oversight

Neighborhood Commons Cooperative, Multifamily Rental Housing, Audit of Project Operations, Chicago, Illinois

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-08-08.

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

                       AUDIT REPORT




        NEIGHBORHOOD COMMONS COOPERATIVE

                    AUDIT OF PROJECT OPERATIONS

                         CHICAGO, ILLINOIS

                            00-CH-212-1004

                            AUGUST 8, 2000


                        OFFICE OF AUDIT, MIDWEST
                            CHICAGO, ILLINOIS




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                                                                      Issue Date
                                                                              August 8, 2000

                                                                      Audit Case Number
                                                                             00-CH-212-1004




TO:             Edward J. Hinsberger, Director, Chicago Multifamily Hub


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

SUBJECT:        Neighborhood Commons Cooperative
                Multifamily Rental Housing
                Audit of Project Operations
                Chicago, Illinois

We completed an audit of the project operations at Neighborhood Commons Cooperative. The audit
was conducted in response to a request from the Chicago Multifamily Hub to assess HUD’s concerns
about: (1) management and operational problems at the complex, and (2) a change in management
agents. The objective of the audit was to determine whether project funds were used in compliance
with the Regulatory and other agreements, and applicable HUD policies and procedures.

We found that the former management agent failed to adequately collect monthly rent payments because
it did not take corrective actions in a timely manner to uniformly apply the HUD-approved rent
schedule, and did not maintain accurate books and records. We also found that the former Board
abused its authority and undermined the management agent by taking control of the Cooperative’s daily
operations. In addition, the Board ignored HUD directives and took various actions that benefited
some Board members, their relatives and friends.

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 Neighborhood Commons Cooperative, a HUD-insured multifamily property
in Chicago, Illinois. The audit resulted from a request by the Director, Multifamily Hub, in the Illinois
State Office. HUD performed a Management Review of the Cooperative in January 1999 that resulted
in a number of concerns, including excessive tenants accounts receivable and inadequate collection
efforts by the management agent; ineligible expenses charged to the project; actions by the former
Board of Directors that exceeded its authority; and the granting of rent-free units without HUD
approval. Our audit objective was to determine whether project funds were used in compliance with
the Regulatory and other agreements, and applicable HUD policies and procedures.

We found that the former management agent failed to adequately collect monthly rent payments because
it did not take corrective actions in a timely manner to uniformly apply the HUD-approved rent
schedule, and did not maintain accurate books and records. As a result, the Cooperative’s ability to
make its mortgage payments may have been impacted, and there is an increased risk that a claim may
be paid from HUD’s insurance fund.

We also found that the former Board abused its authority and undermined the management agent by
taking control of the Cooperative’s daily operations. In addition, the Board ignored HUD directives
and took various actions that benefited some Board members, their relatives and friends. The result
was that program requirements were not met, applicable regulations were not followed and project
resources may have been used for ineligible or inappropriate purposes. The Board also exercised
excessive control over the new member selection process by not selecting applicants from the waiting
list in sequential order. Consequently, the Board may have discriminated against citizens of the
surrounding community in violation of equal housing opportunity laws.



                                        Unpaid rents of current tenants living in the 168-unit
 The State Did
 Excessive     NotAccounts
           Tenant   Ensure              Cooperative exceeded $270,000 as of May 1999. The unpaid
 That Units Met
 Receivable     Its
            Balance                     balance would have been significantly higher if the Cooperative
 Standards After Housing                had not received excess subsidies from the Chicago Housing
                                        Authority. The former property management agent did not
                                        adequately collect monthly rent payments because it did not
                                        adhere to the HUD-approved rent schedule. The agent claimed
                                        that delinquencies were high because records of unpaid
                                        balances received from the previous management agent were
                                        confusing, and that subsidy payments from the Chicago Housing
                                        Authority were not received for a nine-month period.

                                        The former Board of Directors abused its authority and
 The Board of Directors                 mismanaged the Cooperative by undermining the management
 Abused Its Authority                   agent and taking control of the daily operations of the property.
                                        The former Board President hired a close personal associate to


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Executive Summary


                             serve as on-site manager, who took instructions from the Board
                             President rather than the management agent. In addition, the
                             on-site manager was provided with a rent-free unit, an action
                             that HUD did not approve and, therefore, violated the
                             Regulatory Agreement.

                             The former Board President, a Section 8 rent assistance
                             recipient, was hired by the management agent and paid from
                             non-project funds for a three-month period to reconcile the
                             tenant accounts receivable. We also determined that she was
                             employed at a temporary employment service, but that she
                             failed to report her income from both sources to HUD. As a
                             result, she received excess rent subsidies to which she was not
                             entitled.

                             The Cooperative failed to provide an equal opportunity to
 The Cooperative Failed to
                             housing when it filled vacant units with relatives and friends of
 Provide Equal Housing
                             preferred Cooperative members. An agreement between the
 Opportunity
                             Cooperative and the Leadership Council for Metropolitan
                             Open Communities required the Cooperative to offer vacant
                             units to displaced residents of the Cabrini Green housing
                             project, a neighboring public housing site that was slated for
                             demolition. Cabrini residents were to be selected on an
                             alternating basis with other applicants whose names were
                             placed on a waiting list. The Cooperative Board did not take
                             sufficient action to fulfill this commitment.

