 30% of the properties with
                 defective exterior paint (8 of 27). To receive treatment,
                 defective paint must first be identified. When Citiwest identifies
                 defective paint, treatment takes place. During follow up visits to
                 the properties, visual examination revealed that CitiWest had
                 addressed the defective paint to some degree. Generally, paint
                 that was defective upon our initial inspection was scraped and
                 treated on the exterior and scraped on the interior of the
                 properties.

                 CitiWest needs to improve its effectiveness in identifying
                 defective paint so that it may be treated.. During our initial
                 inspections defective paint was identified in a high percentage of
                 properties, which was not identified by routine CitiWest
                 inspections. Without proper identification of defective paint, the
                 defective areas may be left untreated and detract from the
                 overall marketability of the property resulting in a lower net
                 return to HUD.

00-BO-222-1005       Page 12
                                                                             Finding 1


                          Section C-2 (V)(B)(5) of the Contract states, in part, that
Properties Not Always     CitiWest must secure the property to prevent unauthorized
Secured                   entry. Our inspection of 30 properties found that 55% of the
                          properties (16 of 29) were not properly secured (one property
                          was a vacant lot). There were numerous instances of insecure
                          windows and/or entry ways, including missing window latches,
                          broken and un-boarded windows, and unlocked windows and
                          entryways.

                          Of the 16 properties we noted as unsecured, CitiWest routine
                          property inspections shortly before or after our inspections
                          identified only 19% (3 of 16) as unsecured. Failure to properly
                          secure properties can lead to trespassing, vandalism, and
                          possible deterioration. CitiWest staff indicated that there are
                          numerous individuals who have access to the properties,
                          including inspectors, appraisers, and numerous real estate
                          brokers, who do not always re-secure the property upon
                          departure.

                          As part of HUD’s monitoring of its M&M Contractors, a
HUD Performance           monthly Performance Assessment Report (PAR) is prepared by
Assessment Reports Cite   a Government Technical Representative (GTR) assigned to the
Similar Deficiencies      specific Contractor.     The PAR consists of a narrative
                          description of the GTR’s observations in ten contractual areas:
                          Claim Review, Property Maintenance, Appraisals, Listings,
                          Sales Procedures, Sales Closings, Single Family Acquired
                          Asset Management System (SAMS) Updates, Rentals,
                          Occupied Conveyance, and Defective Paint. The PAR also
                          includes a detailed spreadsheet of property inspections
                          performed by HUD’s Special Property Inspection (SPI)
                          Contractor - a 3rd party contractor hired by HUD to inspect a
                          sample of each M&M Contractor’s property inventory.

                          A review of the PARs, prepared by CitiWest’s GTR, identified
                          similar deficiencies to the ones noted above, including consistent
                          findings of poor property maintenance and defective paint. A
                          September 1999 Letter of Concern, issued by the GTR, stated
                          in part,

                              “In my monthly monitoring letters to you, I have
                              outlined an overall assessment of your performance as
                              an M&M Contractor. These reports have consistently
                              indicated a failure to properly maintain the physical

                                           Page 13                           00-BO-222-1005
Finding 1


                                  condition of the HUD homes in your inventory...Proper
                                  maintenance of the properties in your inventory is a
                                  vital component of your contract duties and my office
                                  is becoming increasingly concerned about your
                                  continued poor performance in this area.”

                              In response, CitiWest indicated that their plan of action to
                              improve maintenance performance included, in part, increased
                              quality control inspections, hiring and training an additional in-
                              house property manager, educating field inspectors, and
                              conducting monthly meetings with subcontractors.

                              The GTR, in the narrative portion of both the January 2000 and
                              April 2000 PARs, indicated an improvement by CitiWest in the
                              areas of property maintenance and defective paint. The GTR
                              indicated that, “Defective paint treatment is clearly taking place
                              and there is documentation including work orders, photographs,
                              etc, in the files. There continue to be some findings concerning
                              the lack of defective paint and the Contractor will be sent a
                              follow up list of homes requiring additional action”. The GTR
                              also indicated ongoing improvement in property maintenance,
                              with the exception of completing initial property inspections
                              within 24 hours.

                              However, a review of both PARs attached spreadsheet,
                              detailing the inspections performed by the SPI Contractor,
                              indicated there were numerous deficiencies in the areas of
                              property maintenance and defective paint. The instances of
                              unsecured properties were less profound than during our
                              inspections. The number of properties inspected and the
                              deficiencies noted in these three areas for the months of January
                              2000 and April 2000 were:

                 Properties    Properties With     Properties With
  Report Month   Inspected    Poor Maintenance     Defective Paint     Properties Not Secured
  January 2000      148            57 (39%)            88 (59%)               15 (10%)
  April 2000        150            79 (53%)            56 (37%)                10 (7%)
  Total             298           136 (46%)           144 (48%)                25 (8%)


                              As shown above, CitiWest continues to struggle with its
                              property maintenance and identification of defective paint.
                              CitiWest needs to increase its efforts on improving its
                              performance.


