oversight

Golden Feather Realty Services, Inc., Management and Marketing Contractor, Chicago, Illinois

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-09-26.

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

             AUDIT REPORT




   GOLDEN FEATHER REALTY SERVICES, INC.
MANAGEMENT AND MARKETING CONTRACTOR FOR
            ATLANTA AREA A-1

               CHICAGO, ILLINOIS

                    00-CH-211-1005

               SEPTEMBER 26, 2000

              OFFICE OF AUDIT, MIDWEST
                  CHICAGO, ILLINOIS




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                                                            Issue Date
                                                                    September 26, 2000
                                                           Audit Case Number
                                                                    00-CH-211-1005




TO:            Charles E. Gardner, Director, Atlanta Homeownership Center


FROM:           Dale L. Chouteau, District Inspector General for Audit, Midwest


SUBJECT:       Golden Feather Realty Services, Inc.
               Management and Marketing Contractor
               Chicago, Illinois


We completed an audit of Atlanta Homeownership Center’s Management and Marketing
contractor, Golden Feather Realty Services, Inc., for Atlanta Area A-1. The audit was conducted
as part of a nationwide internal audit of the Federal Housing Administration’s Single Family
Property Disposition Program. The objectives were to determine whether Golden Feather
managed HUD’s single-family disposition program in accordance with HUD policies,
procedures, and regulations and with the terms and conditions of Golden Feather’s Management
& Marketing Contract.

The audit disclosed that Golden Feather did not provide sufficient oversight of appraiser work
assignments necessary to discourage the solicitation of a kickback. In addition, Golden Feather
did not execute or record land use restriction addendums necessary to restrict nonprofit
organizations from purchasing properties at a 30 percent discount and reselling the properties for
more than 110 percent of the cost. Furthermore, Golden Feather did not always maintain
properties, use approved appraisers to appraise HUD properties, and process appraisals and
disposition programs timely.

Within 60 days, please provide us, for each recommendation made in this report, 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 considered unnecessary. Also, please provide us copies of any correspondence or
directives issued because of the audit.

Should you or your staff have any questions, please contact me at (312) 353-7832.




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Executive Summary
We completed an audit of Golden Feather Realty Services, Incorporated (Golden Feather). The
primary purpose of our audit was to determine whether Golden Feather managed HUD single-
family properties in accordance with HUD policies, procedures, and regulations and with the
terms and conditions of its management and marketing contract. This included determining
whether Golden Feather’s operations were effective, efficient and economical and management
controls effectively identified and addressed operational deficiencies.

On September 22, 1999, Golden Feather began to manage and market HUD properties located in
the states of Illinois, Kentucky, Tennessee and Indiana. Golden Feather demonstrated success in two
key areas. First, the contractor reduced the number of properties in inventory and second the
contractor increased the number of insured and uninsured property sales to owner occupants,
investors, nonprofit organizations and government agencies. Golden Feather’s inventory reduction
efforts in the state of Illinois were acknowledged nationally with the awarding of HUD’s “Best
Practices” Award in the Summer of 2000. Despite these accomplishments, improvements were still
needed.

Golden Feather’s management controls were weak over assigning appraiser work assignments,
restricting re-sales for nonprofit organizations, maintaining properties, using approved appraisers
and processing inventory timely.


                                      Golden Feather’s management controls did not provide
 Oversight of Appraiser               reasonable assurance that employees did not exceed or
 Work Assignments Needs               abuse their assigned authorities. Due, in part, to the lack of
 Strengthening                        separation of duties and supervisory oversight, a Golden
                                      Feather employee was able to solicit a kickback from two
                                      appraisers in exchange for increased work assignments. In
                                      addition, Golden Feather did not notify the OIG of the
                                      solicitation as prescribed by the Federal Acquisition
                                      Regulations.

                                      Management controls necessary to help deter nonprofit
 Controls over Resale                 organizations from abusing HUD’s discount sales program
 Restrictions for Nonprofit           were weak. Land use restrictions were not executed or
 Organizations were Weak              recorded for properties sold to nonprofit organizations at a
                                      30 percent discount. The restrictions prohibit nonprofit
                                      organizations from purchasing properties at a 30 percent
                                      discount and reselling them for more than 110 percent of
                                      cost. The restrictions also prohibit sales to parties that did
                                      not intend to occupy the property as a principal residence.
                                      Because the land use restrictions were not executed or
                                      recorded, several nonprofit organizations resold properties
                                      to trusts and investors that resold the properties for amounts
                                      ranging between 177 percent and 597 percent greater than


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                              the HUD discounted sales amount. Some properties were
                              resold on the same day the nonprofit organization
                              purchased the property from HUD and multiple properties
                              were sold to the same buyer.

                              Weak management controls over property inspections and
  Properties Not Maintained   correcting reported deficiencies resulted in poor inspections
                              and deficiencies not being corrected. A review of 26
                              properties disclosed that Golden Feather did not always:
                              (1) identify serious health and safety deficiencies; (2)
                              correct reported hazardous conditions within mandatory 24
                              hours; (3) properly secure properties; (4) ensure that
                              properties were protected from the elements; (5) identify
                              defective paint; and (6) maintain each property in a
                              presentable condition at all times. Additionally, Golden
                              Feather did not always take corrective action on reported
                              deficiencies. 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.

                              Golden Feather did not ensure appraisers were HUD
 Unapproved Appraisers        approved appraisers. Four appraisal companies appraised
 used for HUD Properties      213 properties using seven unapproved appraisers. Officials
                              believed HUD-approved supervisory appraisers could
                              supervise unapproved appraisers. However, supervisory
                              appraisers were not always present during the physical
                              appraisal. Because unapproved appraisers were used,
                              HUD’s risk in obtaining an inaccurate list and sales price
                              has been increased.

                              Golden Feather’s management controls did not always
 Untimely Appraisals and      prevent untimely appraisals and disposition programs. Four
 Disposition Programs         of 29 properties were appraised from six to 56 days late.
                              Nine of 29 property disposition programs were approved
                              from one to 50 days late.

                              Delays in obtaining property appraisals and approving
                              disposition programs cause properties to remain in HUD’s
                              inventory longer than necessary, resulting in additional
                              property holding costs and exposure to vandalism.

  Recommendations             We recommend that you ensure Golden Feather: (1)
                              establish and implement procedures to provide supervision,
                              segregate key duties of its employees within the New

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                    Acquisitions Departments and comply with Anti-Kickback
                    Act reporting requirements; (2) execute and record land use
                    restrictions for sales to nonprofit organizations; (3) develop
                    and implement oversight procedures for inspections; and
                    (4) report and correct the hazards and other maintenance
                    deficiencies identified by OIG and Golden Feather’s
                    inspectors. We further recommend that you ensure Golden
                    Feather uses HUD-approved appraisers, require the
                    contractor to obtain new appraisals for the insured
                    properties that were appraised by unapproved appraisers,
                    and ensure the contractor develops and implements controls
                    for processing appraisals and disposition programs timely.

                    We discussed the findings in this report with Golden
                    Feather’s staff during the course of the audit. On August
                    11, 2000 and on August 23, 2000 we provided Golden
                    Feather a copy of the draft audit findings for comment. We
                    received Golden Feather’s written responses on August 21,
                    2000 and on August 26, 2000. In general, Golden Feather
                    disagreed with the contents of the report. Appropriate
                    revisions were made where deemed necessary. We
                    included Golden Feather’s pertinent comments in the
                    findings section of this report. Golden Feather’s full
                    response is included in Appendix B.




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             Table Of Contents

             Management Memorandum                                                   i



             Executive Summary                                                      iii
Executive Summary


             Introduction                                                             1



             Findings

 Finding 1   1      Oversight of Appraiser Work Assignments Needs Strengthening      5

 Finding 2   2      Controls over Resale Restrictions for Nonprofit Organizations
                    were Weak                                                       11


Finding 3    3      Properties Not Maintained                                       15

Finding 4    4      Unapproved Appraisers used for HUD Properties                   27

Finding 5    5      Untimely Appraisals and Disposition Programs                    31



             Management Controls                                                    37



             Follow Up On Prior Audits                                              39



             Appendices
                    A Results of OIG Site Inspections                               41
                    B Auditee Comments                                              43
                    C Distribution                                                  67


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 Introduction
 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 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
 acquired single-family properties. Title 24, Code of Federal Regulations, part 291
 implements the statutory authority. Handbook 4310.5 REV-2, Property Disposition
 Handbook - One to Four Family Properties, supplements the regulations.

 In 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 into four Homeownership
 Centers. The centers are located in Santa Ana, California; Denver, Colorado; Atlanta,
 Georgia; and Philadelphia, Pennsylvania.

 In March 1999, HUD contracted the management and marketing of properties that were
 owned by or in the custody of HUD. Seven contractors were awarded a total of 16
 Management and Marketing contracts nationwide. The contractors assumed full
 responsibility for the management and marketing functions. In September 1999, HUD
 announced it terminated its contract with InTown Management Group. InTown
 Management Group was responsible for properties located in the Atlanta Area A-1. At
 the time the contract was terminated InTown Management Group had an inventory of
 approximately 5,600 properties.

 Golden Feather was awarded the replacement contract for the Atlanta Homeownership
 Center Area A-1 effective September 1999. Atlanta Area A-1 consists of properties
 located in Illinois, Indiana, Kentucky and Tennessee. The total duration of this 16-month
 contract shall not exceed five years, including the exercise of any options. The total
 estimated value of the contract is $74 million. Golden Feather also manages and markets
 HUD’s single-family properties for the Santa Ana Homeownership Center Areas C-1, C-
 2 and C-3.

 During the audit period, Golden Feather was responsible for managing and marketing an
 average inventory of over 4,800 properties in Atlanta Area A-1. As of July 31, 2000,
 Golden Feather had 3,532 properties in its inventory for the four-state area.


                                      The audit objectives were to determine whether
  Audit Objective                     Golden Feather managed HUD single-family
                                      properties located in Atlanta Homeownership
                                      Center’s Area A-1 in compliance with HUD
                                      policies, procedures and regulations and with the



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                     terms and conditions of the contract. This included
                     determining whether Golden Feather’s (1)
                     operations were effective, efficient and economical,
                     and (2) management controls effectively identified
                     and addressed operational deficiencies.

                     The audit covered the period October 1, 1999 to
   Audit Scope and   July 31, 2000. We performed our on-site audit work
   Methodology       between May and August 2000. We conducted the
                     audit at Golden Feather’s Chicago, Illinois office.
                     The audit was conducted in accordance with
                     generally accepted government auditing standards.

                     To determine whether Golden Feather managed
                     HUD’s single family properties in accordance with
                     HUD policies, procedures, regulations and contract
                     requirements, we:

                     •   Reviewed HUD Handbooks, Office of
                         Management and Budget Circulars, the Anti-
                         Kickback Act of 1986, the Management and
                         Marketing contract and Federal Regulations;

                     •   Reviewed Performance Assessment reports and
                         third-party contractors’ monitoring reports;

                     •   Reviewed Golden       Feather’s   policies   and
                         procedures;

                     •   Tested Golden Feather’s internal controls by
                         interviewing staff and reviewing transactions,
                         testing procedures and observing operations;

                     •   Reviewed twenty nine active cases, eighteen
                         closed property case files and ten held off
                         market cases, the cases reviewed were selected
                         on a random judgmental basis;

                     •   Performed 26 property inspections; 12 in
                         Chicago, Illinois and 14 in Indianapolis,
                         Indiana, the cases reviewed were selected on a
                         random judgmental basis;

                     •   Reviewed contractor payment vouchers and
                         public property records;



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                                                           Introduction


                    •   Conducted interviews with Golden Feather staff
                        and management, subcontractors, and Atlanta
                        Homeownership Center personnel.




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                                                                                 Finding 1


   Oversight of Appraiser Work Assignments
             Needs Strengthening
 Golden Feather did not maintain a separation of duties within the New Acquisitions
 Department and did not provide supervisory oversight of the Department’s manager. The
 Department manager had sole responsibility for selecting and issuing work orders to
 appraisers. The manager’s work was not monitored as closely as it should have been. The
 manager solicited kickbacks from two appraisers in exchange for awarding the appraisers
 work assignments. Golden Feather learned about the solicitations only after the two
 appraisers complained about the solicitation. After consulting with HUD’s Atlanta
 Homeownership Center, Golden Feather dismissed the manager. Additionally, Golden
 Feather did not notify the OIG as required by its contract. We learned of the solicitation
 only after our auditors made inquiries about the manager’s absence and from the Atlanta
 Homeownership Center.


                                      HUD Handbook 4310.5, Property Disposition
  Sound internal controls             Handbook - One to Four Family Properties, stresses
  are an integral part of the         the importance of internal control procedures as an
  process.                            integral part of Single Family Property Disposition
                                      processing. Control procedures are those policies
                                      and procedures that management has established to
                                      provide reasonable assurance programmatic and
                                      financial management objectives will be achieved.
                                      They pertain in part to segregation of duties that
                                      reduce the opportunity to allow any person to be in
                                      a position to both perpetrate and conceal errors or
                                      irregularities in the normal course of duties. This
                                      includes assignment to different staff of
                                      responsibility for authorizing Single Family
                                      Property disposition transactions, recording
                                      transactions, and maintaining custody of the
                                      properties.