                             A lengthy waiting list that existed prior to formation of the
                             Cooperative in November 1996 was not used properly to
                             select new members for available units. When selections from
                             the list were made, they were done so on a non-sequential
                             basis. The former Board President controlled the member
                             selection process despite the formation of a Member Selection
                             Committee. The management agent was not informed in
                             advance of several tenant move-ins, and could not, therefore,
                             evaluate the selection criteria used for compliance with the
                             selection policy.

                             We recommend that the Director, Chicago Multifamily Hub,
 Recommendations
                             ensures that the new management agent collects all outstanding
                             rent payments, initiates reasonable payment plans, or evicts
                             tenants as appropriate; ensures that all Section 8 subsidies
                             received by the Cooperative are based on the correct rent

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                                                                Executive Summary


                    schedule; assesses the former management agent’s maintenance
                    of tenant records when conducting management reviews of
                    other projects managed by the agent; initiates proceedings to
                    debar the former Board President from participation in all
                    Federal programs; initiates proceedings to debar the former
                    Board President’s personal associate from participation in all
                    Federal programs; provides technical assistance to the current
                    Board stressing how much authority it has and the rules it must
                    adhere to while the Cooperative’s mortgage is insured by HUD;
                    performs a follow-up management review at the Cooperative to
                    ensure that adequate policies and procedures are being
                    followed; sanctions members of the current Board if they
                    interfere with the daily operations of the property and violate
                    applicable agreements; declares a technical default of the
                    Regulatory Agreement and initiates foreclosure proceedings if
                    such interference does occur; refers the issue concerning equal
                    housing opportunity to the Office of Fair Housing and Equal
                    Opportunity to determine whether any laws were violated;
                    ensures that the current management agent assumes control
                    over the tenant selection process; ensures that terms of the
                    Leadership Council agreement are adhered to; ensures that the
                    Cooperative makes a reasonable effort to determine whether
                    persons on the waiting list are still interested in units; and
                    ensures that control measures are implemented to prevent the
                    Board from circumventing the waiting list.

                    We presented our draft findings to the Board of the
                    Cooperative during the course of the audit. We held an exit
                    conference with the Board on July 3, 2000. The Board, former
                    management agent, and former Board President provided
                    comments to our draft findings, which are included in their
                    entirety as Appendices to this report. Excerpts of the comments
                    are included with each finding. Where appropriate, changes
                    were made to the draft findings to reflect additional information
                    or clarification resulting from the exit conference and auditee
                    comments.




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Table Of Contents

Management Memorandum                                                   i



Executive Summary                                                      iii



Introduction                                                            1



Findings

1    Excessive Tenant Accounts Receivable Balance                       3


2    The Board of Directors Abused Its Authority                       11


3    The Cooperative Failed to Provide Equal
      Opportunity in Housing                                           19



Management Controls                                                    26



Follow Up On Prior Audits                                              28



Appendices
     A Neighborhood Commons Response to Draft Findings                 29

     B Diversified Realty Response to Draft Findings                   33

     C Former Board President Response to Draft Findings               38

      D Distribution                                                   43



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Introduction
Neighborhood Commons Cooperative is a 168-unit apartment complex that was originally constructed
in 1974. The Cooperative was legally formed by the tenants in October 1996 following foreclosure by
HUD against the previous owners. HUD sold the property to the Cooperative for one dollar and
provided a grant and a HUD-insured mortgage under Section 221 (d) (4) of the National Housing Act
to finance rehabilitation of the units. At the time of the sale, many of the tenants were receiving project-
based Section 8 subsidies whereby HUD paid the subsidy directly to the property management
company. When the Cooperative was formed, however, HUD converted the Section 8 subsidy to a
tenant-based voucher administered by the Chicago Housing Authority. The property is designated in
HUD records as Project Number 071-35634, and is located at 1600 North Vine Street, Chicago,
Illinois.

Since inception of the Cooperative, HUD periodically monitored activities at the complex by performing
management reviews. In the course of the reviews, HUD identified various deficiencies that impacted
both the fiscal and operational management of the property. The review completed by HUD in January
1999 resulted in an overall rating of “Unsatisfactory”, primarily attributed to violations of the Regulatory
Agreement, Cooperative By-laws, Management Certification, Management Agreement and Occupancy
Agreements. Also cited were policies and procedures that were ineffective or lacking that resulted in
frequent adverse findings and a general failure to comply with HUD’s requirements. HUD expressed
particular concern about the former management agent’s inability to collect delinquent carrying charges
(rent payments) from 74 tenants, three of whom were members of the Cooperative’s Board of
Directors.

The findings cited above, aggravated by a growing tension between Board members and the former
management agent, prompted HUD to request an OIG audit in January 1999.



                                         Our audit objective was to determine whether Project funds
 Audit Objective                         were used in compliance with the Regulatory and other
                                         agreements, and applicable HUD policies and procedures.

                                         The audit covered the period November 1996 to April 1999.
 Audit Scope And                         We performed our on-site audit work between April 1999 and
 Methodology                             July 1999. We conducted the audit in accordance with
                                         generally accepted government auditing standards at the on-site
                                         management office of Neighborhood Commons Cooperative,
                                         and at the offices of the former and current management agents.