00-BO-222-1005                    Page 14
                                                                               Finding 1


                            Poor property conditions contribute to performance problems
CitiWest Needs to Improve   such as decreased marketability, increased holding costs,
its Inspection and          possible decreased value of surrounding homes, and possible
Maintenance Process         conditions that threaten the health and safety of neighbors and
                            potential buyers. By neglecting the upkeep of its property
                            inventory, CitiWest is not meeting one of its primary objectives
                            of protecting and preserving, properly managing, evaluating, and
                            marketing its properties in a manner which produces the highest
                            possible return to HUD’s mortgage insurance fund. CitiWest
                            needs to improve its property inspection and maintenance
                            process to reduce the risk of undetected hazards and
                            deficiencies, and to maximize the marketability of its property
                            inventory to produce the highest net return to HUD.



Auditee Comments            CitiWest suggested that the OIG should take into account two
                            major elements before reaching any conclusions; Case File
                            Sampling and CitiWest’s Overall Performance. CitiWest
                            objected to the OIG’s random sampling of properties located in
                            the cities of New Haven and Waterbury, Connecticut because
                            they felt the two cities were not representative of their entire
                            property inventory covering the six New England states.
                            CitiWest contends that the OIG specifically requested
                            identification of the two municipalities which were the hardest to
                            manage and market. CitiWest expressed its objection to the
                            OIG’s “random sampling” of 30 properties in what the auditee
                            considers its two worst cities as far as ongoing breaking and
                            entering, vandalism, and drug neighborhoods, and then basing
                            the findings of those “very depressed” properties as
                            representative of the auditee’s entire inventory.

                            CitiWest also contends that it has improved the return to the
                            FHA fund, reduced its inventory size, and adhered to HUD’s
                            mission. CitiWest specifically indicated that they increased the
                            average sales price of properties and, as a result, increased the
                            average overall return to the FHA fund. Additionally, CitiWest
                            showed a decrease of property inventory from August 1999 -
                            1,332 through July 2000 - 819.

                            CitiWest also offered its comments and clarifications with the
                            conclusions reached on the following three areas: Property
                            Maintenance, Defective Paint, and Unsecured Properties.
                            Specifically, CitiWest acknowledged that the GTR expressed

                                             Page 15                           00-BO-222-1005
Finding 1


                     serious concern over property maintenance in a September 16,
                     1999 letter. However, CitiWest expressed its concern that the
                     OIG did not recognize that, as early as November 1999, the
                     GTR indicated improvement in property maintenance. CitiWest
                     further stated that initial property inspections are completed
                     timely by inspectors, but the actual paperwork may be delayed
                     in arriving at CitiWest due to weekends, holidays, etc.
                     Additionally, CitiWest stated that poor performing
                     subcontractors are terminated as evidenced by termination
                     notices provided to the OIG.

                     CitiWest stated that the GTR noted that it is evident that
                     CitiWest is treating areas of defective paint as it is found.
                     However, CitiWest stated that in the New England geographic
                     location, defective paint can keep reoccurring almost as quickly
                     as it is treated. Additionally, CitiWest stated that real estate
                     brokers holding Open Houses leave windows or sliding doors
                     unlatched leaving the property unsecured. This security
                     problem is ongoing and CitiWest stated it covers this topic at its
                     outreach meetings for brokers.



 OIG Evaluation of   With regard to Case File Sampling, we disagree with
 Auditee Comments    CitiWest’s comments. We asked CitiWest’s key personnel
                     which two cities had the most number of properties under their
                     management and marketing responsibility. We confirmed
                     through data analysis that the cities of New Haven and
                     Waterbury, Connecticut were the two largest cities under
                     CitiWest’s management and marketing responsibility in terms of
                     the number of properties in each city. From these two cities,
                     utilizing a random number table, we selected 30 properties (15
                     + 15) for our sample. We did not choose these cities because
                     we were advised or we presupposed that these two cities
                     would be the hardest to manage and market because of their
                     “socio-economical conditions.”

                     We recognize and commend CitiWest for reducing its property
                     inventory from a high of 1,336 in July 1999 to a low of 819 in
                     July 2000. We are not so optimistic regarding CitiWest’s claim
                     of increasing the average sales price and, as a result, the overall
                     return to the FHA fund. Although the average sales price
                     increased under Citiwest’s management and marketing, so did
                     the average appraised value of the properties. While there is an

00-BO-222-1005           Page 16
                                                                     Finding 1


                  increase in the overall return to the FHA fund, it is not a direct
                  result of CitiWest’s efforts alone.

                  We recognize Citiwest’s efforts to perform under its contract
                  terms, but we also recognize that there is a need for
                  improvement in the areas outlined. Our report included the
                  GTR’s statements that CitiWest is improving in property
                  maintenance. However, we also presented further analysis of
                  the PARs for the months of January and April 2000 which
                  indicated, contrary to the GTR’s statements, that numerous
                  deficiencies in the areas of property maintenance and defective
                  paint existed. Additionally, although the GTR cited an
                  improvement in property maintenance, he also pointed out that
                  initial property inspections are not being performed within the
                  24 hour requirement.