                                      OMB Circular A-123, Management Accountability
                                      and Control, identifies separation of duties and
                                      supervision as a specific management control
                                      standard. The standard states that key duties and
                                      responsibilities   in    authorizing,   processing,
                                      recording, and reviewing official agency
                                      transactions should be separated among individuals.
                                      Managers should exercise appropriate oversight to




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 Finding 1


                            ensure individuals do not exceed or abuse their
                            assigned authorities.

                            The duties within the New Acquisition Department
  Duties were not           were not segregated. The manager had sole
  segregated.               responsibility for selecting appraisers and issuing
                            work orders to appraisers beginning in March 2000.
                            The apparent kickback solicitations occurred in May
                            2000. One employee assisted with the work
                            assignments from November 1999 through March
                            2000. In March the manager told the employee he
                            would assume all duties related to the assignment of
                            work orders. A review of the Department’s staffing
                            levels disclosed the change in work assignment was
                            not due to a staffing shortage. Two staff members
                            occasionally issued work orders while the manager
                            was on leave. This was infrequent and under the
                            manager’s control.

                            Golden Feather’s contract manager said he did not
  The manager of the        believe the manager’s work was monitored as closely
  Department was not        as it should have been. He believed the lack of
  properly supervised.      oversight occurred because the Department appeared
                            to be running well. A review of Golden Feather’s
                            policy and quality manuals disclosed that
                            monitoring requirements for the Department were
                            not included in the manuals. A review of the
                            Department’s records disclosed the absence of any
                            documents related to the oversight of the
                            Department.

                            The day after our interview with the contract
                            manager, the vice president of Golden Feather
                            informed us that the contract manager was incorrect
                            in his assessment. The vice president also said that
                            this event was regrettable but it was not
                            preventable.

                            Contrary to the vice president’s opinion, we believe
                            proper segregation of duties and oversight could
                            have prevented the event.

                            Golden Feather did not notify OIG of the Manager’s
  Golden Feather did not    kickback solicitations as required by its contract and
  notify OIG of the         the     Federal        Acquisition        Regulations.
  kickback solicitations.



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                                                                   Finding 1


                    Section 52.203-07 of the Federal Acquisition
                    regulations states when the contractor has reasonable
                    grounds to believe that a violation may have
                    occurred, the contractor shall promptly report in
                    writing the possible violation. Such reports shall be
                    made to the OIG of the contracting agency, the head
                    of the contracting agency if the agency does not have
                    an OIG, or the Department of Justice. The OIG was
                    not notified of the violation. The OIG discovered
                    the violation through the normal course of the audit.


                    Excerpts from Golden Feather’s comments follow.
 Auditee Comments   Appendix B contains the complete text of the
                    comments.

                    Golden     Feather’s    internal  controls   were
                    comprehensive and sufficient to discover the
                    wrongful act before a kickback was paid and before
                    any influence was exerted. Because of the early
                    detection and rapid response, neither HUD nor
                    Golden Feather was victimized by this employee’s
                    conduct.

                    Golden Feather’s controls assured that key duties in
                    authorizing, reviewing and paying for contractors’
                    work (including appraisers) were separated among
                    different individuals and different offices. We
                    disagree with the finding that the responsibilities of
                    selecting appraisers and issuing work orders must be
                    separated.

                    Contrary to the statements made in this report, the
                    Office of the Inspector General was notified of this
                    issue by the Director of the Atlanta Homeownership
                    Center immediately upon discovery of the alleged
                    conduct and the Office of Inspector General was
                    aware of the matter four days prior to the employee’s
                    dismissal. The intent of Section 52.203-07 of the
                    Federal Acquisition Regulations is to assure that the
                    Office of Inspector General is made aware of
                    potential violations. In this instance, the intent of this
                    regulation      was       unquestionably        fulfilled.




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 Finding 1




 OIG Evaluation of   We disagree that Golden Feather’s management
                     controls were comprehensive and sufficient to
 Auditee Comments    discover the kickback solicitation. Golden Feather’s
                     management controls did not discourage, identify, or
                     prevent the kickback solicitations. Golden Feather’s
                     own contract manager believed the employee was not
                     properly supervised.

                     Golden Feather stated it relied on its relationship with
                     its contractors to report unlawful acts as part of its
                     management controls. Our interviews disclosed that
                     the whistleblowers contacted HUD and the Golden
                     Feather’s home office in San Antonio, Texas due to
                     the lack of confidence or familiarity they had with
                     Golden Feather’s staff in Chicago, Illinois. We also
                     disagree that relying on sub-contractors to report
                     illegal acts is part of a good management control
                     structure.

                     Contrary to Golden Feather’s response, appraisal
                     documents did not indicate that key duties in
                     authorizing and reviewing appraisal work orders were
                     separated among different individuals. There were no
                     indications of a segregated review.

                     Golden Feather’s actions indicate they believed the
                     oversight of appraisers work assignments did need
                     strengthening. On August 1, 2000, Golden Feather
                     implemented a comprehensive policy statement,
                     action plan, and audit control specifically designed to
                     detect and prevent potential business abuses by
                     employees or contractors. However, we did not test
                     the new policy and believe that it should not be relied
                     on without testing.

                     We also disagree that Golden Feather complied with
                     the Anti-Kickback reporting requirements. The
                     Federal Acquisition regulations require that when a
                     contractor has reasonable grounds to believe a
                     violation may have occurred, the contractor shall
                     promptly report in writing the possible violation.
                     Such reports shall be made to the Office of Inspector
                     General. Golden Feather did not report the violation
                     in writing to the Office of Inspector General.


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                                                                Finding 1



 Recommendations
                    On June 23, 2000, we issued a memorandum to the
                    Director of the Atlanta Homeownership Center
                    recommending the initiation of debarment
                    procedures against the former manager. The
                    Director concurred with the recommendation and
                    initiated the process for a limited denial of
                    participation and plans on initiating the debarment
                    process as soon as the limited denial of participation
                    appeal process has expired.

                    We also recommend that the Director of the Atlanta
                    Homeownership Center:

                    1A.     Assures that Golden Feather segregates key
                            duties and responsibilities in the New
                            Acquisitions Department for authorizing
                            appraisal work orders and selecting appraisers
                            to perform the work orders.

                    1B.     Assures that Golden Feather establishes and
                            implements procedures for the oversight of
                            the manager.

                    1C.     Assures that Golden Feather establishes and
                            implements procedures to comply with the
                            Anti-Kickback Act’s reporting requirement.




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                                                                                  Finding 2


        Controls over Resale Restrictions for
        Nonprofit Organizations were Weak
 Golden Feather did not execute or record land use restriction addendums. The addendum,
 which restricts nonprofit organizations from purchasing properties at a 30 percent discount
 and reselling them for more than 110 percent of the net development cost, is required with
 each sales contract. The addendum also requires organizations to resell properties to
 individuals who intend to occupy them as a principal residence. Golden Feather attributes
 the oversight to misinterpreting an Atlanta Homeownership Center instruction. Because the
 addendums were not executed or recorded, resale amounts may have exceeded the
 restriction amount and properties may not have been sold as a principal residence.


                                      Exhibit two of the contract states that properties
   Contract restricts re-sale.        purchased by a nonprofit organization at a 30
                                      percent discount are primarily intended to be resold
                                      to persons who are at or below 115 percent of
                                      median income for their area, when adjusted for
                                      family size. It restricts properties from being resold
                                      to an investor owner within one year of HUD’s
                                      closing date.

                                      The contract also requires Golden Feather to
                                      include a land use restriction addendum with each
                                      sales contract and place the restrictions in the deed
                                      in order to provide a written record that the
                                      organization has agreed to the resale restrictions.
                                      The addendum restricts the nonprofit organization
                                      from reselling the property for an amount in excess
                                      of 110 percent of the net development costs.

                                      Golden Feather’s Contract Department manager said
   Restriction addendum not           land use restriction addendums were not executed or
   executed or recorded.              forwarded to the closing agent. The manager said the
                                      Homeownership Center told her the addendum was
                                      not required. However, after Golden Feather officials
                                      researched the issue they believe they misinterpreted
                                      the instruction. A review of property records
                                      maintained by Golden Feather confirmed the absence
                                      of executed land use restriction addendums.

                                      Golden Feather’s Closing Department manager said
                                      land use restriction addendums were not included
                                      with documents submitted by the closing agent. The



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                                             closing agent verified the addendums were not
                                             recorded.

                                             To illustrate the effect of omitting the land use
   Indications of program                    restriction addendum, Table 1 below presents 11
   abuse.                                    property transactions that may have exceeded the
                                             restriction amount or may not have been sold as a
                                             principal residence. This is not a comprehensive list
                                             and is for illustration purposes only.

                                             For example, six properties were transferred to a
                                             trust, which subsequently sold the properties for
                                             amounts ranging between 228 percent and 446
                                             percent greater than the HUD discounted amount.
                                             Three properties were sold to the same buyer who
                                             subsequently resold the properties within six
                                             months for amounts ranging between 196 percent
                                             and 597 percent greater than the HUD discounted
                                             amount. Two properties were resold by the
                                             nonprofit organization on the same day they
                                             purchased the properties from HUD. The properties
                                             were subsequently resold within six months for 177
                                             percent and 251 percent greater than the HUD
                                             discounted amount.

 Table 1 Indications of Program Abuse
   FHA Case       HUD      Discount     Non        Resale 1   Buyer    Resale 1   Resale 2   Resale 2   Percent
     No.         Closing   Purchase   Profit ID   Date Deed    ID       Sales       Date      Sales      Over
                  Date     Amount                  Signed              Amount       Deed     Amount     Discount
                                                                                   Signed               Amount
  131-691429    12/23/99    $39,550    CWCS       12/22/99    CRNL     $48,500    03/31/00    $70,000        177
  131-799365    11/22/99    $28,000     GSF       11/22/99    15687         $0    03/13/00   $125,000        446
  131-345889    01/04/00    $37,800     GSF       01/04/00    15687         $0    02/23/00    $86,000        228
  131-687880    10/18/99    $28,000    CWCS       10/18/99     AB      $36,000    03/28/00    $55,000        196
  131-771813    12/17/99    $23,100    CWCS       12/17/99     AB      $33,000    03/09/00   $138,000        597
  131-824009    10/08/99    $39,200    CWCS       10/08/99     AB      $48,500    12/21/99   $122,000        311
  131-646815    12/23/99    $49,000    CWCS       12/23/99      JO     $58,500    03/22/00   $123,000        251
  131-634381    11/24/99    $18,200     GSF       12/02/99    15687         $0    02/16/00    $71,000        390
  131-807848    01/28/00    $23,100     GSF       02/02/00    15687         $0    03/13/00    $69,500        301
  131-456334    02/04/00    $32,480     GSF       02/20/00    15687         $0    03/21/00    $90,000        277
  131-788238    01/13/00    $21,000     GSF       01/24/00    15687         $0    04/10/00    $61,000        290
 Note: A buyer ID with a two-letter designation denotes an individual, a four-letter designation denotes an
 organization and a buyer ID number denotes a trust.




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                                                                  Finding 2



 Auditee Comments    Excerpts from Golden Feather’s comments follow.
                     Appendix B contains the complete text of the
                     comments.

                     When Golden Feather assumed responsibility, the
                     inventory had swelled to an unprecedented 5,800
                     homes in the four state region. Many buyers were
                     frustrated and delayed in their efforts to close as each
                     file had to be analyzed to assure that the same
                     property was not awarded to more than one party.
                     During this transition period, HUD permitted Golden
                     Feather to dispense with the requirement of a Land
                     Use Restriction Addendum on qualified nonprofit
                     sales.

                     In the course of the transition, this direction was
                     never countermanded and, accordingly the Land Use
                     Restriction Addendum was not added to the list of
                     required documents until July 2000.

                     The Contract does not include a sample addendum
                     and a search of the available forms on HUD’s web
                     site yields only the addendum applicable to Officers
                     and Teachers. The form that Golden Feather is using
                     is adapted from the HUD Handbook but even this
                     form does not include all of the restrictions
                     referenced in this report.

                     The Addendum itself is not a recorded instrument and
                     does not provide any additional protection to HUD
                     beyond that which is already provided by HUD’s
                     annual nonprofit reporting requirements.


 OIG Evaluation of   We disagree that HUD permitted Golden Feather to
 Auditee Comments    dispense with the use of the Land Use Restriction
                     Addendum. Atlanta Homeownership Center officials
                     confirmed that the Land Use Restriction Addendum
                     was required and the requirement was not waived.
                     The contract requires Golden Feather to include a
                     Land Use Restriction Addendum with each sales
                     contract and place the restrictions in the deed in
                     order to provide a written record that the
                     organization has agreed to the resale restrictions.
                     HUD did not execute a contract modification or


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                    amendment dispensing with the use of the Land Use
                    Restriction Addendum.

                    We also disagree that the Addendum does not
                    provide any additional protection to HUD beyond
                    that which is already provided by HUD’s annual
                    nonprofit reporting requirements. Table 1 illustrates
                    the type of abuse that may have been discouraged or
                    prevented if the Addendums were executed and
                    recorded. For example, the individuals that
                    purchased     properties    from    the     nonprofit
                    organizations may not have purchased the
                    properties had they been aware of the restrictions.