                                         To determine the status of tenant accounts receivable balances,
                                         we reviewed all tenant rent payments by examining copies of
                                         bank deposit slips and supporting checks or money orders for
                                         the period noted above. These were compared to individual

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                        Occupancy Agreements to ascertain whether tenants paid the
                        correct amount of rent in accordance with the HUD-approved
                        rent schedule. We obtained tenant accounts receivable
                        balances from HUD and the former and current management
                        agents to determine the correct amount of funds in arrears owed
                        by each Cooperative member. Since the amounts obtained
                        from each of these sources differed, we re-calculated the
                        delinquent amounts based on manual entries made on tenant
                        ledger cards maintained by the former management agent
                        compared to Occupancy Agreements and subsidy data
                        obtained from the Chicago Housing Authority. This re-
                        calculation, conducted as of May 30, 1999, was accomplished
                        by subtracting the total of payments made by the tenant,
                        Chicago Housing Authority and HUD from the total rents
                        collected by the Cooperative. This process resulted in an
                        outstanding receivable balance of $270,049.

                        To determine whether project funds were properly used, we
                        reviewed the small amount of records that were available from
                        the former management agent. However, as indicated later in
                        this report, due to poor recordkeeping, we were unable to rely
                        on the validity of that information. The remaining audit work
                        was conducted through interviews with Board members,
                        tenants, personnel employed by the former and current
                        management agents, the Cooperative’s legal counsel, and
                        Chicago Housing Authority and HUD personnel.

                        We provided a copy of this report to the current Board
                        President of the Cooperative.




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                                                                                                Finding 1


  Excessive Tenant Accounts Receivable Balance
As of May 1999, the unpaid rents of current tenants living in the 168-unit Cooperative exceeded
$270,000, and would have been significantly higher if the Cooperative had not received excess
subsidies from the Chicago Housing Authority. The former management agent failed to adequately
collect monthly rent payments because it did not take corrective actions in a timely manner to uniformly
apply the HUD-approved rent schedule, resolve voucher subsidy problems and maintain accurate
books and records. The failure to collect rents may seriously impact the Cooperative’s ability to make
its mortgage payments and maintain the property in a safe and sanitary condition. In addition, there is an
increased risk that a claim will be paid from HUD’s insurance fund.



                                        The Regulatory Agreement stipulates that:
 Regulations Mandated By
 FHA Program
                                        “The Mortgagor shall establish and collect monthly carrying
                                        charges pursuant to the conditions set forth [in the Regulatory
                                        Agreement]”.

                                        “Mortgagor shall not permit occupancy of its accommodations
                                        except in accordance with a schedule of charges approved by
                                        the Commissioner and such schedule shall not be changed
                                        except with the written approval of the Commissioner.”

                                        “The books and accounts of the Mortgagor shall be kept in
                                        accordance with the uniform system of accounting prescribed
                                        by the Commissioner.”

 Background on Rental                   At the start of the audit, HUD asked us to reconcile the tenant
 Assistance and Maintenance             accounts receivable balance. Due to poor record keeping by
 of Records                             the previous management agent, the Independent Public
                                        Accountant could not verify the receivable balance during the
                                        1997 and 1998 audits, resulting in a qualified opinion. Thus,
                                        HUD had little confidence in the records maintained by the
                                        management agent.

 Management Agent Failed                As of May 1999, the balance of delinquent rents owed by the
 To Collect Monthly Rent                current tenants to the Cooperative exceeded $270,000, which
 Payments                               would have been significantly higher if the Cooperative had not
                                        received excess subsidies from the Chicago Housing Authority.
                                        We verified the balance by identifying payments received from
                                        tenants and from the Chicago Housing Authority that were
                                        deposited into the project accounts. The management agent

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Finding 1


                          failed to collect monthly rent payments because it did not take
                          corrective actions in a timely manner to uniformly apply the
                          HUD-approved rent schedule, resolve voucher subsidy
                          problems and maintain accurate books and records. Due to the
                          Board’s substantial influence over management, we questioned
                          whether it exacerbated the problems since many members
                          financially benefited by not paying their full rental commitment or
                          by receiving excessive subsidies.

                          The owner of Diversified Realty Group, the Cooperative’s
                          former management agent, told us that it never had a handle on
                          the tenant accounts receivable balance primarily because they
                          had difficulty getting beginning balances from the prior
                          management agent, ARCO Management, and because it took
                          nine months to get subsidy payments from the Chicago Housing
                          Authority after HUD dropped the tenant-based subsidies.
                          According to several members of the Board, the Board
                          attempted to inform HUD and Diversified of the correct rents
                          but Diversified did not adhere to the rents.

                          The environment at the property was unstable and confusing.
                          During its tenure, Diversified went through a succession of five
                          on-site managers and as many as ten different people may have
                          worked on the manual rental payment ledger cards.
                          Additionally, the agent had difficulty obtaining information from
                          the Housing Authority and the tenants, and the Authority
                          refused to make subsidy payments for units being rehabilitated
                          because they failed to meet housing quality standards.

                          Diversified did not uniformly apply the HUD-approved rent
 HUD-Approved Rent
                          schedule. Consequently, the management agent did not always
 Schedule Not Uniformly
                          collect the correct amounts from the tenants or the Housing
 Applied
                          Authority that administered the Section 8 subsidy payments.
                          Diversified’s owner told us that there was much confusion at the
                          time the Cooperative was formed over the correct rent
                          schedule.