                  We agree that the CitiWest is addressing defective paint when
                  discovered. We do not believe that CitiWest is effective in
                  identifying all instances of defective paint, as evidenced by the
                  PARs which consistently indicated a high number of properties
                  with defective paint. As recommended, HUD needs to
                  communicate to CitiWest the definition of defective paint so
                  that there is consistency amongst all property inspectors.




Recommendations   We recommend that you:

                  1A.         Instruct CitiWest to establish procedures to ensure
                          that initial property inspections are performed within 24
                          hours of property assignment.

                  1B.     Require and ensure CitiWest monitors its property
                          inspection subcontractors through documented quality
                          control reviews to ensure all imminent hazards and other
                          deficiencies are identified.

                  1C.         Require CitiWest to discontinue their use of poor
                          performing property inspection contractors.

                  1D.         Monitor CitiWest to ensure imminent hazards and
                          other deficiencies are corrected when noted by routine


                                   Page 17                           00-BO-222-1005
Finding 1


                          property inspections and enforce available sanctions for
                          poor performance.

                 1E.      Advise CitiWest on the HOC’s definition of defective
                          paint to ensure consistency among CitiWest and HUD
                          inspectors in identifying defective paint in all properties
                          inspected.

                 1F.      Ensure CitiWest identifies defective paint during its
                          property inspections and continues its treatment efforts,
                          once clarification of defective paint is established.

                 1G.          Continue monitoring CitiWest’s efforts to properly
                          secure the properties in its inventory.




00-BO-222-1005         Page 18
                                                                                             Finding 2


                      Management and Marketing
                      Requirements Not Fulfilled
CitiWest New England, Inc. (CitiWest) is not complying with case management processing
requirements in accordance with their Management and Marketing (M&M) Contract. As a result,
HUD’s Property Disposition Program may not be operating efficiently, effectively and economically.
HUD needs to ensure that CitiWest complies with their contractual agreement in efforts to achieve its
mission to expand homeownership opportunities and maximize the return to the mortgage insurance
fund.




                                      The primary objectives of CitiWest, as stated in Section C-2(I)
 Contractor’s Primary
                                      of their M&M Contract include:
 Objectives
                                      •   HUD owned properties are protected and preserved,
                                          properly managed, evaluated, and marketed in a manner
                                          which produces the highest possible return to HUD’s
                                          mortgage insurance fund;

                                      •   Under contract properties are promptly closed and, if not,
                                          they are returned to the sales market at an early date;

                                      •   HUD’s net sales proceeds are promptly wired to its
                                          Treasury account; and

                                      •   Average losses on sales and the average time properties
                                          remain in inventory are reduced.

                                      CitiWest does not comply with their primary objectives.
                                      Specifically, properties are held off market for unreasonable
                                      periods of time; case management processing is not timely; sales
                                      closing responsibilities are not followed; and unallowable costs
                                      are charged to HUD. Consequently, CitiWest does not
                                      properly manage and market HUD owned properties in a
                                      manner which is both beneficial and advantageous to HUD.

 HUD Permits Held Off                 Under certain circumstances, HUD permits “held off market
 Market Properties                    properties”, which are properties that HUD has determined not
                                      to offer for sale. Properties may be held off market at any point
                                      after assignment to the Contractor, as illustrated by HUD’s

                                           Page 19                                      00-BO-222-1005
Finding 2


                       Single Family Accounting Management System’s (SAMS) User
                       Guide. At May 30, 2000, CitiWest had a total of 62 held off
                       market properties, in which 17 properties were held off market
                       greater than six months. In a sample of 10, we identified 4
                       properties (40 percent) which we believe were held off market
                       for unreasonable periods of time.

 Properties Held Off   We believe CitiWest did not take the appropriate steps to clear
 Market Longer Than    the problems associated with 2 of the 4 properties in efforts to
 Necessary             dispose of the properties as soon as possible. For example,
                       problems existed with a property’s title and therefore the
                       property was held off market on June 12, 1999. However, the
                       situation was not resolved by CitiWest until April 14, 2000, and
                       the property remained held off market at May 30, 2000.
                       Further, another property had reported fire damage on May 20,
                       1999. However, CitiWest did not take action to remedy the
                       situation until November 1, 1999 and the property remained
                       held off market at May 30, 2000. For the remaining 2
                       properties, we determined that they should not have been held
                       off market at all, in accordance with the SAMS’ User Guide.