                    Golden Feather’s statement that the Addendum
                    itself is not a recorded instrument is not entirely
                    correct. The contract requires Golden Feather to
                    place the restrictions in the deed in order to provide
                    a written record that the organization has agreed to
                    the resale restrictions. The Addendum itself could
                    be recorded to satisfy the requirement. The
                    restrictions must be recorded.


 Recommendations    We recommend that the Director of the Atlanta
                    Homeownership Center:

                    2A.    Assures that Golden Feather executes a land
                           use restriction addendum with each sales
                           contract and records the addendum with the
                           deed.




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                   Properties Not Maintained
 Golden Feather did not preserve, protect and maintain HUD owned properties. Golden
 Feather’s inspectors did not always identify and report deficiencies and did not always
 correct reported deficiencies. OIG’s inspectors identified 92 deficiencies at 22 of 26
 properties they inspected. Golden Feather’s inspectors reported 33 deficiencies with 16 of
 the 26 properties. The Contract Manager and Assistant Vice President and Manager of
 the Property Management Department attribute the difference to poor inspections. The
 Assistant Vice President said 50 percent of the time inspectors just open and close the
 door. The officials attribute the lack of corrective action to a high turnover in the Work
 Order Department, a lack of training and employees not properly identifying deficiencies
 and writing work orders. Because property conditions were not properly maintained, the
 health and safety of neighbors and potential buyers were threatened and property
 marketability was impaired. OIG’s site inspections results are contained in Appendix A.


                                      Section C-2 of the contract requires Golden Feather
  Contract requires                   to routinely inspect and take all actions necessary to
  properties to be                    preserve, protect, and maintain each property in a
  protected, preserved and            presentable condition at all times.
  maintained.
                                      This includes correcting any conditions that present
                                      a health or safety hazard to the public within 24
                                      hours of discovery. Repairing broken steps or
                                      floorboards, removing hazardous material such as
                                      gasoline cans, oil-soaked rags, dead animals and
                                      feces. Securing the property to prevent unauthorized
                                      entry using a locking system. Removing and
                                      properly disposing of all interior and exterior debris
                                      both after property conveyance and on a continual
                                      basis. Maintaining the lawn, shrubbery and trees
                                      consistent with neighborhood standards. Protecting
                                      the property from damage from the elements,
                                      through such measures as repairing broken
                                      windows, patching roof leaks, and replacing
                                      functional shutters. Repairing all damages due to
                                      vandalism such as broken windows, spray paint to
                                      the exterior or interior of the home, and theft of
                                      appliances. Exhibit 15 of the contract requires
                                      inspectors to determine whether defective paint
                                      surfaces exist.

                                      Management controls over the inspection process
    Controls over property            were weak. Golden Feather’s Vice-President of the
    inspections and                   Property Management Department said controls
    correcting deficiencies
    were weak.

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                       over the inspection process consisted of re-
                       inspecting 10 percent of the inventory using senior
                       level inspectors. The officials also said the re-
                       inspection results were used to provide discussion
                       topics for weekly inspector training classes and
                       assess inspector’s performance. However, Golden
                       Feather was unable to produce any documents to
                       support the existence of the re-inspection program
                       or its results.

                       Golden Feather recognized the need to improve the
                       quality of its re-inspection program in June 2000.
                       The improved re-inspection program consisted of
                       re-inspecting 20 percent of the property inventory
                       using senior level inspectors. The re-inspection
                       results were used to provide discussion topics for
                       weekly inspector training classes and assess
                       inspector’s performance. Golden Feather produced
                       a report confirming approximately 17 percent of the
                       properties were re-inspected in July 2000. However,
                       this was after OIG conducted its inspections.
                       Therefore, we did not test the control.

                       Management controls over correcting reported
                       deficiencies were weak. Golden Feather’s Vice
                       President of the Property Management Department
                       said controls over correcting reported deficiencies
                       consisted of reviewing between ten and 20 work
                       orders per day to determine if corrective action was
                       taken. However, Golden Feather was unable to
                       produce any documentation to support the existence
                       of the verification process or its results.

                       Health and safety hazards were present in 14
   Health and safety   properties we inspected. OIG’s inspectors identified
   hazards.            health hazards such as a dead pigeon in the kitchen
                       of one property and a dead cat in the basement of
                       another. The inspectors identified safety hazards
                       such as broken steps and floorboards at all four
                       properties. The contract specifically identifies dead
                       animals, broken steps and floorboards as hazards.

                       OIG’s inspectors also identified other hazardous
                       conditions that were not specifically identified in
                       the contract. These conditions included broken
                       glass, rusty nails protruding upward, missing stair



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                           railings on a second floor deck, a ceiling and a roof
                           overhang near collapse, loose chimney bricks on the
                           roof ready to fall to the ground and uncovered
                           electrical boxes.

                           Golden Feather’s inspectors reported two hazardous
                           conditions. The contract manager said the
                           remaining deficiencies were not always reported
                           due to inspector oversight.

                           A review of deficiencies reported by Golden
                           Feather’s inspectors disclosed that deficiencies were
                           not always corrected. For example, on May 18,
                           2000, Golden Feather’s inspectors reported a dead
                           cat in the basement at property 131-536752. On
                           June 8, 2000, OIG’s inspectors identified a dead cat
                           in the basement. Golden Feather had not issued a
                           work order to correct the deficiency as of August 7,
                           2000. The contract manager said a work order
                           should have been written the first time the dead cat
                           was reported.

                           Eight properties were not properly secured to
  Properties were not      prevent unauthorized entry. Properties had opened
  secured.                 windows, unlocked or missing locks and keys left in
                           keyholes or under a mat. Three of the eight
                           properties had been vandalized.

                           Golden Feather’s inspectors reported one
                           improperly secured property. Golden Feather took
                           corrective action approximately two months after its
                           inspectors reported the deficiency. The contract
                           manager said missing locks and keys left in doors or
                           under mats were due to realtors that did not lock the
                           doors.

                           Physical appearances were not maintained by
  Debris was not removed   removing debris or maintaining lawns. OIG’s
  and lawns were not       inspectors identified 13 properties with debris and
  maintained.              16 properties without lawn maintenance. The debris
                           included washers and dryers, trash, clothing, toys,
                           wood, and a fallen tree. Grass had reached over two
                           feet high at one property. Picture number one
                           below evidences the lack of lawn maintenance.




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 Picture Number 1. Evidence of the lack of lawn maintenance at property 131-852341.

                                    Golden Feather’s inspectors reported debris at four
                                    properties and deficient lawn conditions at 13
                                    properties. Golden Feather’s inspectors did not
                                    report the remaining debris or lawn maintenance
                                    deficiencies due to inspector oversight.

                                    A review of deficiencies reported by Golden
                                    Feather’s inspectors disclosed that deficiencies were
                                    not always corrected. For example, Golden
                                    Feather’s inspectors reported debris at property 131-
                                    852341 on May 23, 2000 and again on June 13,
                                    2000. OIG’s inspectors identified debris on June 6,
                                    2000. Golden Feather had not issued a work order
                                    to remove the debris as of August 7, 2000. Officials
                                    believe that a high turnover in the Work Order
                                    Department contributed to the oversight. We were
                                    unable to determine if corrective action was taken
                                    for deficient lawn maintenance due to the lack of an
                                    audit trail.

                                    Properties were not protected to prevent damage
 Properties were not                from the elements or further deterioration. OIG
 protected from the                 inspectors identified nine properties with broken
 elements.                          window glass and 11 properties with indications of
                                    roof leaks.


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                                     Golden Feather’s inspectors reported broken
                                     window glass at four properties and roof leaks at
                                     three properties. Picture number two below
                                     evidences a roof leak.




 Picture Number 2. Evidence of a roof leak in the common hall ceiling at property 131-
 888615.
                                   A review of deficiencies reported by Golden
                                   Feather’s inspectors disclosed that deficiencies were
                                   not always corrected. For example, Golden
                                   Feather’s inspectors reported a roof leak at property
                                   131-888615 on May 9, 2000. OIG’s inspectors
                                   identified a roof leak on June 7, 2000. Golden
                                   Feather had not issued a work order to repair the
                                   leak as of August 7, 2000. The contract manager
                                   said it appears that someone in the Work Order
                                   Department missed the problem and did not write a
                                   work order.

                                     Golden Feather did not repair damage caused by
   Vandalism was not                 routine vandalism at seven properties. The
   repaired.                         vandalism included graffiti, missing kitchen cabinet
                                     doors, missing kitchen plumbing and bathroom
                                     plumbing fixtures. Golden Feather’s inspectors
                                     reported vandalism at one property and took




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                              corrective action. The remaining deficiencies were
                              not reported due to inspector oversight.

                              Defective paint surfaces were identified at 14
   Defective paint surfaces   properties. The defects consisted of cracking,
   were present.              scaling, chipping and peeling paint.

                              Golden Feather’s inspectors reported defective paint
                              at five properties. The contract manager said their
                              inspectors should have inspected and reported all
                              defective paint surfaces.

                              A review of deficiencies reported by Golden
                              Feather’s inspectors disclosed that deficiencies were
                              not always corrected. For example, Golden
                              Feather’s inspectors reported defective paint at
                              property 131-836686 on May 16, 2000 and again on
                              May 22, 2000. OIG’s inspectors identified defective
                              paint on June 7, 2000. Golden Feather had not
                              issued a work order to correct the deficiency as of
                              August 7, 2000.


                              Excerpts from Golden Feather’s comments follow.
  Auditee Comments            Appendix B contains Golden Feather’s the full
                              response.

                              The condition of the HUD inventory in this area is
                              better than it has been in years, Golden Feather’s
                              procedures have been instrumental in this turn-
                              around. This report gives a false sense of the
                              condition of the inventory because it has no baseline
                              from which to compare. It simply chose 26
                              properties from an inventory of 3,500 and
                              concluded from this non-representative sample that
                              Golden Feather did not preserve, protect and
                              maintain HUD owned properties. This conclusion is
                              overreaching given the data sampled and fails to
                              compare the condition of the inventory today
                              against what it was when Golden Feather took over
                              ten months earlier.

                              In June 2000, Golden Feather implemented a
                              comprehensive inspector grading program which
                              requires quality control inspectors to follow behind
                              routine inspectors to review their work. This report



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                    is critical of Golden Feather’s inspection quality
                    control prior to June 2000, not because the program
                    was ineffective, but solely because Golden Feather
                    did not produce documents to support it. The
                    documents to verify the effectiveness of Golden
                    Feather’s prior re-inspections program are actually
                    the inspection reports themselves. They are
                    available in the files the Office of Inspector General
                    had access to for four months. To ask Golden
                    Feather to spend numerous hours segregating these
                    documents from the files is neither reasonable nor a
                    requirement of the Contract. The fact that Golden
                    Feather did not produce these documents does not
                    mean they do not exist nor does it mean the
                    program was ineffective. To the contrary, they exist
                    and have been available to the Office of Inspector
                    General during its entire audit.

                    Golden Feather strongly disagrees with the finding
                    that management controls over correcting reported
                    deficiencies were weak. Golden Feather’s internal
                    system, REAM, carefully tracks work order
                    assignments and reports are run daily and weekly
                    for management to track status and trends.
                    Examples of many of these reports were provided.
                    The example of a control cited is only one of many
                    and the report’s inference that it is the only such
                    control is misleading and presents an inaccurate
                    representation of Golden Feather’s systems and
                    procedures.

                    The statement in the introductory paragraph of this
                    finding, “The Assistant Vice President said 50
                    percent of the time inspectors just open and close
                    the door.”, is false and Golden Feather denies not
                    only the veracity of the statement but also that this
                    statement was ever made. If it were true, then the
                    sign-in sheets inside HUD Homes would not have
                    Golden Feather inspection sign-ins which
                    correspond with the written inspection reports. The
                    truth is that the sign-in sheets and the inspection
                    reports do correspond thereby evidencing that in
                    fact, the statement attributed to the Assistant Vice
                    President was untrue.




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  OIG Evaluation of   We disagree with Golden Feather’s statement that the
  Auditee Comments    report gives a false sense of condition of the
                      inventory. The audit disclosed that Golden Feather
                      failed to meet its contractual obligation to preserve,
                      protect and maintain 22 of 26 HUD owned properties.
                      The contract does not provide for a baseline
                      comparison when determining if Golden Feather
                      preserved, protected and maintained properties.

                      We also disagree with Golden Feather’s statement
                      that the 26 properties were non-representative. The
                      sample was randomly selected without bias. The
                      sample size was not determined with the intention of
                      extrapolating the inspection results. However, the
                      sample size was sufficient to determine that Golden
                      Feather had material management control weakness
                      in the way it manages all of HUD’s properties.

                      Golden Feather’s comments that we found inspection
                      quality control ineffective solely because Golden
                      Feather did not produce documents is inaccurate. We
                      determined that management controls over property
                      inspections were weak based on a comparison of
                      inspection results between OIG’s inspectors and
                      Golden Feather’s inspectors and a review of Golden
                      Feather’s management controls over the inspection
                      process. OIG inspectors identified 92 deficiencies at
                      22 of 26 properties inspected. Golden Feather
                      inspectors identified 33 deficiencies at 15 of the 26
                      properties. Golden Feather reported that it re-
                      inspected properties in order to maintain quality over
                      its inspection process. We concluded that the
                      difference between the inspections indicated the re-
                      inspection process had weaknesses. The lack of
                      documentation to support Golden Feather’s
                      procedures is another indication of a control
                      weakness.