                          As a condition of participating in the program, HUD controls
                          the per-unit rent that the Cooperative can charge its members.
                          Since the Board is comprised of members of the Cooperative, it
                          would not be prudent for the Board to set rent levels that might
                          serve their self-interests and increase HUD’s risk. HUD
                          communicated the rent schedule in the initial closing documents

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                                                                                 Finding 1


                          and foreclosure prospectus, as well as in subsequent letters and
                          meetings. We were unable to determine why management did
                          not uniformly apply the correct rents from inception of the
                          Cooperative.

                          The tenant accounts receivable balance would have been
Wrong Rents Reported To
                          significantly higher if the Housing Authority had not paid excess
CHA Resulted In Over-
                          subsidies to the Cooperative. The Housing Authority paid
Subsidies
                          excess subsidies because of the previously cited confusion over
                          the correct rents. When          HUD learned about the over-
                          subsidies it notified the Authority to correct the problem the
                          next time the tenants were re-certified. Since HUD permitted
                          the continuance of the overpayments, we did not quantify the
                          total excess subsidies. The overpayments significantly reduced
                          many tenants’ past due balance, and, as of May 1999, the
                          Cooperative had collected over $28,000 in payments higher
                          than the tenants’ true obligations.

                          It appears that most of the vouchers are now based on the
                          correct rents. We provided the Authority with a list of
                          members receiving subsidies along with the current rent
                          schedule so it could be certain that the rents for all over-
                          subsidized tenants were calculated correctly during the tenants
                          last re-certification.

                          In April 1998, Diversified requested that HUD approve the
Write-Off Of Current
                          write-off of a large portion of the then $242,407 tenant
Tenants’ Delinquencies
                          accounts receivable balance. HUD responded to Diversified
                          that it could write-off back rents related only to non-payment
                          by the Housing Authority that were due to units failing to meet
                          housing quality standards. The management agent planned to
                          reduce the tenant accounts receivable balance by over
                          $200,000, accounting for the total receivable due from the
                          Housing Authority. Because the management agent did not
                          differentiate in its proposed write-off plan between
                          delinquencies attributed to violations of the standards and those
                          resulting from other reasons, HUD withheld approval for the
                          write-off until it could examine Diversified’s proposal in more
                          detail. Thus, the delinquencies remained outstanding.

                          The Board recently requested that HUD forgive the entire past
                          due balance. We believe that HUD should only approve the
                          write-off of delinquencies caused by the Housing Authority’s

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Finding 1


                          inability to inspect or pass units not in conformance with
                          Housing Quality Standards. HUD agreed, and on March 22,
                          2000, it authorized the reversal of tenant accounts receivable
                          totaling $94,513. The write-off represented payments that the
                          Housing Authority did not make because units were not ready
                          for inspection.

                          We provided the current management agent, Professional
 New Management Agent
                          Property Services, with a draft schedule showing our derivation
 Significantly Improved
                          of the outstanding tenant accounts receivable balances for
 Rental Collections
                          current tenants. Based on this information the agent sent notices
                          to tenants initiating collection procedures, significantly improving
                          the monthly collections and resulting in the eviction of two
                          tenants. Furthermore, for tenants with large past due amounts,
                          the new agent is in the process of categorizing them by the
                          circumstances that caused their delinquency. Only those
                          amounts meeting HUD’s approval will be written-off. The
                          agent should continue collecting past due amounts or completing
                          corrective actions for delinquencies not meeting HUD’s criteria.


                          Excerpts from the Cooperative’s comments on our draft finding
 The Cooperative’s
                          follow. Appendix A, Pages 29 to 32, contains the complete
 Comments                 text of the comments:

                          To the degree that we have knowledge, our research indicates
                          your assumptions and comments fairly and appropriately state
                          the facts. We agree that our new management agent has
                          significantly improved the rental collections at Neighborhood
                          Commons Cooperative, however, please note that their
                          directions were approved and supported by the Board of
                          Directors.



 OIG Evaluation of        The Cooperative agreed with Recommendations 1A and 1B.
 The Cooperative’s
 Comments




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                                                                              Finding 1


Diversified’s        Excerpts from Diversified Realty Group’s comments on our
                     draft finding follow. Appendix B, Pages 33 to 37, contains the
Comments
                     complete text of the comments:

                     Diversified Realty Group disagrees with the statement
                     referenced in Finding 1 that the management agent “failed to
                     adequately collect monthly rent payments...because it did not
                     take corrective actions in a timely manner...”. As early as
                     2/24/97, Diversified sent a letter to the Director of Multifamily
                     Housing at HUD advising that the Section 8 rent receivables
                     were $116,000 in arrears as of the date of the letter. At that
                     time, Diversified requested clarification on the rent schedule due
                     to the fact that the schedule received in November of 1996
                     (with the closing documents) listed a Rent Schedule based on
                     the old “236” program, which cited both Basic and Market
                     rents.     Unfortunately, when Neighborhood Commons
                     Cooperative became a cooperative in November of 1996, the
                     cooperative no longer fell within the 236 program and only
                     Market rents could be considered. It should also be noted that,
                     when Diversified made its request, Diversified stressed that the
                     review was urgent, advising that the viability of the project could
                     come into jeopardy without subsidies.