                       In retaining held off market properties for unreasonable periods
                       of time, CitiWest is not effectively achieving its Contract
                       objective to reduce the average time properties remain in
                       inventory. CitiWest also has an objective to reduce the average
                       losses on sales, however maintaining these held off market
                       properties is costing HUD, as well as CitiWest money. We
                       determined that as of May 30, 2000 the 4 properties remained
                       held off market for a period ranging from 305 days to 537
                       days. The latest actual average daily holding cost for properties
                       is $32.04 per day, resulting in an estimated expense for
                       CitiWest of $48,060 on these 4 properties. Further, HUD
                       incurs costs as well in the form of additional monthly taxes and
                       fees, utilities, repairs and deterioration of the property possibly
                       reducing the net return to HUD’s mortgage insurance fund. We
                       believe that if CitiWest took the appropriate steps to remove
                       these properties from held off market status in a timely manner,
                       their inventory and cost would be reduced.




00-BO-222-1005             Page 20
                                                                               Finding 2


                            CitiWest is responsible to HUD to protect and preserve,
Case Management
                            properly manage, evaluate and market HUD owned properties
Processing
                            in a manner which produces the highest possible return to
                            HUD’s mortgage insurance fund. However, we determined
                            that CitiWest does not effectively fulfill its responsibilities.
                            CitiWest on a monthly basis averaged 1,112 properties in their
                            case inventory for the period, June 1999 through May 2000. In
                            review of a sample of 30 property case files, we determined
                            that CitiWest does not comply with case processing
                            requirements when obtaining property appraisals; approving title
                            evidence; meeting sales closing time frames; and following
                            HUD’s standard processing steps.

                            Section C-2(IV) of the Contract provides the Contractor is to
Property Appraisals Not     order and receive a property appraisal within ten business days
Timely Obtained             of a newly assigned property. In a sample of 23 newly assigned
                            cases, we identified 14 (61 percent) where CitiWest did not
                            obtain a property appraisal within the prescribed time frame.
                            We identified properties in which the appraisal was obtained as
                            much as sixteen to twenty days late. CitiWest staff advised that
                            they do not always order appraisals in a timely manner and the
                            appraisers do not always appraise the property and submit
                            results to CitiWest in a timely manner.

                            Further, we identified CitiWest did not approve the disposition
                            program within three days of receipt of the appraisal as
                            required, for 46 percent (13 of 28) of the applicable cases;
                            ranging from one day late to ten days late. We were advised by
                            CitiWest that their Realty Specialists are not always diligent in
                            performing the disposition analysis and submitting it for approval
                            in a timely manner.

                            Mortgagees are required to submit evidence of good and
Title Evidence Not Timely   marketable title. As required by Exhibit 11, paragraph 11-1
Approved                    of the Contract, CitiWest is responsible to review and approve
                            or reject such title evidence within ten calendar days of receipt
                            from the mortgagee. For 20 applicable cases, CitiWest did not
                            approve title evidence within the prescribed time frame for 8
                            (40 percent), and there was no documented extensions granted.
                            We identified two extreme cases in which the properties had
                            approval 60 days and 157 days late. CitiWest staff advised
                            that they were not aware of the time frame requirement.


                                             Page 21                           00-BO-222-1005
Finding 2


                             Exhibit 8, paragraph 8-2 of the Contract provides the
 Sales Closing Time Frames   Contractor must establish a closing time frame within the range
 Not Met                     of 30 to 60 calendar days after acceptance of the sales
                             contract. We identified 4 of 13 applicable properties where
                             CitiWest did not meet the time frame on the sales contract. The
                             time frame was not met as a result of expiring contract
                             extensions. Upon expiring contract extensions, sales contracts
                             should be canceled or another extension granted. When the
                             contract is canceled, the property should be re-listed for sale in
                             accordance with the Contract. CitiWest staff advised that their
                             Realty Specialists are not always diligent in completing the
                             extension forms in a timely manner.

                             SAMS is HUD’s automated system that provides data for
 Unreasonable Management     management, processing, and monitoring of acquired and
 Processing steps            custodial single family properties. SAMS tracks ten case
                             management processing steps, beginning with the acquisition of
                             a property and ending with the reconciliation of funds from the
                             final sale or disposal of the property. The case management
                             tasks are monitored and tracked by HUD in accordance with
                             standard processing times, including standard processing time
                             for each step. See Appendix A.

                             We identified 6 of 30 cases (20 percent) where the property’s
                             current management processing step was not reasonable;
                             meaning HUD’s standard processing time was not met. For 2
                             cases, the property was in the current processing step longer
                             than the time prescribed; exceeding the standard processing
                             time by 8 days and 11 days. For the remaining 4 cases, the
                             property remained in the accepted sales offer phase although
                             the contract extension expired; ranging from an expiration of 9
                             days to 71 days.

                             It is essential for CitiWest to process cases timely in efforts to
                             meet their objectives to properly manage, evaluate and market
                             properties, and to maximize the highest possible return to
                             HUD’s mortgage insurance fund. HUD needs to ensure that
                             CitiWest complies with Contract requirements, including
                             HUD’s standard processing times.

                             CitiWest is responsible to ensure that properties under sales
 Sales Closing               contract are promptly closed and that HUD’s net sales
 Responsibilities            proceeds are promptly wired to its Treasury account.