                      Golden Feather further stated to spend numerous
                      hours segregating inspection documents from the files
                      in order to demonstrate that an inspection quality
                      control program was neither reasonable nor a
                      requirement of the Contract. We disagree, Golden




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                    Feather was contractually obligated to identify all
                    inspections conducted and all corrective actions taken
                    and ensure records were available to HUD personnel
                    throughout the term of the contract.

                    We disagree that management controls ensured
                    reported deficiencies were corrected. A comparison
                    of Golden Feather’s inspection reports to work
                    order reports disclosed that deficiencies were
                    reported and work orders were not issued. Golden
                    Feather’s employees agreed that deficiencies were
                    not always corrected and work orders should have
                    been written and deficiencies corrected. Officials
                    also believed that oversights were due to a high
                    turnover in the Work Order Department. Golden
                    Feather’s Vice President of the Property
                    Management Department told us that the controls in
                    place consisted of reviewing work orders to
                    determine if corrective actions were taken. When
                    we asked for documents that would support the
                    work order review, Golden Feather did not have any
                    documentation. The lack of documentation does
                    indicate a weak management control structure.

                    We believed the Assistant Vice President and
                    Manager of the Property Management Department
                    was accurate when he stated 50 percent of the time
                    inspectors just open and close the door. We disagree
                    with Golden Feather’s response that inspection
                    sign-in sheets correspond with the written
                    inspection reports thereby evidencing the statement
                    50 percent of the time inspectors just open and close
                    the door was false.

                     In fact inspection sign-in sheets do not correspond
                    with the written inspection reports. For example, a
                    comparison of inspection records and the sign-in
                    sheet for property 131-516883 disclosed that
                    Golden Feather’s inspectors claimed to inspect the
                    property five times between April 7, 2000 and May
                    29, 2000. The sign-in log supports only one
                    inspection on April 27, 2000. The second entry
                    represents a board up visit. The remaining entries
                    represent prior contractor activity. Table 2 below
                    compares the inspection dates with the dates on the




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                                     sign-in sheet. Picture number three below evidences
                                     one physical property inspection.

 Table 2 – Comparison of Inspection Reports to Sign-In Sheet.
   Date of Inspection Report    Date on Sign-In Sheet           Purpose of Visit
                                  8/10/99 to 9/20/99            Prior Contractor
            4/07/00
            4/27/00                    4/27/00                     Inspection
            5/10/00
                                       5/17/00                      Board-up
            5/23/00
            5/29/00




 Picture Number 3. Inspection Record at Property 131-516883.




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   Recommendations   We recommend that the Director of the Atlanta
                     Homeownership Center:

                     3A.      Assures that Golden Feather corrects the
                              maintenance deficiencies identified by our
                              inspectors.

                     3B.      Assures that Golden Feather develops and
                              implements procedures for the oversight of
                              inspections.

                     3C.      Assures that Golden Feather takes corrective
                              action on deficiencies reported by Golden
                              Feather’s inspectors.




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       Unapproved Appraisers used for HUD
                   Properties
 Golden Feather did not always use appraisers that were listed on HUD’s Lender Selection
 Roster. Golden Feather’s Vice President believed HUD-approved supervisory appraisers
 could supervise the unapproved appraisers. However, after researching HUD’s policies,
 the Vice President determined that Golden Feather would require all appraisers to be
 listed on HUD’s Roster. Because unapproved appraisers were used, HUD’s risk in
 obtaining an inaccurate list and sales price has been increased.


                                     Exhibit 1 of the contract requires Golden Feather to
   Approved Appraisers are           ensure that each appraiser has a State designation
   Required.                         that meets the minimum criteria of the Appraisal
                                     Qualifications Board. The contract also requires that
                                     appraisers be listed on HUD’s Lender Selection
                                     Roster.

                                     HUD Handbook 4150.2 requires that all appraisers
                                     be state licensed or certified, pass a HUD test on
                                     appraisal methods and reporting and pass a
                                     background check.

                                     Golden Feather’s management controls did not
   Controls over the                 ensure appraisers were listed on HUD’s Lender
   Verification Process were         Selection Roster. If an appraiser was not listed on
   Weak.                             the Roster, Golden Feather would request a copy of
                                     the appraiser’s professional license from the
                                     appraiser’s employer. If the appraiser was licensed
                                     and their supervisor was listed on the Roster,
                                     Golden Feather would accept the appraisal.

                                     As of August 2000, Golden Feather required all
                                     appraisers to be listed on the Roster. The change in
                                     policy was implemented after our review.
                                     Therefore, we did not test the new policy.

                                     Four appraisal companies appraised 213 properties
   Appraisers were not               using seven unapproved appraisers. Officials from
   always listed on the              the four companies said they believed that a HUD-
   Roster.                           approved supervisory appraiser was allowed to
                                     sign off on the work of a licensed appraiser.
                                     All of the appraisers were state licensed.




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                           The unapproved appraisers were not always
   Approved Supervisors    supervised. A review of 21 appraisals, three
   did not always Review   appraisals from each of the seven unapproved
   Work.                   appraisers, disclosed HUD-approved supervisory
                           appraisers did not always sign the appraisals or
                           physically inspect the property.


                           Excerpts from Golden Feather’s comments follow.
Auditee Comments           Appendix B contains the complete text of the
                           comments.

                           A review of the Contract language clearly
                           demonstrates the ambiguity in this issue. Before
                           explaining the contractual ambiguities, Golden
                           Feather wishes to clarify a statement in the report’s
                           introduction to this finding. The report states that
                           Golden Feather elected to require all appraisers to be
                           on the Roster after “researching HUD policies.” This
                           statement is not complete. In fact, Golden Feather
                           does not concede that the Contract requires the
                           exclusive use of Roster appraisers. Golden Feather
                           contends that this issue is not clearly answered by
                           either the Contract or the HUD Handbook. Golden
                           Feather elected to use Roster appraisers in an attempt
                           to eliminate any potential problems that a buyer
                           might encounter attributable to the ambiguity of this
                           issue (and out of respect for the Atlanta
                           Homeownership Center’s directive on the issue).


 OIG Evaluation of         We disagree with Golden Feather’s statement that a
 Auditee Comments          review of the contract language clearly demonstrates
                           the ambiguity in this issue. Exhibit 1 of the contract
                           states appraisers must be on the HUD Lender
                           Selection Roster, which is maintained by the
                           Homeownership Center. Section C-3 of the contract
                           states where handbooks, notices, or instructional
                           memorandums or letters conflict with the provisions
                           of this contract, the provisions of this contract shall
                           control.

                           Additionally, HUD-approved supervisory appraisers
                           did not always physically inspect the property. This
                           practice is unacceptable under all appraisal rules.




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 Recommendations
                    We recommend that the Director of the Atlanta
                    Homeownership Center:

                    4A.      Assures that Golden Feather uses only HUD-
                             approved appraisers listed on the Lender
                             Selection Roster.

                    4B.      Assure that Golden Feather obtain a new
                             appraisal, by an independent approved
                             appraiser, for the insured properties
                             currently in inventory the seven unapproved
                             appraisers appraised.

                    4C.      Assure that HUD property owners did not pay
                             an inflated amount due to unapproved
                             appraisers. If HUD property owners paid an
                             inflated amount, refund the overpayment.




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        Untimely Appraisals and Disposition
                    Programs
 Golden Feather experienced processing delays with appraisals and disposition programs.
 Eleven of the 29 properties we tested were delayed at various stages due to employee
 oversight, mistakes and policies that were inconsistent with HUD’s requirements.
 Because properties remained in inventory longer, HUD could have incurred an increase
 in holding costs and increased the possibility of property deterioration.


                                    The contract requires Golden Feather to obtain an
   Golden Feather is                appraisal of each property’s current value no later
   Responsible for                  than ten business days after HUD obtains title to the
   Marketing Properties             property. Properties assigned within 90 calendar
   Timely.                          days from the date of the Phase II transition,
                                    extends the period to 15 days.

                                    Handbook 4310.5, REV-2 requires that Golden
                                    Feather complete, review and approve the
                                    disposition program within three business days of
                                    receipt of the appraisal.

                                    Golden Feather did not always appraise properties
   Receipt of Appraisals            timely. Four of 29 properties were appraised from
   were Not Always                  six to 56 days late. The contract manager said one
   Timely.                          appraisal was delayed because the property was
                                    occupied, two were returned to the appraisers for
                                    corrections and the remaining one was just late.

                                    Golden Feather’s controls consisted of recording the
                                    acquisition date and the date the appraisal was
                                    completed in the Real Estate Asset Management
                                    system. Officials said exception reports were
                                    reviewed weekly and appraisers were contacted on
                                    the eighth-business day if appraisals had not been
                                    received. Even though management controls
                                    appeared to be sufficient, the controls did not
                                    prevent untimely appraisals. We were unable to
                                    determine why appraisals were untimely due to the
                                    lack of an audit trail.

                                    Golden Feather was unable to provide any records
                                    to document exceptions, monitoring, phone
                                    conversations or discussions regarding the



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                          identification and corrective action taken for
                          untimely appraisals.

                          Golden Feather did not always approve property
   Disposition Programs   disposition programs timely. Nine out of 29
   Not Always Approved    properties were approved from one to 50 days late.
   Timely.                Golden Feather was unaware of HUD’s requirement
                          to approve disposition programs within three
                          business days of receipt of property appraisals. The
                          contract manager said delays might have occurred
                          because Golden Feather’s policy was to approve
                          disposition programs once a week.

                          However, five of the nine properties were delayed
                          more than four days, which was inconsistent with
                          Golden Feather’s once a week policy. The contract
                          manager attributed three of the five delays to
                          circumstances related to the start-up period.
                          Officials would not comment on the remaining two
                          delays.

                          We were unable to determine if Golden Feather
   Missing Inspection     performed initial inspections timely for three of 29
   Reports                property inspections. Initial inspection reports were
                          missing. The contract manager attributes the
                          missing records to filing errors.


Auditee Comments          Excerpts from Golden Feather’s comments follow.
                          Appendix B contains the complete text of the
                          comments:

                          The Office of Inspector General’s review of a small
                          sample of the homes sold in the last year overlooks
                          this broader perspective and does not provide an
                          appropriate overview of the program’s success to
                          date.

                          Unfortunately, the report is devoid of any specific or
                          identifiable case data, making it impossible to
                          comment discretely on the origin of the individual
                          findings. Additionally, these findings do not appear to
                          account for the external forces affecting the practical
                          application of the contract.




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                    The existence of delays is primarily a result of
                    external factors. Golden Feather’s internal controls
                    identify these delays and enable Golden Feather staff
                    to take appropriate remedial action to redress delays
                    as they are encountered.

                    The finding that "Golden Feather did not always
                    appraise properties timely" is troublesome in light
                    of the contributing causes, which may delay the
                    anticipated delivery of appraisals. There are a
                    multitude of external factors that may surface.

                    The report contends that appraisals should be
                    completed within ten business days “after HUD
                    obtains title to the property.” This approach,
                    however, ignores the realities of property
                    conveyance under the M&M program. GFR usually
                    has no means of knowing when a property will
                    come into its inventory other than the receipt of the
                    electronic conveyance. Accordingly, until GFR
                    receives the conveyance and enters it into the
                    system, it cannot order its appraisal. It should also
                    be noted that the Contract itself does not call for
                    appraisals to be completed within ten days of
                    HUD’s acquisition of the property. To the contrary,
                    the Contract requires that appraisals be obtained
                    within ten business days of “assignment” of the
                    property (M&M Contract, Section C-2, IV). It
                    should be noted that there is an internal
                    contradiction within the Contract that makes the
                    commencement date for the appraisal timeframe
                    unclear. Section C-2, V, Paragraph-9. Since it
                    would be impossible to achieve contract compliance
                    with the ten-day period commencing with HUD
                    acquisition, Golden Feather bases its timeframe
                    calculation on the assignment date as provided by
                    the Contract.

                    The report contends that Golden Feather “did not
                    always approve property disposition programs
                    timely”. This finding fails to consider the
                    environment in which the sales disposition program
                    operates and the external variables that interfere
                    with the smooth transition from appraisal to listing.




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                     The report, relying by reference on the HUD
                     Property Disposition Handbook 4310.5, Rev 2, is
                     critical of Golden Feather’s property disposition
                     program in those cases where a disposition has not
                     been approved within three days of receipt of
                     appraisal. This criticism, however, is based on
                     requirements that significantly predate the existence
                     of the Marketing and Management program and
                     once again ignores the presence of external factors.


 OIG Evaluation of   We disagree with Golden Feather’s statement that the
 Auditee Comments    small sample of homes sold overlooks the broader
                     perspective and does not provide an appropriate
                     overview of the program’s success to date. The
                     sample was randomly selected without any bias. The
                     sample size was not determined with the intention of
                     extrapolating the results. However, the sample size
                     was sufficient to determine that Golden Feather had
                     material management control weakness in the way it
                     manages the timeliness of appraisals and disposition
                     programs for all of HUD’s properties.