                     Diversified disagrees with the portion of the finding which states,
                     “As of May 1999, the balance of the delinquent rents...was
                     about $270,000.” A meeting was held between Diversified and
                     HUD on April 15, 1998. At that meeting Diversified presented
                     HUD with a list of write-offs for unpaid Chicago Housing
                     Authority monies in the amount of $200,088.59, which had
                     been on record for almost a year. HUD advised that it would
                     follow-up and respond in writing and on April 24, 1998, HUD
                     directed Diversified to write-off back rents which related to
                     non-payments by Chicago Housing Authority resultant of the
                     units failure to meet Housing Quality Standards. As of 4/15/98,
                     more than $200,000 remained outstanding and the Certification
                     process was still incomplete, thus Diversified had no way of
                     knowing that the arrears were related to anything other than
                     “failing to meet housing quality standards” and wrote them off
                     accordingly.




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Finding 1



                        HUD approved and communicated the rent schedule at the time
 OIG Evaluation of      the sale was closed. Regardless of whether the initial rent
 Diversified’s          schedule was based on the Section 236 program, it contained
 Comments               the official rental rates that should have been used by the
                        management agent until May 1, 1998, the effective date of the
                        HUD-approved rent increase. Our audit determined that when
                        Diversified ceased managing the property in May 1999, there
                        were still many tenants who were not paying the correct rent
                        amounts.

                        Diversified had a responsibility to ascertain the amount and
                        nature of each tenant’s delinquency before proceeding with the
                        write-off. We determined that many of the tenants’ rents were
                        in arrears for reasons other than the units failing to meet housing
                        quality standards. We disregarded Diversified’s proposed
                        write-off because less than 50 percent of the amount met
                        HUD’s criterion related to the standards.


 Former
 Auditee Board
         Comments       Excerpts from the former Board President’s comments on our
 President’s            draft finding follow. Appendix C, Pages 38 to 41, contains the
 Comments               complete text of the comments:

                        This writer makes note that the IG must be very careful that it
                        distinguishes the time frame in which activities took place. The
                        problems outlined in the audit began under a different
                        Cooperative President. It should also be noted that during the
                        period of time mentioned [the writer] was not even a member of
                        the Board of Directors. Certain mismanagement by Diversified
                        Realty Group occurred under a different regime.


 OIG Evaluation of      The draft finding contained no reference to any of the
 Former Board           Cooperative Presidents, past or present. While it is true that
 President’s            the problem of rent delinquencies initially began during the term
 Comments               of an earlier president, the audit disclosed that delinquencies
                        grew substantially during the period reviewed. In a letter dated
                        April 24, 1998, addressed to the then-president of the
                        Cooperative, HUD expressed concern about the “...high
                        amount of tenant accounts receivable due from members (in
                        excess of $13,000)...”. This is contrasted with the significantly


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                                                                              Finding 1


                     higher level of $270,000 cited in the draft finding that existed 13
                     months later when the audit began in May 1999.


Recommendations      We recommend that the Director, Multifamily Hub:

                     1.A.    Ensures that the management agent collects all
                             outstanding payments, initiates reasonable payment
                             plans, or evicts tenants as appropriate; and

                     1.B.    Ensures that all Section 8 subsidies received by the
                             Cooperative are based on the correct rent schedule.




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Finding 1




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                                                                                            Finding 2


    The Board of Directors Abused Its Authority
The Neighborhood Commons Board of Directors abused its authority and mismanaged the Cooperative
by undermining the management agent; taking control of the daily operations of the property; ignoring
directives from HUD; and taking actions which benefited members of the Board, their relatives and
friends. The Regulatory Agreement stipulates that the mortgagor shall provide for the management of
the project in a manner satisfactory to the Commissioner. The Board members acted in a questionable
manner by ignoring various directives communicated by HUD. Consequently, program requirements
were not met, applicable regulations were not followed, and project resources may have been used for
ineligible or inappropriate purposes.



                                      The Regulatory Agreement stipulates that:
 Controls And Regulations
 Mandated for HUD Insured
                                      “The mortgagor shall provide for the management of the project
 Properties
                                      in a manner satisfactory to the Commissioner.”

                                      “The mortgagor shall not without prior approval of the
                                      Commissioner, given in writing,

                                              •   permit the occupancy of any of the dwelling
                                                  accommodations … except at the charges fixed by
                                                  the schedule of charges;
                                              •   enter into any contract or contracts for supervisory
                                                  or managerial services.”

                                      The Project Owner’s & Management Agent’s Certification
                                      further stipulates that:

                                      “I, the Owner, agree to submit a new Management Certification
                                      to HUD before taking any of the following actions:
                                               • Changing the expiration date of the Management
                                                 Agreement;
                                               • Renewing the Management Certification;
                                               • Permitting a new Agent to operate the project; and
                                               • Undertaking self-management of the project.”

                                      Although many of the issues described in this finding were
 Background On Fiscal
                                      already identified by HUD, abuses by the former Board
 Management Of
                                      President, with the endorsement of the rest of the Board, were
 Cooperative
                                      the root cause of the Cooperative’s problems and need to be
                                      resolved before present conditions can be corrected. The

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Finding 2


                        Board of Directors was controlled by the former Board
                        President for most of the period under review. Since inception
                        of the Cooperative in November 1996, the development has
                        failed to establish an acceptable level of fiscal management.