00-BO-222-1005                   Page 22
                                                                                 Finding 2


                              However, we determined that CitiWest is not fulfilling their
                              responsibilities in processing closed property cases.
                              Specifically, in review of a sample 15 property case files we
                              identified instances where inappropriate cost were charged to
                              HUD, and problems with closing agents, including the delay in
                              wire transfers, were not reported to HUD as required.

                              Exhibit 8, paragraph 8-4B of the Contract provides the
Possible Inappropriate Cost   Contractor must ensure the accuracy of all closing
                              documentation and assure that all costs charged to HUD are
                              appropriate. We determined that CitiWest does not ensure that
                              all cost charged to HUD are appropriate. In review of 15
                              closed cases, we determined that CitiWest is not resolving
                              outstanding balances of taxes, water and/or sewer, including
                              interest and penalties prior to sales closing. These cost should
                              be paid by the lender prior to conveyance to HUD. However,
                              we identified instances where the cost are included on the HUD
                              1 settlement statement as an expense to HUD. CitiWest has
                              the responsibility to ensure that only allowable cost are charged
                              to HUD, whereas they need to take the appropriate action to
                              exclude all inappropriate cost.

                              Exhibit 8, paragraph 8-7D of the Contract provides the
Deficiencies With Closing     Contractor shall notify HUD in instances where the closing
Agents Not Transmitted        agent has failed to timely submit the final sales closing package,
                              including instances where the closing agent has failed to comply
                              with the wire transfer procedures specified in the closing agent’s
                              contract. This is to ensure that the closing agent is assessed the
                              proper liquidated damages for late delivery. The Contractor is
                              required to submit weekly reports illustrating areas of the
                              closing agent’s noncompliance.

                              By letter dated April 13, 2000, CitiWest transmitted a quality
                              control report to their HUD Government Technical
                              Representative, analyzing 31 closing packages received during a
                              2-3 week period ending February 18, 2000,. The report
                              identified several deficiencies with sales closing packages
                              submitted by the closing agents; including late wire transfers,
                              late receipt of closing package, closing agents signing HUD 1
                              settlement statement as seller, and overcharging HUD for
                              closing costs. Although this quality control report was
                              transmitted to HUD, the Contract requires CitiWest to prepare
                              and submit weekly reports disclosing instances of

                                               Page 23                           00-BO-222-1005
Finding 2


                            noncompliance by closing agents. This reporting mechanism is
                            required because liquidated damages are assessed for
                            noncompliance. CitiWest does not prepare and submit weekly
                            reports, in adherence with Contract requirements.

                            The importance of these reports become even more apparent
                            with the identification of closing agent noncompliance. During
                            our review we identified two instances of the closing agents’
                            noncompliance, similar to what CitiWest reported in the quality
                            control report. We identified 8 in a sample of 10 applicable
                            closed cases (80 percent) where property sale proceeds were
                            not wire transferred to the Department of Treasury on the
                            following business day as required. We identified the transfers
                            ranged from one to three days late. We also identified an
                            instance where prepaid interest and up-front mortgage
                            insurance was charged to HUD. These cost should have been
                            paid by the buyer, not charged to HUD.

                            HUD needs to ensure that CitiWest complies with Contract
                            requirements and submits weekly reports of closing agent
                            noncompliance. HUD further needs to ensure that CitiWest
                            takes appropriate action with closing agents to ensure
                            compliance with their contractual obligation. In efforts to ensure
                            compliance, HUD will increase the likelihood of a successful
                            Property Disposition Program.

                            CitiWest is allowed full compensation for their contract services
 Late Fees, Interest and    and reimbursement for actual expenses specifically identified by
 Penalties are Prohibited   the Contract as a pass through cost. However, Section C-
                            4(III)(C) of the Contract provides, “Payments made by the
                            Contractor for penalties, fees or interest incurred by the
                            Contractor due to late payment to other parties are unallowable
                            cost”. As a result, these type of expenses are prohibited to be
                            requisitioned from HUD in monthly pass through vouchers
                            unless the GTR grants prior approval.

                            CitiWest is requisitioning reimbursement for penalties, fees and
                            interest incurred due to late payment on condo fees and utilities.
                            CitiWest advised that condo late fees result from not receiving
                            bills promptly, and outstanding utility costs are inherited upon
                            receiving the property. We were advised that these cost did
                            not result from a late or non payment by CitiWest.


00-BO-222-1005                  Page 24
                                                                            Finding 2


                         Although the cost were determined to be minor, based upon a
                         review of 3 pass through vouchers, CitiWest should not be
                         requisitioning these types of penalties, fees and interest from
                         HUD. It is CitiWest’s responsibility to ensure that bills are
                         received promptly. Condo fees are at a consistent monthly
                         amount, and CitiWest should make every attempt to initially
                         determine the amount, make timely payment, and not wait for a
                         bill. If an actual bill is preferred, CitiWest should actively
                         pursue the issue with the Condo Association.