                     We disagree that Golden Feather did not have the
                     opportunity to comment on each case. On July 11,
                     2000, we discussed all of the untimely properties
                     located in Chicago, Illinois with Golden Feather’s
                     Contract Manager and Manager of the Listing
                     Department. On July 12, 2000, we discussed all of
                     the untimely properties located in Indianapolis,
                     Indiana with Golden Feather’s Contract Manager and
                     Marketing Director. On August 17, 2000, we
                     conducted follow-up discussions about untimely
                     disposition programs with Golden Feather’s Contract
                     Manager and Manager of the Listing Department.
                     Golden Feather refused to comment on several
                     untimely disposition properties when asked on
                     August 17, 2000.

                     We also disagree that the existence of delays is
                     primarily a result of external factors. Golden Feather
                     is required to process appraisals and disposition
                     programs within prescribed timeframes. It is Golden
                     Feather’s responsibility to ensure that appraisers
                     comply with the timeframes prescribed in the
                     contract.



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                                                                Finding 5


                    Exhibit 1 of the contract states that upon receipt of
                    notice of a Mortgagee’s assignment of a property for
                    listing or transfer Golden Feather shall obtain an
                    appraisal for such property within ten business days.
                    Our analysis gave the contractor the benefit by using
                    the date Golden Feather received HUD Form 27011A
                    from the mortgagee instead of the date HUD
                    electronically notified Golden Feather of the
                    assignment. Under both scenarios, Golden Feather
                    obtained untimely appraisals.

                    We disagree that Golden Feather is not required to
                    comply with HUD Property Disposition Handbook
                    4310.5, Rev 2. Section C-3 of the contract requires
                    Golden Feather to comply with the National Housing
                    Act, HUD regulations, notices, handbooks,
                    instructional memorandums and letters.



 Recommendations
                    We recommend that the Director of the Atlanta
                    Homeownership Center:

                    5A.      Assures that Golden Feather develops and
                             implements controls that will allow them to
                             processes appraisals and disposition programs
                             within the required time frames.




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 Management Controls
 In planning and performing our audit, we considered Golden Feather’s management
 controls as they related to the ongoing management and marketing of acquired properties
 in order to determine our auditing procedures, not to provide assurance on management
 controls. Management controls include the processes for planning, organizing, directing
 and controlling program operation. They include the systems for measuring, reporting,
 and monitoring program performance.

 Relevant Management                 We determined the following management controls
                                     were relevant to our audit objectives:
 Controls
                                     •   Program Operations – Policies and procedures
                                         that management has implemented to
                                         reasonably ensure that a program meets its
                                         objectives.

                                     •   Validity and Reliability of Data – Policies and
                                         procedures that management has implemented
                                         to reasonably ensure that valid and reliable data
                                         are obtained, maintained, and fairly disclosed in
                                         reports.

                                     •   Compliance with Laws and Regulation –
                                         Policies and procedures that management has
                                         implemented to reasonably ensure that resource
                                         use is consistent with laws and regulations.

                                     •   Safeguarding Resources – Policies and
                                         procedures that management has implemented
                                         to reasonably ensure that resources are
                                         safeguarded against waste, loss and misuse.

                                     It is a significant weakness if management controls
                                     do not provide reasonable assurance that the process
                                     for planning, organizing, directing and controlling
                                     program operations will meet an organization’s
                                     objectives.

    Significant Weaknesses           Based on our review, we believe the following
                                     items were significant weaknesses:

                                     •   Program Operations

                                     Golden Feather’s management controls did not
                                     always ensure compliance with HUD policies or




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 Management Controls


                       with the management and marketing contract. For
                       example:

                           1. Restrictions were not executed or recorded
                              which prohibited nonprofit organizations
                              from: 1) purchasing properties at a 30
                              percent discount and reselling them for more
                              than 110 percent of cost; and 2) selling the
                              discounted properties to parties that did not
                              intend to occupy them as a principal
                              residence.

                           2. Properties were not inspected properly and
                              reported deficiencies were not always
                              corrected.

                           3. Approved appraisers were not always used
                              to appraise HUD properties.

                           4. Property   appraisals    and     disposition
                              programs were not always timely.

                       •   Safeguarding Resources

                       Golden Feather’s management controls did not
                       reasonably ensure compliance that resources were
                       safeguarded against fraud, loss and misuse. Due to
                       the lack of separation of duties and supervisory
                       oversight, a Golden Feather employee was able to
                       solicit a kickback from two appraisers in exchange
                       for increased work assignments.




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 Follow Up On Prior Audits
 This is the first audit of Golden Feather Realty Services, Incorporated for the Atlanta
 Homeownership Center Area A-1 by HUD’s Office of Inspector General.




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                                                                                Appendix A

     Results of OIG Site Inspections of Chicago
             and Indianapolis Properties
                  Health &
   FHA Case        Safety    Property   Debris      Lawn    Broken Roof Vandalism    Defective
No   No            Hazard    Secured                 Cut    Window Leaks              Paint
                                               Chicago
 1   131-798360                           X                          X                  X
 2   131-888615      X                                        X      X      X           X
 3   131-821372      X                    X                   X      X      X           X
 4   131-516883      X          X         X             X            X      X           X
 5   131-333337                           X             X     X      X      X
 6   131-704534      X                    X             X                               X
 7   131-536752      X                                        X             X           X
 8   131-919709      X          X         X         X         X      X                  X
 9   131-852341      X          X         X         X                                   X
10   131-836686                 X         X         X         X                         X
11   131-805019      X          X                   X                       X
12   131-680016                           X         X         X      X                  X
      Subtotal       8          5         9          8        7      7      6           10
                                            Indianapolis
13  151-502747
14  151-502396                  X                       X                   X
15  151-448611       X                    X             X                               X
16  151-539745       X                    X             X           X                   X
17  151-430244                                          X                               X
18  151-504115                  X                       X     X
19  151-508887
20  151-507382       X                                  X
21  151-412771
22  151-529349       X          X                       X
23  151-492738       X                    X                         X
24  151-537803                            X             X     X     X
25  151-459927
26  151-463504       X                                              X                   X
      Subtotal       6          3         4             8     2     4       1           4
  Total No. of
  Deficiencies      14          8        13         16        9     11      7           14
  Deficiencies
 Identified by       2          1         4         13        4      3      1           5
   Contractor
  Deficiencies
NOT Identified      12          7         9             3     5      8      6           9
 by Contractor




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                                                                        Appendix B

 Auditee Comments
     ACQUISITIONS DEPARTMENT AND CONTRACTOR
                    OVERSIGHT

                        Golden Feather Realty Services’ (“GFR”) internal controls
   Auditee
                        are comprehensive and have recently been strengthened to
   Comments
                        address potential business abuses by employees or
                        contractors. No controls, however, regardless of their
                        breadth, can prevent every potential act of deception,
                        especially if committed by a trusted employee. In the case
                        of GFR’s former New Acquisitions manager, even the most
                        stringent controls (and an adoption of the very
                        recommendations contained in the OIG Report), would not
                        have prevented this manager’s conduct. In addition, it must
                        also be noted that GFR’s existing controls were sufficient
                        to discover the wrongful act before a kickback was paid
   GFR acted swiftly    and before any influence was exerted. GFR acted swiftly
   and resolutely and   and resolutely to take corrective action while always
   thereby prevented    maintaining open communication with HUD. Because of
   any potential loss   the early detection and rapid response, neither HUD nor
   to HUD or GFR        GFR was victimized by this employee’s conduct. In fact, it
                        should be noted that all appraisal expenditures are GFR’s
                        expenses. HUD does not pay for these appraisals nor does
                        HUD reimburse GFR for these expenses. Accordingly, at
                        no time was there ever any risk of loss to HUD in this
                        matter. Finally, contrary to the statements made above in
                        the OIG’s report, the Office of the Inspector General was
                        notified of this issue by the Director of the Atlanta HOC
                        immediately upon discovery of the alleged conduct and the
                        OIG was aware of the matter four days prior to the
                        employee’s dismissal.

                        GFR’s controls assure that key duties in authorizing,
                        reviewing and paying for contractors’ work (including
                        appraisers) are separated among different individuals and
                        different offices. We disagree with the OIG’s finding that
                        the responsibilities of selecting appraisers and issuing work
                        orders must be separated. In the case of appraisal ordering,
                        the department manager (or an employee under her direct
                        control) orders appraisals from existing contractors (already
                        approved by management other than the person issuing the
                        work) based on territories. These orders are reviewed
                        weekly by the Contract Manager as part of GFR’s Weekly
                        Matrix Report (which contains a complete report of every
                        appraiser and the status of his or her work). The Contract
                        Manager, should he detect an unusual variation in ordering


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                      patterns, would then investigate to assure that aberrations in
                      volume are justified. The Weekly Matrix Report is also
                      independently reviewed by GFR’s senior management who
                      may also institute an investigation into any unusual change
                      in the prior order history.

                      GFR also works closely with its contractors to explain its
                      zero tolerance policy and encourage them to contact senior
                      management if they encounter inappropriate behavior from
                      a GFR employee. The fostering of these relationships is
                      among the most effective controls for discovering untoward
                      conduct from an employee. In the case of the former New
                      Acquisitions Department manager, the employee was
                      alleged to have solicited a kickback from two appraisers.
                      Both appraisers reported this conduct immediately (one
                      reported to GFR and the other reported to the Atlanta
                      HOC). Because of these reports, HUD and GFR were able
                      to act together to prevent any loss.

                      In addition to these existing controls, effective August 1,
 GFR’s internal and
                      2000, GFR implemented its Contractor Maintenance
 external controls
                      Control Plan (the “CMCP”) which is a comprehensive
 pose a formidable
                      policy statement, action plan and audit control specifically
 deterrence to
                      designed to detect and prevent potential business abuses by
 procurement
                      employees or contractors. The CMCP has been distributed
 abuse.
                      to all managers, employees who serve in a procurement
                      capacity, and to all contractors providing services related to
                      HUD Homes. GFR is confident that its existing segregation
                      of duties, its internal controls, and the CMCP form a
                      formidable set of internal and external controls to address
                      the possibility of procurement abuse. These controls, all
                      implemented prior to the release of the OIG’s draft
                      findings, address and exceed the recommendations
                      contained therein.

                      The claim of a potential solicitation of payment was
                      reported to the OIG by the Director of the Atlanta HOC
                      immediately upon its discovery and GFR was apprised of
                      this report at the same time it first learned of the allegation
                      (four days prior to the employee’s dismissal). Once aware
                      that the OIG was involved, it would have been superfluous
                      for GFR to make a second report to the same department.

                      The intent of Section 52.203-07 of the Federal Acquisition
                      Regulations is to assure that the OIG is made aware of
                      potential violations. In this instance, the intent of this



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                                                                       Appendix B


                        regulation was unquestionably fulfilled as the alleged
                        violation was reported to the OIG promptly upon its
                        discovery.

                        Upon receiving a second report from a contractor, GFR
  The OIG was made
                        terminated the employee, with notice to, and approval
  aware of the
                        from, the Director of the Atlanta HOC. Any further delay at
  potential violation
                        the point would have subjected GFR to potential financial
  four days before
                        loss.
  GFR dismissed the
  employee
                        No controls, regardless of their reach, can guarantee that a
                        rogue employee or contractor will not attempt to gain
                        pecuniary advantage in violation of GFR’s policies. Much
                        like a criminal intent on robbing a bank, one can work
                        diligently to deter the wrongful conduct by setting up
                        controls, but, in the end, some individuals may choose to
                        commit the act anyway.           For these people, where
                        deterrence and prevention is ineffective, systems must be in
                        place to effectively detect the conduct and react quickly to
                        minimize loss. In the case of GFR’s former manager, this
                        is precisely what happened. His conduct was detected and
                        reported promptly, and employment action taken swiftly, to
                        assure that no loss occurred to HUD or to GFR.




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 Controls Over Resale Restrictions
                                       When Golden Feather Realty Services (“GFR”) assumed
                                       responsibility for Area 1 under the Atlanta HOC, it was
                                       presented with an enormous challenge. The predecessor
                                       contractor had closed only 556 sales in its seven month
                                       term1 and the transactional backlog was massive. For its
                                       first three weeks, GFR was also hamstrung in its efforts by
                                       the predecessor contractor’s refusal to release HUD’s files.
                                       Once the files arrived, they were in disarray and GFR
                                       worked for months to resolve the inestimable number of
                                       contract issues presented in the transition.

                                       During this time period, GFR worked closely with HUD
      HUD permitted GFR
                                       and this teamwork was essential in addressing issues never
      to dispense with
                                       anticipated by the M&M Contract (the “Contract”). The
      requiring a Land Use
                                       Contract did not anticipate that a new contractor would step
      Restriction
                                       in after only seven months nor did it foresee that the
      Addendum during
                                       inventory would nearly double in that same time frame.
      the transition from
                                       When GFR assumed responsibility for the A1 area, the
      the predecessor
                                       inventory had swelled to an unprecedented 5,800 homes in
      contractor.
                                       the four state region. Many buyers were frustrated and
                                       delayed in their efforts to close as each file had to be
                                       analyzed to assure that the same property was not awarded
                                       to more than one party. During this transition period, HUD
                                       permitted GFR to dispense with the requirement of a Land
                                       Use Restriction Addendum (“LURA”) on qualified non-
                                       profit sales.