                        There was a continual struggle between the Board and the
                        management agent over who controlled the daily operations of
                        the Cooperative.        Diversified Realty Group, the first
                        management agent hired by the Board, entered into a contract
                        to manage the property for two years. The Board initially
                        wanted to hire the Board President to be the on-site manager
                        but HUD did not approve that action. The Board then
                        requested that Diversified hire a gentleman as the on-site
                        manager with whom the Board President had a close personal
                        association. Diversified briefly employed the Board President’s
                        associate, but terminated him after a background check found
                        major discrepancies in his employment history and education
                        credentials. Additionally, the agent had problems with the on-
                        site manager because he was taking directions from the Board
                        President rather than the agent’s property managers.

                        Tension grew between the Board and Diversified over the
                        staffing of on-site personnel. We learned through interviews that
                        the Board intimidated the agent by threatening to terminate its
                        contract if the agent did not capitulate to the Board’s staffing
                        preferences. The Board carried through with its threat and sent
                        a notice of termination to Diversified on February 27, 1997.
                        The next day, the agent’s staff was locked out of the
                        management office. The Board’s primary justifications for the
                        termination were the discharge of the Board President’s
                        associate and the hiring of personnel by the agent without the
                        Board’s approval. The Board hired another agent to manage
                        the property, at which time the Board President’s associate was
                        temporarily rehired.

                        HUD has established procedures for approving and terminating
                        management agents. The property owner is required to give
                        HUD 30 days notice when it intends to terminate an agent. The
                        successor agent must submit to HUD, Form 2530, Previous
                        Participation Certification, which HUD must review and
                        approve before the property owner can hire the new agent.
                        The Cooperative did not follow these procedures. Thus, HUD
                        procedures were violated when the Board contracted for

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                        management services without asking the new agent to submit
                        the required form for HUD approval. HUD informed the
                        Cooperative that the Board needed to remove itself from the
                        daily management of the property. Diversified was rehired to
                        manage the property and it agreed to hire a new on-site
                        manager within two weeks.

                        The members elected a new president who presided for about a
                        year until the previous president was re-elected in May 1998.
                        Thereafter, the Board resumed undermining the management
                        agent. The Board notified HUD that all correspondence was to
                        be sent directly to the Board President. HUD indicated,
                        however, that all routine correspondence would continue to be
                        sent to the agent. The owner of Diversified told us that the
                        Board withheld material information, thus reducing the agent’s
                        ability to effectively manage the property.

                        The Management Agreement between the owners and the
Board Took Control Of
                        management agent expired on September 30, 1998. A
Daily Management
                        modified Management Agreement created by Diversified Realty
                        Group with input from the Board President granted authority to
                        the Board to hire on-site supervisory personnel. This agreement
                        was not required to be approved by HUD. The agent agreed to
                        the arrangement to keep from losing the contract with the
                        Cooperative. The Board President then rehired her associate
                        to manage the property and hired another personal friend to
                        supervise the maintenance staff. When the Board President’s
                        associate returned as on-site manager, Diversified lost control
                        over the daily operations of the property because the manager
                        took direction from the Board President rather than from
                        Diversified. The Board President’s associates were offered
                        compensation and benefits significantly higher than previous
                        supervisors, including rent free apartment units. Although the
                        Board approved the hiring of the personnel, they were
                        technically employees of the management agent.

                        Both the Regulatory Agreement and Management Agent
                        Certification require the property owners to provide a level of
                        management acceptable to HUD. At no time was the Board
                        approved by HUD to manage the property even when
                        Diversified began to lose control. Furthermore, the Board
                        violated the Regulatory Agreement when it approved two rent-
                        free units without HUD approval.

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                            The Board President financially benefited when Diversified’s
 Board President Received   owner agreed to pay her $450 a month from non-project funds.
 Questionable Payments      The payments began the same month the modified Management
 From Agent And Failed To   Agreement became effective and ended three months later,
 Report Income              several days before HUD began its management review of the
                            Cooperative. The Board President received a total of $1,350
                            from the agent. Diversified told us the payments were made to
                            her for reconciling the tenant accounts receivable balance, but
                            were stopped when Diversified realized that she had not
                            accomplished the task.

                            The payments, equaling approximately 10 percent of the
                            October 1998 management fee, were suspect because they
                            were paid from the agent’s funds rather than from project funds.
                            The payments appeared to be a fee splitting arrangement.

                            The Board President, whose rent was almost fully subsidized
                            under Section 8, failed to report to the Chicago Housing
                            Authority the income she earned both from Diversified and from
                            her current employer, Kelly Services, where she has been
                            employed since May 1999. At the time of our audit, over 11
                            months of income was unreported. As a result, the Board
                            President received excess rent subsidies to which she was not
                            entitled.

                            HUD performed a management review on January 14, 1999, to
 HUD Identified Various     assess the extent of the project’s problems. The property was
 Management Deficiencies    rated “Unsatisfactory” because it violated the Regulatory
                            Agreement, Cooperative By-laws, Management Certification,
                            Management Agreement and Occupancy Agreements, and had
                            ineffective or non-existent policies and procedures.