                         Outstanding utility costs should not be inherited by CitiWest
                         subsequent to property transfer. CitiWest should be receiving
                         properties clean of any past encumbrances whereas the lender
                         should pay any outstanding utility costs prior to conveyance to
                         HUD. If not, it is CitiWest responsibility to actively pursue
                         payment of the bills with the lender, and not include such costs
                         in pass through vouchers. CitiWest should consider working
                         with HUD in efforts to reduce the lender’s claim by the amount
                         due.

                         CitiWest is not successfully achieving their objectives, nor
Objectives Are Not Met   complying with Contract requirements. Properties are held off
                         market for unreasonable periods of time. Property case
                         management processing is not timely. Instances of closing agent
                         noncompliance is not reported to HUD, and there are no
                         assurances that all closing documents are accurate and that only
                         appropriate costs are charged to HUD. Finally, reimbursement
                         for late fees, interest and penalties is requisitioned by CitiWest
                         although it is prohibited by their Contract. HUD needs to
                         ensure contractual agreements are followed and objectives are
                         met to ensure the Property Disposition Program achieves its
                         mission efficiently, effectively and economically.



Auditee Comments         CitiWest offered its comments and clarifications with the
                         conclusions reached on the following six areas: Case
                         Management Processing, Held-Off-Market Properties, Title
                         Approval, Closing Extensions, Taxes and Utility Bill Processing,
                         and Closing Agent Issues. Specifically, CitiWest believes the
                         comments of unreasonable management processing steps is
                         unfair because SAMS report CMEPSD01, which is used by
                         HUD to measure contractor performance in timely case

                                          Page 25                           00-BO-222-1005
Finding 2


                 movement, was not correctly reflecting exceeding dates for
                 approximately the first 15 months of the contract. HUD has
                 recently corrected the report.

                 CitiWest stated that the OIG held many conversations to
                 discuss specific reasons why properties were held off the
                 market, and that the case files are documented to reflect these
                 actions. Additionally, CitiWest stated that they are in regular
                 contact with the GTR, as the remedy to these situations
                 regularly falls outside of the decisions CitiWest can make
                 without HUD’s permission.

                 CitiWest also stated that it was their efforts that resulted in the
                 foreclosing agents finally forwarding the title packages to them.
                 Further, CitiWest stated that their staff is aware of the time
                 limitations to approve title and received training from the HOC
                 with regard to such.

                 It is the responsibility of the real estate agents to maintain the
                 sales contract in force and request an extension through the
                 closing agent, which is then approved. CitiWest stated that no
                 contracts are closed without valid extensions when required.

                 CitiWest does not agree with the OIG’s concern re- payment
                 of late fees and penalties when reimbursed by HUD. CitiWest
                 cited its contract which provides that payment of unpaid taxes,
                 water, sewer, or other assessments is the responsibility of the
                 Contractor. It goes without saying that if you have an unpaid
                 tax or other bill that there will be penalties and interest. With
                 regard to pre-conveyance bills, CitiWest stated they inherit
                 these bills on a daily basis and the case moves to a closing stage
                 relatively quickly. In all such cases, the GTR is contacted and
                 the circumstances explained. In each case, the GTR directs
                 CitiWest to either pay the outstanding amount or instruct that
                 the amount be paid out of settlement at closing.

                 Finally, CitiWest constantly reports issues and concerns relating
                 to closing agents timely performance and accuracy to the HOC.
                 All extraordinary conditions are directly reported to the GTR
                 for guidance.




00-BO-222-1005       Page 26
                                                                      Finding 2




OIG Evaluation of   We recognize CitiWest’s efforts to perform under its contract
Auditee Comments    terms, but we also recognize that there is a need for
                    improvement in the areas outlined.

                    We did not utilize SAMS report CMEPSD01 in determining
                    CitiWest’s effectiveness in case management processing. We
                    used the “Standard Processing Steps” (see Appendix A) to
                    determine whether a property remained in a case management
                    processing step for an unreasonable amount of time.
                    Additionally, we did not find adequate documentation in the
                    case files for the held off market properties considered to have
                    management deficiencies. The files did not delineate the reason
                    that a property was held off market or that CitiWest was
                    working to market the property as soon as possible. We
                    considered OIG properties, but concluded that these properties
                    were not held off market for an unreasonable amount of time.

                    With regard to title evidence approval, we concluded that these
                    time frames were not met in eight of twenty applicable cases.
                    Adequate staff training is not a guarantee of performance.

                    We agree that real estate agents are responsible for maintaining
                    the sales contract in force and requesting extensions through the
                    closing agents. However, when extensions are not requested, it
                    is CitiWest’s responsibility to take action to either cancel the
                    contract or determine if a request for an extension is
                    forthcoming. We found that CitiWest staff would complete
                    contract extensions retroactively upon discovery that one was
                    needed prior to closing or upon our inquiry. As a result, we
                    concluded sales closing time frames were not met due to
                    expired contracts with no approved extensions.