                                       In the course of the transition, this direction was never
      “Because GFR has                 countermanded and, accordingly, the LURA was not added
      been requiring the               to the list of required documents until July, 2000 when its
      LURA since June,                 omission was discovered. Once the omission was
      2000, long before                discovered, GFR acted immediately to remedy the
      the release of this              oversight2 but, in so doing, discovered some confusion as
      report, the OIG                  to the proper addendum to include.
      Recommendation in
      this finding is                  The Contract states that non-profit organizations
      moot.”                           purchasing at 30% discounts must include a Land Use
                                       Restriction Addendum with each contract. see M&M
                                       Contract, Exhibit 2-4, (J)(3). The Contract does not,


 1
     By comparison, GFR closed 4,818 sales in its first seven months in the same area.
 2
  Because GFR has been requiring the LURA since June, 2000, long before the release of this report, the
 OIG Recommendation in this finding is moot.


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                                     however, include a sample addendum and a search of the
                                     available forms on HUD’s web site3 yields only the
                                     addendum applicable to Officers and Teachers (which GFR
                                     has been using since contract commencement). The form
                                     that GFR is using is adapted from the HUD Handbook but
                                     even this form does not include all of the restrictions
                                     referenced in the OIG Report.

                                     An additional source of confusion in this area derives from
      The absence of Land            the fact that only two of the seven closing agent contracts
      Use Restriction
                                     for the A-1 region contain a requirement for including a
      Addenda neither                restrictive covenant in the deeds they prepare on HUD’s
      prejudiced HUD’s
                                     behalf. Unfortunately, even in these two contracts, the deed
      ability to take action         restriction language does not track the restrictions in the
      against non-profits,           LURA or in the M&M Contract.
      nor did it cause any
      actual loss to HUD.            The Addendum itself is not a recorded instrument and does
                                     not provide any additional protection to HUD beyond that
                                     which is already provided by HUD’s annual non-profit
                                     reporting requirements. The Atlanta HOC requires every
                                     non-profit organization to submit an REO Direct Sales
                                     Annual Report which provides a detailed accounting on
                                     each sale and assures that the non-profit is complying with
                                     all program requirements including, but not limited to,
                                     income restrictions on resale, development and
                                     rehabilitation requirements, and types of buyers acquiring
                                     these properties. These reports are required to be filed by
                                     January 30 of each year for a non-profit organization to
                                     maintain its eligibility to participate in the program. Any
                                     non-profit that fails to file this report loses its certification
                                     to acquire additional houses.

                                     The OIG Report includes a table (“Table 1”) designed to
      “The Contract                  illustrate examples of non-profit abuses of the existing
      neither permits nor            programs. Two important points should be underscored in
      requires GFR to                connection with this data. First, these are examples of non-
      police these {non-             profit organizations knowingly abusing the system during
      profit} transactions           the time period after closing the sale of a HUD Home.
      or make inquiry as             After a sale closes, the Contract neither permits nor
      to the subsequent              requires GFR to police these transactions or make inquiry
      dispositions.”                 as to the subsequent dispositions. Second, since these non-
                                     profits have already shown themselves predisposed to act
                                     contrary to the clearly defined rules of the program, there is
                                     no credible evidence to suggest that the inclusion of an


 3
     Searching “HUD Clips” at http://www.hudclips.org/sub_nonhud/html/forms.htm.


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 Appendix B


                    addendum would have resulted in any material change in
                    the outcome of these transactions.

                    If the non-profits follow the reporting requirements, the
                    data in Table 1 of the OIG Report would be clearly
                    presented in their respective annual reports and, regardless
                    of the presence of an LURA, HUD could investigate and
                    take appropriate action. In short, while the LURA was not
                    included in certain transactions, its absence did not
                    prejudice HUD, or cause it any loss, in any of the cases
                    identified in Table 1.




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 Property Maintenance
                          Golden Feather Realty (“GFR”) assumed responsibility for
                          the A-1 region of HUD’s inventory on September 22, 1999.
                          At the time GFR took over, the inventory was in extremely
                          poor condition throughout the area. Discussions with
                          community leaders and the City of Chicago confirmed that,
                          in fact, the inventory had been disappointingly maintained
                          for many years. GFR was presented with the enormous and
                          challenging task of cleaning up an inventory that had
                          suffered from years of deferred maintenance.

  GFR introduced          GFR began this process by applying its existing (and
  unique initiatives in   proven) systems to the HUD inventory but, in a short time,
  this area to improve    some of the unique features of this area’s inventory made it
  property conditions     apparent that these procedures would have to be refined to
  that had a long         address the poor condition of these properties. For example,
  history of              at the commencement of GFR’s Contract, more than half of
                          the homes in the greater Chicago area were unsecured. To
  deficiencies.
                          expedite the securing of these many hundreds of homes,
                          GFR employed several securing teams to follow behind
                          inspectors so that the inventory could be re-secured in days,
                          instead of months.

                          In addition, recognizing the unique problems plaguing
  GFR’s “Hot Zone”        vacant homes in the city of Chicago, GFR teamed with
  Program has been        local authorities from the Police Department and Buildings
  instrumental in         Department and developed its unique Hot Zone Program.
  improving sales and     Under the Hot Zone Program, GFR defined certain areas of
  property conditions     the city that have been historically susceptible to rapid
  in the City of          property deterioration resulting from such causes as high
  Chicago.                crime, large numbers of gangs and drug users and increased
                          presence of transients and other adverse occupants. Instead
                          of inspecting these homes twice monthly as is standard
                          under the Contract, GFR is now seeing these homes twice
                          weekly at its own expense. Positive results were seen in
                          under a month. The early progress was seen in the form of
                          vastly reduced complaints from residents and city officials.
                          The more tangible results were seen shortly thereafter as
                          homes in these areas began to sell in unprecedented
                          numbers. When GFR assumed the Contract, the City of
                          Chicago had approximately 1,400 HUD Homes. That
                          number is now below 750 and continues to decline each
                          month. This kind of inventory reduction was only possible
                          because the property conditions improved so that the
                          properties      could     become     marketable      again.


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                            In addition to unique inspection and maintenance
 GFR was awarded a
                            initiatives, GFR embarked on an ambitious program to
 “Best Practices”
                            reach out to the communities as part of its efforts to
 Award by HUD for
                            improve property conditions. While the M&M Contract
 its efforts in its first
                            (the “Contract”) envisions community outreach in relation
 year in Illinois.
                            to the sales of properties, GFR, on its own and in
                            conjunction with HUD, went far beyond the Contract in an
                            attempt to repair HUD’s tattered image. GFR has partnered
                            with towns and villages, with city leaders and with
                            neighborhood activists, all in an effort to improve the
                            condition of the homes in their neighborhoods. These
                            leaders, and their constituencies, have become GFR’s eyes
                            and ears in their neighborhoods. GFR’s senior management
                            has spent dozens of hours meeting with community and
                            municipal leaders and listening to the concerns that have
                            intensified over many years. Given the historically poor
                            condition of the properties, GFR’s initial assurances that
                            conditions would improve quickly were met with
                            understandable skepticism. The results, on the other hand,
                            have been met with acclaim from these same leaders. For
                            example, (Name Removed), Executive Director of the
                            National Training and Information Center, has been
                            extremely supportive of GFR’s efforts in its first year,
                            recognizing GFR’s substantial improvement in the
                            management of HUD REO properties.

                            All of these efforts were instrumental in improving the
                            condition of the HUD inventory and making these homes
                            more marketable. GFR’s initiatives in the state of Illinois
                            (and the resulting reduction in inventory) were
                            acknowledged nationally with the awarding of a HUD
                            “Best Practices” Award in the Summer of 2000.

                            GFR was also faced with an area that had suffered from
   GFR has collected        years of mortgagee neglect. Despite the strong opposition
   hundreds of              posed by many mortgagees, GFR has collected hundreds of
   thousands of dollars     thousands of dollars this year on mortgagee neglect claims
   this year on             for HUD. In addition, and more importantly, now that the
   mortgagee neglect        mortgage community knows that GFR is pursuing these
   claims for HUD.          claims, the instances of mortgagee neglect are beginning to
                            decline. This reduction means properties are conveyed to
                            HUD in better condition than they had been for many
                            years, thereby making the properties more likely to sell
                            quickly and for a greater return to the mortgage insurance
                            fund.




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                        Do the improvements of the preceding ten months mean
                        that the entire mountain has been scaled? No, far from it.
                        Years of deferred maintenance will not be fixed in ten
                        months. It is, however, critical to note that the condition of
                        the HUD inventory in this area is better than it has been in
                        years, and GFR’s procedures have been instrumental in this
                        turn-around.

                        The report of the OIG gives a false sense of the condition
 The condition of the
                        of the inventory because it has no baseline from which to
 HUD inventory in
                        compare. It simply chose 26 properties from an inventory
 this area is better
                        of 3,500 (representing less than 1% of GFR’s inventory)
 than it has been in
                        and concluded from this non-representative sample that
 years, and GFR’s
                        “GFR did not preserve, protect and maintain HUD owned
 procedures have
                        properties.” This conclusion is overreaching given the data
 been instrumental in
                        sampled and fails to compare the condition of the inventory
 this turn-around.
                        today against what it was when GFR took over ten months
                        earlier. GFR has not yet completed its first year with an
                        inventory that was riddled with deferred maintenance but
                        the opinions of the communities that GFR serves are
                        contrary to the inferences in the OIG Report.

                        Every month, GFR’s inspectors in this region (numbering
 GFR inspectors are     as many as 50) perform over 8,000 inspections. These
 graded monthly         inspections are thorough and require the inspector to sign in
 based on the quality   at the property and complete a written form covering most
 of their work.         major internal and external conditions at the property.
                        Given this number of inspections, and given the intensity
                        involved in starting up this contract in its first year, there
                        will undoubtedly be a greater number of deficiencies at this
                        stage of the contract. As the OIG Report notes, however,
                        GFR has taken a number of steps to reduce the deficiencies
                        as it progresses under this Contract. In June, 2000, GFR
                        implemented a comprehensive inspector grading program
                        which requires quality control inspectors to follow behind
                        routine inspectors to review their work and to assign a
                        percentage grade based on performance. These grades are
                        reviewed monthly by management and training is provided
                        to inspectors who do not perform to expectations.
                        Inspectors who fail to improve over several months will be
                        subject to additional corrective measures. The early results
                        of this program have been extremely promising and, as
                        GFR moves into its second year (which is, in reality the
                        first “normal” year under this Contract), we are confident
                        that this program will make GFR’s inspectors even better.




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                                    The OIG Report is critical of GFR’s inspection quality
                                    control prior to June, 2000, not because the program was
                                    ineffective, but solely because GFR did not produce
                                    documents to support it. The “documents” that the OIG
                                    seeks, to verify the effectiveness of GFR’s prior re-
                                    inspection program, are actually the inspection reports
                                    themselves. They are available in the files that the OIG has
                                    had access to for four months4. To ask GFR to spend
                                    numerous hours segregating these documents from the files
                                    is neither reasonable nor a requirement of the Contract. The
                                    fact that GFR did not produce these documents does not
                                    mean they do not exist nor does it mean the program was
                                    ineffective. To the contrary, they exist and have been
                                    available to the OIG during its entire audit.

                                    GFR strongly disagrees with the finding that “management
     GFR strongly
                                    controls over correcting reported deficiencies were weak.”
     disagrees with the
                                    GFR’s internal system, REAM, carefully tracks work order
     finding that
                                    assignments and reports are run daily and weekly for
     “management
                                    management to track status and trends. Examples of many
     controls over
                                    of these reports were provided to the OIG. The example of
     correcting reported
                                    a control cited by the OIG Report is only one of many and
     deficiencies were
                                    the report’s inference that it is the only such control is
     weak.”
                                    misleading and presents an inaccurate representation of
                                    GFR’s systems and procedures.

                                    The OIG’s statement in the introductory paragraph of this
                                    finding (attributed to GFR’s Assistant Vice President) is
                                    false and GFR denies not only the veracity of the statement
                                    but also that this statement was ever made. It should be
                                    noted that the author of the OIG Report did not hear this
                                    statement. The Report is including this statement based on
                                    the hearsay of an assistant to a field auditor. This assistant,
                                    however, on several occasions during the audit, proved
                                    incapable of understanding information provided to him by
                                    a number of GFR officials. His notes were notoriously
                                    unreliable as evidenced by the numerous times GFR
                                    officials would correct his notes from previous
                                    conversations. On some occasions, GFR’s Contract
                                    Manager would spend hours explaining the Contract to this
                                    assistant and reviewing case files only to find some days
                                    later that he was still working under the same erroneous


 4
   The OIG began its audit of GFR’s Chicago office in the last week of April, 2000. A staff of three full
 time and one part time auditors spent most of four months reviewing GFR’s Chicago operation in intense
 detail.