                            Deficiencies identified by HUD during its management review
                            included:

                            •   Project funds were used to pay the former Board
                                President’s personal telephone bills;
                            •   Project funds were used to send several Board Members
                                and some of their family members to a conference at the
                                Disney Coronado Springs resort;
                            •   Several Board members had delinquent carrying charges;
                            •   Management was ineffective in attempting to collect
                                delinquent rents;

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                     •   The rent collection policy was not uniformly applied --
                         some tenants were charged late fees while others were not;
                     •   The Board, rather than the management agent, controlled
                         the process of selecting tenants for new units and issuing
                         Section 8 vouchers;
                     •   Considerably higher rents were reported to the Chicago
                         Housing Authority resulting in the Cooperative receiving
                         excess subsidies;
                     •   The Board approved non-revenue producing units without
                         prior HUD approval; and
                     •   Employees were hired by the Board at significantly higher
                         compensation levels compared to other properties in the
                         area.

                     The Board of Directors currently has new directors and a new
New Agent Has Made   president. The new management agent, Professional Property
Improvements         Services, began managing the property on May 1, 1999, and
                     has made substantial strides in correcting the fiscal management
                     of the Cooperative. The new agent informed us that it has
                     taken a tough stance to keep the Board from overstepping its
                     authority, and as a result, the Board threatened to terminate the
                     agent’s contract on several occasions. The Board cannot
                     terminate the agent’s contract.        HUD will only initiate
                     termination procedures for just cause.


                     Excerpts from the Cooperative’s comments on our draft finding
The Cooperative’s
                     follow. Appendix A, Pages 29 to 32, contains the complete
Comments             text of the comments:

                     To our knowledge, we believe some of your assumptions and
                     comments are fair and appropriately state the facts with the
                     following comments: (1) the Cooperative has a new President
                     and new officers; (2) the person discussed in your findings no
                     longer holds a position of authority; (3) the plan under the new
                     Board and Management is to continue our efforts to establish
                     more than an acceptable level of fiscal management; and (4) our
                     legal counsel was not aware nor did he participate in any way in
                     the creation of a management agreement between Diversified
                     and Neighborhood Commons Cooperative.

                     We recommend there be clarification on the Cooperative
                     Housing trip that was taken to Florida. Other Board Members

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                        from other cooperatives attend educational conferences such as
                        this.

                        We ask that your report be more specific in describing board
                        positions as they relate to your report. There is currently a new
                        Cooperative President and there is also one other ex-President.
                        The By-laws identify this position as the Cooperative President.
                        There is no position known as “Board President”.


                        The draft finding was modified to remove the reference to the
 OIG Evaluation of
                        Cooperative’s attorney, and to indicate that some, but not all, of
 The Cooperative’s      the Board members or their families attended the Florida
 Comments               conference.

                        The terms “Cooperative President” and “Board President” are
                        used interchangeably by HUD. We elected to use “Board
                        President” in a conventional sense to identify the person having
                        executive authority over the Board of Directors.



                        Excerpts from Diversified’s comments on our draft finding
 Diversified’s
                        follow. Appendix B, Pages 33 to 37, contains the full text of
 Comments               the comments, except for exhibits that were omitted due to
                        space considerations:

                        Because Diversified realized that the ultimate responsibility for
                        reconciling the books and records would fall within their
                        purview, Diversified made the decision to absorb the cost of
                        resolving the books. Because [the former Board President] had
                        a good working relationship with Chicago Housing Authority,
                        Diversified contracted [the former Board President] on a
                        temporary basis for the exclusive task of reconciling the tenant
                        receivables. Once it became apparent (three months later) that
                        [the former Board President] could not accomplish this goal, the
                        project was terminated. Diversified hired an independent
                        contractor whom it believed possessed the requisite skill to
                        assist with its endeavors [to] reconcile the accounts and collect
                        rents. She was ineffective and Diversified terminated her
                        services. Nothing more, nothing less.




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                     Prior to hiring the former Board President to perform the
OIG Evaluation of
                     reconciliation task, Diversified was aware that a conflict of
Diversified’s        interest existed. The president served as a paid consultant to
Comments             the project before the sale transaction, then resigned her
                     position to apply for the on-site manager position. At the time,
                     HUD indicated it would not permit her to serve in that capacity
                     as a conflict of interest would be created. In view of the
                     substantial increase in tenant receivables during this Board
                     President’s tenure, as discussed in Finding 1, Diversified, having
                     been made aware of HUD’s concern about the potential
                     conflict, should not have engaged her for the reconciliation task.



Former Board         This writer suggests that [the debarment] action is not necessary
                     because the previous President is no longer President, the ex-
President’s
                     manager is no longer manager, and a new management agent is
Comments
                     in place. Further, no Federal laws relating to the operation of
                     the property were violated.



OIG Evaluation of    In assessing the conditions of the Cooperative during the tenure
                     of the former Board President, we concluded that her actions
Former Board
                     caused the problems cited in this report to worsen. HUD
President’s
                     indicated to us that in performing many management functions,
Comments             she acted against the Regulatory Agreement requirement that
                     the property owner provide management acceptable to HUD.
                     The former Board President was never approved by HUD to
                     manage the property. In addition, her failure to report the
                     sources and amounts of outside income constituted a false
                     certification for purposes of receiving rent subsidies.