                    Outstanding balances of taxes and utilities, including late fees
                    and penalties, should be paid by the lender prior to conveyance
                    to HUD. We found instances where these costs are included
                    on the HUD 1 settlement statement as an expense to HUD.
                    Although we recognize payment of these items is required to
                    proceed with the property closing, our concern is that CitiWest
                    is not taking the necessary actions to notify HUD of these
                    instances and minimize future occurrences.


                                     Page 27                          00-BO-222-1005
Finding 2


                   CitiWest is required to submit weekly reports illustrating areas
                   of the closing agent’s noncompliance. We were provided one
                   such report dated April 13, 2000.




 Recommendations   We recommend that you:

                   2A.      Ensure that CitiWest processes held off market
                            properties in reasonable time to reduce any applicable
                            holding cost to CitiWest, and additional cost to HUD.

                   2B.      Require CitiWest to develop a system of control which
                            would enable timely case management processing to
                            comply with Contract requirements and HUD’s
                            standard processing time.

                   2C.      Require CitiWest to accurately review HUD 1
                            settlement statements and exclude unallowable cost
                            charged to HUD in accordance with Contract
                            requirements.

                   2D.      Require CitiWest to prepare and submit weekly reports
                            of closing agent noncompliance in accordance with
                            Contract requirements.

                   2E.      Require CitiWest to immediate suspend requisition of
                            late fees, interest and penalties in accordance with
                            Contract requirements.

                   2F.      Conduct thorough reviews of all monthly pass through
                            vouchers to ensure that late fees, interest and penalties
                            are no longer included.




00-BO-222-1005           Page 28
Management Controls
In planning and performing our audit, we considered management controls of Management and
Marketing Contractor for New England, CitiWest New England, Inc.(CitiWest), specifically as related
to its responsibility for the ongoing management and marketing of HUD single-family properties in New
England, in order to determine our auditing procedures and not to provide assurance on management
controls.

Management controls consist of a plan of organization and methods and procedures adopted by
management to ensure that resource use is consistent with laws, regulations, and policies; that resources
are safeguarded against waste, loss, and misuse; and that reliable data is obtained, maintained, and fairly
disclosed in reports.




                                         We determined the following management controls were
 Relevant Management
                                         relevant to our audit objectives:
 Controls
                                         •   Overall Case Processing

                                         •   Property Maintenance

                                         •   Quality Control

                                         •   Marketing

                                         •   Data Entry

                                         A significant weakness exists if management controls do not
 Assessment Results                      give reasonable assurance that resource use is consistent with
                                         laws, regulations, and policies; that resources are safeguarded
                                         against waste, loss, and misuse; and that reliable data is
                                         obtained, maintained, and fairly disclosed in financial statements
                                         and reports.

                                         Our review identified significant weaknesses over CitiWest’s
 Significant Weaknesses                  ability to properly administer its case processing, property
                                         maintenance, and quality control responsibilities. Specific
                                         weaknesses were identified in the management control areas
                                         disclosed above, with exception to Marketing and Data Entry.
                                         These weaknesses are described in the Findings section of this
                                         report.


                                             Page 29                                        00-BO-222-1005
Management Controls




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00-BO-222-1005         Page 30
                                                                                           Appendix A

Standard Processing Steps
   Step                                   Description                                Days (Allowed)
     1     Add property to inventory - acquisition                                    17
     2     Record appraisal of property                                                3
     3     Determine method to dispose of property                                     3
     4     Identify and approve repairs to property - optional                        20
     5     Identify properties that are ready to list for sale                        10
     6     List property for sale                                                     30
     7     Accept preliminary offer for property                                       7
     8     Accept sales offer/contract                                                60
     9     Record sales or settlement of property                                      7
    10     Close/archive property                                                      -
                                                               Total Processing Days 157




Step 1 - The recording of information from Form-27011, Single Family Application for Insurance
Benefits, or through other means of acquisition as indicated in the contract.

Step 2 - The recording of initial data from the appraisal.

Step 3 - The design and approval of a Disposition Program.

Step 4 - The approved Disposition Program requires repairs and it is not specified as a property that is
“ready to list”.

Step 5 - Properties with an approved Disposition Program, not Held Off Market, and Ready to List.
Required repairs must be completed beforehand.

Step 6 - The property is advertised for sale.

Step 7 - A preliminary offer is received and recorded in SAMS.

Step 8 - Recording the accepted sales offer.

Step 9 - The closing or settlement package is received and the Form HUD-1, Settlement Statement is
entered into SAMS.

Step 10 - Reconciliation of the HUD-1 data with the funds received by Treasury and the financial
accounts associated with the case.