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                           understanding of HUD procedures. Whether the assistant
                           took something GFR’s Asst. VP said out of context, or
                           simply made an error in his notes, is immaterial. What’s
                           important is that such a provocative statement should not
                           have been included in the report without verification of its
                           veracity.

                           In addition to the unreliability of its source, this statement
  The OIG’s statement      is not credible on its face, yet, for some inexplicable
  in the introductory      reason, the author of the OIG Report elected not to obtain
  paragraph of this        independent verification whether the statement was actually
  finding (attributed to   made or whether it was, in fact, true. Had the author of the
  GFR’s Assistant          OIG Report attempted to obtain either such verification
  Vice President) is       before including such an inflammatory statement in his
  false and GFR            report, he would have learned that the statement was never
  denies not only the      made and that its contents were patently untrue. If it were
  veracity of the          true, then the sign-in sheets inside HUD Homes would not
  statement but also       have GFR Inspection sign-ins which correspond with the
  that this statement      written inspection reports. The truth is that the sign-in
  was ever made.           sheets and the inspection reports do correspond thereby
                           evidencing that, in fact, the statement attributed to the Asst.
                           VP was untrue.

                           Should the OIG be required to verify every single statement
                           made by a GFR employee during the course of an audit?
                           No. In this instance, however, knowing the enormously
                           incendiary nature of the statement, and knowing that the
                           OIG had no independent verification of its veracity, the
                           OIG should have contacted GFR’s senior management for
                           verification before including it in its report. This is not a
                           matter of courtesy, it is a matter of being thorough and
                           making sure that individuals and companies are not
                           defamed in a public report.

                           One is left to ask why the statement was included at all,
                           unless it was intended to unfairly prejudice GFR. The
                           inciting statement is made yet the OIG offers no
                           documentary or evidentiary support. If it were true, the
                           OIG, who had a team of four auditors spending full time for
                           four months in GFR’s offices, would have provided
                           support.

                           There is no support because the statement was not made.

                           There is no support because the statement is untrue.




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                    GFR continues to work to improve its procedures in the
                    field and in the office to see that deficient property
                    conditions are identified and, when required under the
                    Contract, are timely remedied. With the implementation of
                    its own inspector grading program (prior to the release of
                    these findings), GFR had already addressed the
                    recommendations of the OIG in this finding. The
                    improvement of the inventory to date has been measurable
                    and GFR’s expects to see this trend continue as it evolves
                    from cleaning up years of neglect to maintaining a fresh
                    inventory.




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                              FHA ROSTER APPRAISERS
                                           Exhibit “1” of HUD’s Management and Marketing
                                           Contract (the “Contract”) sets forth the requirements
                                           for the appraisal process. Unfortunately, the appraiser
                                           requirements in this Exhibit are ambiguous and do not
      Auditee Comments
                                           directly cover the common situation where licensed
                                           appraisers perform fieldwork under the supervision of
                                           an appraiser on the HUD Lender Selection Roster (the
                                           “Roster”). A review of the Contract language clearly
                                           demonstrates the ambiguity in this issue.

       The M&M Contract                    Before explaining the contractual ambiguities, GFR
        contains conflicting               wishes to clarify a statement in the OIG’s
     requirements concerning               introduction to this finding. The OIG states that GFR
      appraiser requirements.              elected to require all appraisers to be on the Roster
                                           after “researching HUD policies.” This statement is
                                           not complete. In fact, as discussed in detail below,
                                           GFR does not concede the OIG’s premise that the
                                           M&M Contract requires the exclusive use of Roster
                                           appraisers. GFR contends that this issue is not clearly
                                           answered by either the Contract or the HUD
                                           Handbook. GFR elected to use Roster appraisers in an
                                           attempt to eliminate any potential problems that a
                                           buyer might encounter attributable to the ambiguity of
                                           this issue. (and out of respect for the Atlanta HOC’s
                                           directive on the issue)

                                           Exhibit 1-1 of the Contract states that “appraisers
                                           must be on the HUD Lender Selection Roster, which
                                           is maintained by the Homeownership Centers.” The
                                           Contract also requires GFR to use appraisers who are
                                           “either state licensed or certified in the State where
                                           the property is located.” Finally, the Contract requires
                                           GFR to “ensure that each appraiser complies with the
                                           requirements of the Financial Institutions Reform,
                                           Recovery and Enforcement Act (FIRREA).”
                                           Unfortunately, these directives, though perhaps
                                           unintended, create a web of conflicting requirements
                                           that result in confusion relating to the use of licensed
                                           appraisers to assist in the preparation of appraisals5.

 5
   It should be noted that the OIG Report refers to HUD Handbook 4150.2 as providing additional appraiser
 requirements. The Contract, however, does not expressly include this reference. The Contract does make a
 later reference to the appraisal requirements in HUD Handbook 4150.1, but this handbook section does not
 include appraiser qualification standards. Nevertheless, even if 4150.2 is applicable, it does not add any
 requirement not already contained in the Contract.


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                                 The OIG Report does not distinguish between the two
                                 most common scenarios. In the first scenario, one
                                 appraiser performs all of the field and desk work and
                                 signs the appraisal. Under this situation, it is clear
                                 that the appraiser must be on the Roster. In the second
                                 scenario, which is far more common, a licensed and
                                 certified appraiser (who is not on the Roster) will
                                 assist a Roster appraiser in preparing the appraisal.
                                 The “assistant” signs the appraisal and the Roster
                                 appraiser reviews, approves and also signs the
                                 appraisal. This scenario is most common in larger
                                 appraisal companies where the corporation itself (or
                                 one representative) is on the Roster but each
                                 individual employee, while certified, is not on the
                                 Roster.

    The M&M Contract is          It is this second scenario that the OIG Report finds
  ambiguous on the issue of      unacceptable. GFR does not agree, however, with the
 using non-Roster appraisers     OIG that this matter is clearly defined in the Contract.
  to assist in the preparation   As discussed above, the Contract does not distinguish
         of appraisals.          between assistant and supervisory appraiser. The
                                 Contract is ambiguous on this point and does not
                                 prohibit the use of licensed or certified appraisers
                                 who are under the supervision of Roster appraisers.
                                 The Contract is clear, however, on the requirement
                                 that GFR and its appraisers work within the
                                 parameters of FIRREA. Unlike the Contract, which is
                                 ambiguous on the issue of using supervisory
                                 appraisers, FIRREA has clear language on the topic.
                                 Section 1122(d) of FIRREA [which is codified at 12
                                 U.S.C. § 3351(e)] provides that:

  FIRREA expressly allows             A corporation, partnership or other
    the use of supervisory            business entity may provide appraisal
 appraisers provided that the         services in connection with federally
 “final appraisal document is         related transactions if such appraisal is
  approved and signed by an           prepared by individuals certified or
  individual who is certified         licensed in accordance with the
         or licensed.”                requirements of this title. An individual
                                      who is not a State certified or licensed
                                      appraiser may assist in the preparation of
                                      an appraisal if the assistant is under the
                                      direct supervision of a licensed or
                                      certified appraiser the final appraisal
                                      document is approved and signed by an
                                      individual who is certified or licensed.



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                               Accordingly, while the Contract is silent on the use of
                               appraisal assistants and supervisory appraisers,
                               FIRREA speaks to the issue directly and allows for
                               such arrangements provided that the “final appraisal
                               document is approved and signed by an individual
                               who is certified or licensed.”

    GFR’s controls assured     It is a long standing rule of contract construction in
 compliance with FIRREA as     American jurisprudence that where general and
   required by the Contract.   specific provisions of a contract relate to the same
                               matter, the more specific provision will control. 3 A.
                               Corbin, Corbin on Contracts § 547, at 176 (1960). In
                               the M&M Contract, the language contains: (1) the
                               general language regarding the use of Roster
                               appraisers (without any specific reference or
                               prohibition concerning the use of assistants); and (2)
                               the specific language imposing the obligations of
                               FIRREA on GFR and its appraisers. In this instance,
                               the specific language of the FIRREA provision would
                               control over the other general language.

                               Clearly, based on the foregoing, there is some
                               inherent ambiguity in the Contract as it relates to this
                               Finding. GFR was operating under the provisions of
                               FIRREA, which permits assistants to participate in
                               the preparation of the appraisal under proper
                               supervision. In these cases, GFR’s policy required
                               that the supervisory appraiser be on the Roster and
                               that he or she sign the appraisal in the space provided
                               on the Uniform Residential Appraisal Report. These
                               controls assured compliance with FIRREA and were
                               not contrary to any express language in the Contract.
                               Furthermore, these appraisals apparently met the
                               requirements of the Direct Endorsement Underwriters
                               as not one appraisal was returned to GFR as being
                               insufficient or incomplete.

                               Evidently, in the summer of 2000, it became clear to
                               HUD that this issue was indeed unclear. Apparently,
                               the practice of using non-Roster appraisal assistants
                               was commonplace nationwide. As a result, HUD has
                               instructed all M&M Contractors to assure that all
                               signatory appraisers are on the Roster and GFR has
                               fully complied with this directive. Presumably, this
                               directive will be followed with a contract




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                    modification that will eliminate the ambiguity of this
                    requirement.




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          TIMELINESS OF APPRAISALS AND DISPOSITION
                         PROGRAMS

     Auditee Comments                     In evaluating the success of an M&M Contractor’s
                                          property disposition process, one must look across its
                                          entire inventory and examine the timeliness and
                                          success of its sales programs. Selecting a small
                                          percentage of properties from a sales program that has
                                          processed over 10,000 houses does not allow this
                                          audit to reflect the real successes seen in the Midwest
                                          during GFR’s transition year.

        GFR has reduced                   Since assuming responsibility for the Midwest, GFR
        average time on                   has substantially increased the number of homes sold
       market for a HUD                   monthly while reducing the average time on market.
       Home by 117 days                   These complementary results have produced
     in less than one year.               unprecedented increase in the return to the FHA
         This is a 48%                    mortgage insurance fund. These tangible benefits
      reduction in time on                result from GFR's efficiencies and the company’s
             market.                      attention and typical adherence to the timelines set
                                          forth in the M&M Contract (the “Contract”). To
                                          achieve these fiscal improvements during a
                                          transitional year under the Contract, GFR and its staff
                                          focused on reducing average time on market for a
                                          HUD Home together with increasing the net return on
                                          each sale. When both of these objectives are met, the
                                          results are palpable.

                                          For the twelve month period immediately preceding
                                          GFR's management of the HUD-owned inventory in
                                          the Midwest, a HUD Home averaged 243 days in
                                          inventory. Since GFR assumed responsibility in the
                                          Midwest, this time frame has declined dramatically to
                                          126 days6. In eleven months, starting with a
                                          transitional inventory riddled with problems, GFR
                                          reduced the average time on market by 48%. It is well
                                          known that added time in inventory can increase
                                          property holding costs and exposure to deterioration
                                          or damage due to vandalism. With the average home
                                          in inventory 117 fewer days under GFR’s
                                          management, HUD Homes have had less time to


 6
   This figure is based on the average days on market for each HUD Home that (1) GFR received into its
 inventory after Sept. 27, 1999 and (2) GFR sold and closed before August 24, 2000.


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                                           suffer from deferred maintenance or vandalism
                                           directly resulting in holding cost savings to HUD.
                                           Fewer days in inventory, coupled with better property
                                           conditions, have also resulted in increased return to
                                           HUD on the sale of the inventory.

                                           In its first year, GFR has also produced a dramatic
                                           reduction in HUD’s Turnover Rate7 in the A1
                                           Contract area. According to HUD’s SAMS System, in
                                           May 1999 (shortly following the inception of the
                                           M&M Program), the Turnover Rate for the A1
                                           Contract area was an unprecedented 333.22 months.
                                           When GFR took over the area in September 1999, the
                                           Turnover Rate had dropped to 50.71 months. Since
                                           then, under GFR’s management, the rate has
                                           plummeted. As of July 2000, GFR has reduced the
                                           Turnover Rate to 5.12 months. The importance of
                                           these figures cannot be overstated. GFR has taken an
                                           inventory that was virtually stagnant and has
                                           successfully implemented programs to move the
                                           inventory from acquisition to closing at a pace
                                           heretofore unseen in this area.

                                           The OIG’s review of a small sample of the homes
                                           sold in the last year overlooks this broader
                                           perspective and does not provide an appropriate
                                           overview of the program’s success to date. As
     GFR’s internal controls               discussed below, while the sales process will
        identify disposition               inevitably suffer occasional delays, GFR’s
     delays and allow GFR to               commitment to reducing the inventory has minimized
          take appropriate                 these delays and has resulted in unmatched success in
        remedial measures.                 hastening the sale of HUD Homes.

                                           Unfortunately, the OIG Report is devoid of any
                                           specific or identifiable case data, making it is
                                           impossible to comment discretely on the origin of the
                                           individual findings. Additionally, these findings do
                                           not appear to account for the external forces affecting
                                           the practical application of the M&M Contract. The
                                           process of managing and marketing HUD-owned
                                           properties does not exist in a vacuum and is impacted

 7
   The “Turnover Rate” is a SAMS calculation that determines the number of months required to turn over a
 contractor’s entire inventory assuming no further acquisitions. Accordingly, a smaller number indicates that
 the contractor is selling more homes (and selling them sooner) than a contractor with a higher Turnover
 Rate.