                                             Page 31                                      00-BO-222-1005
                  Appendix A




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                              Appendix B

Auditee Comments




                   Page 33   00-BO-222-1005
Appendix B




00-BO-222-1005   Page 34
          Appendix B




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Appendix B




00-BO-222-1005   Page 36
          Appendix B




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Appendix B




00-BO-222-1005   Page 38
                                                                                           Appendix C

Distribution

Deputy Secretary, SD, Room 10100 (1)
Chief of Staff, S, Room 10000 (1)
Special Assistant to the Deputy Secretary for Project Management, SD, Room 10100 (1)
Acting Assistant Secretary for Administration, S, Room 10110 (1)
Assistant Secretary for Congressional and Intergovernmental Relations, J, Room 10120 (1)
Senior Advisor to the Secretary, Office of Public Affairs, S, Room 10132 (1)
Director of Scheduling and Advance, AL, Room 10158 (1)
Counselor to the Secretary, S, Room 10234 (1)
Deputy Chief of Staff, S, Room 10226 (1)
Deputy Chief of Staff for Operations, S, Room 10226 (1)
Deputy Chief of Staff for Policy, S, Room 10226 (1)
Deputy Chief of Staff for Program, S, Room 10026 (1)
Deputy Assistant Secretary for Public Affairs, W, Room 10222 (1)
Special Assistant for Inter-Faith Community Outreach, S, Room 10222 (1)
Executive Officer for Administrative Operations and Management, S, Room 10220 (1)
Senior Advisor to the Secretary for Pine Ridge Project, W, Room 10216 (1)
General Counsel, C, Room 10214 (1)
Director, Office of Federal Housing Enterprise Oversight, O, 9th Floor Mailroom (1)
Assistant Secretary for Housing/Federal Housing Commissioner, H, Room 9100 (1)
Office of Policy Development and Research, R, Room 8100 (1)
Inspector General, G, Room 8256 (1)
Assistant Secretary for Community Planning and Development, D, Room 7100 (1)
Government National Mortgage Association, T, Room 6100 (1)
Assistant Secretary for Fair Housing and Equal Opportunity, E, Room 5100 (1)
Chief Procurement Officer, N, Room 5184 (1)
Assistant Secretary for Public and Indian Housing, P, Room 4100 (1)
Chief Information Officer, Q, Room 3152 (1)
Director, Office of Departmental Operations and Coordination, I, Room 2124 (1)
Chief Financial Officer, F, Room 2202 (1)
Director, Enforcement Center, V, 200 Portals Building (1)
Director, Real Estate Assessment Center, X, 1280 Maryland Avenue, SW, Suite 800 (1)
Director, Office of Multifamily Assistance Restructuring, Y, 4000 Portals Building, (1)
Secretary’s Representative, 1AS (2)
Assistant Deputy Secretary for Field Policy and Management, SDF, Room 7108 (2)
Deputy Chief Financial Officer for Finance, FF, Room 2202 (1)
Director, Office of Budget, FO, Room 3270 (1)
Primary Field Audit Liaison Officer, 3AF1(2)
Headquarters Audit Liaison Officer, HF, (2)
Departmental Audit Liaison Officer, FM, Room 2206 (2)
Acquisitions Librarian, Library, AS, Room 8141 (1)

                                          Page 39                                     00-BO-222-1005
Appendix C


Deputy Inspector General, G, Room 8256 (1)
Assistant Inspector General for Audit, GA, Room 8286 (1)
Deputy Assistant Inspector General for Audit, GA, Room 8286 (1)
Assistant Inspector General for Investigation, GI, Room 8274 (1)
Appropriate Special Agent-In-Charge, 1AGI (1)
Director, Program Research and Planning Division, GAP, Room 8180 (1)
Director, Financial Audits Division, GAF, Room 8286 (1)
Director, Information Systems Audit Division, GAA, Room 8172 (1)
Counsel to the Inspector General, GC, Room 8260 (1)
Central Records, GF, Room 8256 (4)
Semi-Annual Report Coordinator, GF, Room 8254 (1)
Office of Inspector General Webmanager - Electronic Format (1)
Public Affairs Officer, G, Room 8256 (1)
Auditee (2)
Director, Philadelphia Single Family Homeownership Center, 3AHH (1)
Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug Policy & Human Resources,
B373 Rayburn House Office Building, Washington, DC 20515

The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, 340 Dirksen Senate
Office Building, United States Senate, Washington, DC 20510 (1)

The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs, 706 Hart
Senate Office Bldg., United States Senate, Washington,DC 20510 (1)

The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn Bldg.,
House of Representatives, Washington, DC 20515 (1)

Henry A. Waxman, Ranking Member, Committee on Government Reform, 2204 Rayburn Bldg.,
House of Representatives, Washington, DC 20515 (1)

Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O’Neill House Office
Building, Washington, DC 20515 (1)

Director, Housing and Community Development Issue Area, United States General Accounting Office,
441 G Street, NW, Room 2474, Washington, DC 20548 (Attention: Judy England-Joseph) (1)

Steve Redburn, Chief, Housing Branch Office of Management & Budget, 725 17th Street, NW, Room
9226, New England Executive Office Building, Washington, DC 20503 (1)




00-BO-222-1005                           Page 40
          Appendix B




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