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                            by a variety of uncontrollable variables and situations,
                            many of which will be identified in this response.

                            GFR’s internal controls focus intensely on timeframe
                            performance. GFR provided the OIG with multiple
                            examples of its Weekly Matrix Report, which is
                            distributed to management throughout the company.
                            This report identifies trends that show, for example,
                            the timeliness of initial inspections and appraisals. In
                            addition, individual department managers run daily
                            reports from within GFR’s REAM system to assure
                            that properties are moving through the disposition
                            process as quickly as possible. As shown below, the
                            existence of delays is primarily a result of external
                            factors. GFR’s internal controls identify these delays
                            and enable GFR’s staff to take appropriate remedial
                            action to redress delays as they are encountered.

                            TIMELY RECEIPT OF APPRAISALS


                            The finding that "GFR did not always appraise
                            properties timely" is equally troublesome in light of
                            the contributing causes, which may delay the
                            anticipated delivery of appraisals. As with initial
                            inspections, there are a multitude of factors that may
                            surface, including the following, which lead to
                            unfavorable timing in this category.

 External factors, beyond   The OIG Report contends that appraisals should be
 GFR’s control, can cause   completed within ten business days “after HUD
     appraisal delays       obtains title to the property.” This approach,
                            however, ignores the realities of property conveyance
                            under the M&M program. GFR usually has no means
                            of knowing when a property will come into its
                            inventory other than the receipt of the electronic
                            conveyance. Accordingly, until GFR receives the
                            conveyance and enters it into the system, it cannot
                            order its appraisal. It should also be noted that the
                            Contract itself does not call for appraisals to be
                            completed within ten days of HUD’s acquisition of
                            the property. To the contrary, the Contract requires
                            that appraisals be obtained within ten business days of




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                                          “assignment” of the property (M&M Contract,
                                          Section C-2, IV)8.

                                              •    Much like the circumstances hampering the
                                                   timely inspection of properties, appraisers are
                                                   also challenged by incorrect or incomplete
                                                   addresses. GFR attempts to issue appraisal
                                                   instructions only after the correct information
                                                   is obtained. Unless the property can be
                                                   properly identified, appraisals cannot be
                                                   completed in 10 days.

                                              •    As discussed in the context of initial
                                                   inspections, gaining access to condos in gated
                                                   communities also creates delays. Unless access
                                                   can be legally obtained, appraisals cannot be
                                                   completed in 10 days.

                                              •    Questionable title to properties deems
                                                   premature appraisal attempts ill advised.
                                                   Unless ownership can be confirmed,
                                                   appraisals cannot be completed in 10 days.

                                              •    If a site is discovered zoned commercial, a
                                                   whole new set of instructions, licenses, criteria,
                                                   and forms are required. Due to the specialty
                                                   nature of this change and the appraisal itself, it
                                                   takes more than the customary 10 days. The
                                                   added factor of an atypical zoning prevents
                     .                             appraisals from being completed in 10 days.

                                              •    If adverse inhabitants occupy a property, the
                                                   appraiser is unable to enter. Appraisers have
                                                   been denied access to properties by unexpected
                                                   residents varying from dangerous animals to
                                                   gang members. In these cases, legal action is
                                                   often required which necessarily delays the
                                                   appraisal. The presence of adverse occupants
                                                   prevents appraisals from being completed in
                                                   10 days.

                                              •     Health issues also surface causing delays in
                                                   the completion of appraisals.
 8
  It should be noted that there is an internal contradiction within the M&M Contract that makes the
 commencement date for the appraisal timeframe unclear. See M&M Contract, Section C-2, V, Para. 9.
 Since it would be impossible to achieve contract compliance with the ten-day period commencing with
 HUD acquisition, GFR bases its timeframe calculation on the assignment date as provided by the Contract.


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                                      Methamphetamine labs, excessive blood, or
                                     drug paraphernalia, for example, require
                                     specialized removal and delay property
                                     inspection by the appraiser. The presence of
                                     unexpected materials prevents appraisals
                                     from being completed in 10 days.

                                •    In areas of rampant vandalism, locks may be
                                     tampered with denying the appraiser access
                                     between the time of the initial inspection and
                                     the next day when he arrives. Unexpected
                                     denial of access prevents appraisals from
                                     being completed in 10 days.

                                •    Deceptive tampering with addresses and/or unit
                                     numbers also interferes with the appraiser’s
                                     ability to obtain access to the correct unit. In
                                     cases of altered street or unit numbers,
                                     appraisals cannot be completed in 10 days.

                                •    There are also miscellaneous circumstances
                                     such as missing stairways, encroachments
                                     requiring surveys, or properties appearing to
                                     have two houses on one lot or two lots with one
                                     house in the middle. In these cases, further
                                     research is required to assure that the appraiser
                                     is analyzing the correct property and is able to
                                     inspect the entire building. In cases requiring
                                     additional research, appraisals cannot be
                                     completed in 10 days.

                              TIMELY   APPROVAL               OF      DISPOSITION
                              PROGRAMS


                              The OIG Report contends that GFR “did not always
                              approve property disposition programs timely”. This
                              finding fails to consider the environment in which the
                              sales disposition program operates and the external
                              variables that interfere with the smooth transition
                              from appraisal to listing.


     Certain provisions of    The OIG Report, relying by reference on the HUD
        HUD’s Property        Property Disposition Handbook 4310.5, Rev 2, is
     Disposition Handbook     critical of GFR’s property disposition program in
     are not feasible under   those cases where a disposition has not been approved
      the M&M Program.

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                             within three days of receipt of appraisal. This
                             criticism, however, is based on requirements that
                             significantly predate the existence of the M&M
                             program and once again ignores the presence of
                             external factors.

                             The most recent draft of the Property Disposition
                             Handbook is dated May 1994 and was written at a
                             time when all HUD property disposition functions
                             were handled in-house. A number of the guidelines in
                             the Disposition Handbook are simply no longer
                             feasible or workable under the M&M program. For
                             example, the Property Disposition Handbook does not
                             even allow for, or provide guidelines for, an
                             electronic bidding system, which, under the M&M
                             Contract, is the sole means of property disposition.
                             With regard to three-day approvals of all dispositions,
                             the Handbook directive was not drafted in light of the
                             current system of electronic bidding.

                             To highlight the dated and inapposite approach of the
                             Handbook, one need only review Section IV,
                             paragraph 6-17 which governs disposition program
                             processing (this is the same provision which contains
                             the “three day” time frame which is the premise of
                             this finding in the OIG Report). This Handbook
                             section defines the “approval process” as the
                             completion of the SAMS ACMC3 screen. The
                             Handbook erroneously states, however, that the
                             “recording of approval of the Disposition Program
                             moves the case to Step 3.” In fact, under the current
                             processing system, the approval of the disposition
                             program moves the case to Step 5. In addition, recent
                             changes in the SAMS program automatically converts
                             properties to a Step 6 on the listing date (instead of on
                             the approval date).

Blind adherence to the HUD   While the Handbook is a helpful reference, blind
  Handbook by an M&M         adherence to its procedures by an M&M Contractor
  Contractor could create    could create serious problems. For example, to
     serious problems        sporadically approve disposition programs that cannot
                             be moved to a Step 6 risks listing properties that may
                             otherwise be cancelled for any of the following
                             reasons. Title issues discovered at the last minute.
                             Quality Control of physical condition of property
                             discovers an unsafe condition.
                                    • Discovery of adverse occupants


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                                    • Removal of the property from the market to
                                      accommodate the OIG Safe Home Program
                                    • Dramatic change in condition due to
                                      extraordinary vandalism requiring
                                      reevaluation of the price or status
                                    • Fire
                                    • Demolition due to outstanding code
                                      violations pre-dating GFR
                                    • Notification from mortgagees that the
                                      conveyance was improperly done and must
                                      be re-conveyed

                             Remedying these items would be made far more
                             complicated if GFR were approving dispositions
                             before the property was actually ready to list.
                             Additionally, since timelines are the focus of this and
                             many other monitoring efforts, early approval of
                             dispositions would stretch the time in Step 6 (Step 5
                             for approved non-profit sales) causing more
                             exceptions on the SAMS “Cases Exceeding Time in
                             Current Step Report”. Early disposition approvals
                             could also cause early re-analyzation of listings and a
                             premature reduction in price, which ultimately can
                             reduce the return to the FHA fund.

                             Unfortunately, the OIG Report does not provide
                             specific examples of these delays. Many of these
                             cases reviewed were properties received from the
                             prior contractor in the transition and listed during the
                             start-up phase of the contract. GFR officials discussed
                             these examples with the auditor and, in each case, the
                             vagaries of the transition (e.g., receiving more than
                             5,000 files in one day) were responsible for short
                             delays.

                             CONCLUSION


                             During GFR’s first year in the Midwest,
     GFR’s success in        approximately 7,500 appraisals were ordered, the
  reducing inventory by      majority of which were delivered within the allotted
  40% is indicative of its   time. Over 10,000 new acquisitions were processed
 overall conformity to the   and inspected, most without incident or delay.
   intended timeframes.      Approximately 15,000 properties have been listed for
                             sale, having completed the appropriate preparations


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 Appendix B


                    and data entry.       Inventory reduction has been
                    unprecedented, dropping a swollen inventory of
                    nearly 5,800 homes to a more manageable level under
                    3,500 in less than one year.

                    These statistics fully supports GFR's claim of success
                    and overall conformity to the intended timeframes. If
                    GFR had failed to comply with the timeframes in any
                    material way, the results would surely have
                    manifested themselves in numbers contrary to those
                    herein presented. GFR is committed to meeting
                    contractual timeframes wherever possible and strives
                    to dispose of the HUD inventory in a rapid, but
                    controlled manner.




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                                                                             Appendix C

 Distribution
 Vice President and General Counsel, Golden Feather Realty Services, Incorporated
 Secretary's Representative, Midwest (2)
 Secretary’s Representative, Southeast/Caribbean (2)
 Senior Community Builder/State Coordinator, Kentucky State Office
 Senior Community Builder/State Coordinator, Tennessee State Office
 Senior Community Builder/Area Coordinator, Knoxville Area Office
 Senior Community Builder/Area Coordinator, Memphis Area Office
 Senior Community Builder/State Coordinator, Indiana State Office
 Assistant Deputy Secretary for Field Policy and Management, SDF (Room 7108) (2)
 Deputy Chief Financial Officer for Finance, FF (Room 2202)
 Director , Office of Budget, FO (Room 3270)
 Acquisitions Librarian, Library, AS (Room 8141)
 Audit Liaison Officer, 3AFI (2)
 Audit Liaison Officer, HF (Room 6232) (2)
 Departmental Audit Liaison Officer, FM (Room 2206) (2)
 Acting General Deputy Assistant Secretary for Housing – Assistant Federal Housing
 Commissioner, H (Room 9100) (2)
 Deputy Assistant Secretary for Single Family Housing, HS (Room 9282)
 Special Assistant (Single Family Audits), HS (Room 9282)
 Deputy Secretary, SD (Room 10100)
 Acting Chief of Staff, S (Room 10000)
 Special Assistant to the Deputy Secretary for Project Management, SD (Room 10100)
 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, W (Room 10132)
 Director of Scheduling and Advance, AL (Room 10158)
 Counselor to the Secretary, S (Room 10218)
 Deputy Chief of Staff, S (Room 10226)
 Deputy Chief of Staff for Operations, S (Room 10226)
 Deputy Chief of Staff for Programs, S (Room 10226)
 Acting 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 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)
 Assistant Secretary for Community Planning and Development, D (Room 7100)
 Executive VP, 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 Office, Q, (Room 8206)
 Director of Departmental Operations and Coordination, I (Room 2124)
 Chief Financial Officer, F (Room 2202)


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 Appendix C


 Acting Director of Departmental Enforcement Center, V (200 Portals Building)
 Director of Real Estate Assessment Center, X (1280 Maryland Avenue, SW,
     Suite 800)
 Director of Multifamily Assistance Restructuring, Y (4000 Portals Building)
 Deputy Staff Director, Counsel, Subcommittee of Criminal Justice, Drug Policy & Human
     Resources, B 373 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
 The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs,
     706 Hart Senate Office Building, United States Senate, Washington DC 20510
 Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn
     Building, United States House of Representatives, Washington DC 20515
 Henry A. Waxman, Ranking Member, Committee on Government Reform, 2204 Rayburn
     Building, United States House of Representatives, Washington DC 20515
 Ms. Cindy Foglemen, Subcommittee on Oversight and Investigations, Room 212, O'Neil
     House Office Building, Washington DC 20515
 Director, Housing and Community Development Issue Area, United States General
     Accounting Office, 441 G Street N.W., Room 2474, Washington DC 20548 (Attention:
     Judy England-Joseph)
 Department of Veterans Affairs, Office of Inspector General (52A), 810 Vermont
     Avenue, NW, Washington, DC, 20410
 Steve Redburn, Chief, Housing Branch, Office of Management and Budget, 725 17th Street,
     N.W., Room 9226, New Executive Office Building, Washington DC 20503
 Director of the Atlanta Homeownership Center, 4AHH (2)
 Deputy Chief of Staff for Policy, S (10226)
 Assistant General Counsel, Midwest




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