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 Recommendations        We recommend that the Director, Multifamily Hub:

                        2.A.     Initiates proceedings to debar the former Board
                                 President from all Federal programs;

                        2.B.     Initiates proceedings to debar the former Board
                                 President’s associate from all Federal programs;

                        2.C.     Provides technical assistance to the Board stressing
                                 how much authority it has and the rules it must adhere
                                 to while the Cooperative’s mortgage is insured by
                                 HUD;

                        2.D.     Performs management reviews of other HUD-insured
                                 properties managed by Diversified to ensure they have
                                 a reliable level of management;

                        2.E.     Performs a follow-up management review at the
                                 Cooperative to ensure that adequate policies and
                                 procedures have been implemented and are being
                                 followed;

                        2.F.     Sanctions members of the current Board if they interfere
                                 in the daily operations of the property and violate
                                 applicable agreements; and

                        2.G.     If sanctioning the Board members is ineffective,
                                 declares a technical default of the Regulatory
                                 Agreement and initiates foreclosure procedures.




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        The Cooperative Failed to Provide Equal
               Opportunity in Housing
Management failed to provide an equal opportunity to housing at the Cooperative when it filled vacant
units with relatives and friends of preferred Cooperative members. The Regulatory Agreement requires
full compliance with HUD rules regarding nondiscrimination and equal opportunity in housing. The
Cooperative Board exercised excessive control over the new member selection process to benefit a
limited number of members. Additionally, Section 8 vouchers intended for members already residing at
the Cooperative instead were improperly awarded to family members of Cooperative tenants.
Consequently, the Board discriminated against citizens of the surrounding community when providing
housing, and against other Cooperative members when providing subsidies.



                                      The Regulatory Agreement stipulates that :
 Regulations Mandated By
 FHA Program
                                      “The Mortgagor agrees to adhere to the priorities and
                                      preferences for membership and occupancy by families
                                      displaced from an urban renewal area or as a result of
                                      governmental action…”; and, “Mortgagor agrees that there shall
                                      be full compliance with the provisions of (1) any laws
                                      prohibiting discrimination in housing on the basis of race, color,
                                      creed, or national origin, and (2) with the Regulations of the
                                      Federal Housing Administration providing for nondiscrimination
                                      and equal opportunity in housing.”

                                      Some of the regulations pertaining to the Federal Housing
                                      Administration program are communicated in HUD’s
                                      Handbook 4350.3 CHG-27. One of the requirements is that
                                      management create and properly maintain a waiting list of
                                      potential occupants.

 The Gautreaux Agreement              As a condition of selling the foreclosed property to the
                                      Cooperative, HUD inserted a rider in the Sales Contract which
                                      required the Cooperative to execute an agreement with the
                                      Leadership Council for Metropolitan Open Communities in
                                      order to implement the Gautreaux decree. This decree gives
                                      federal preference, as stipulated in the Regulatory Agreement,
                                      to residents of Cabrini Green Apartments, a Chicago public
                                      housing site, because its residents are in the process of being
                                      displaced by a government action to demolish Cabrini Green
                                      and other public housing sites.

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                            The Cooperative executed a Memorandum of Understanding
                            with the Leadership Council on October 28, 1996, in which the
                            Board agreed to alternately fill vacancies with Cabrini Green
                            residents as units became available until 20 displaced residents
                            were housed. The Cooperative is an ideal location for Cabrini
                            Green residents because it is located several blocks away from
                            the public housing site.

                            The Board did not take sufficient action to fulfill this
                            commitment. At the time of our audit, 25 vacant units had been
                            filled but not one displaced Cabrini Green resident was given an
                            opportunity to live at the Cooperative.

 Waiting List Not Used to   When the Cooperative was formed in November 1996, there
 Fill Vacancies             was a pre-existing waiting list containing 469 names. We
                            determined that this waiting list was not used properly when
                            vacant units were filled. At the time of our review, management
                            had filled 25 units with members’ children or with people
                            personally approved by the Board President. Half of the new
                            tenants’ names were on the pre-existing list, however, most of
                            them were lower on the list and had hundreds of names ahead
                            of them. We discovered that the on-site management office had
                            a second shorter list, titled Internal Transfer List, with 21 of the
                            25 new tenants on it. The short list, however, appeared to have
                            been created sometime after the pre-existing list. We regard
                            the second internal waiting list as a conflict of interest and not in
                            compliance with the intent of HUD Handbook 4350.3 because
                            occupancy was offered preferentially to related parties rather
                            than to persons on the pre-existing waiting list.

                            HUD and the Cooperative’s management received complaints
                            from people who wanted an opportunity to move into the
                            project. As one example, an individual complained that she first
                            requested to be put on the waiting list in 1991. She repeatedly
                            called the management office and was told that her name was
                            still on the waiting list, but in 1994 she was told that her
                            application was lost, and she was instructed to fill out another
                            one. Subsequently, she was told that the waiting list, and her
                            new application, were again lost. We confirmed that the
                            person’s name was on the pre-existing waiting list. However,
                            six people lower on the list, and 12 others who were not on the
                            list, obtained housing at the Cooperative before this individual
                            who had been waiting for seven years. Professional Property

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                         Services, the current management agent, is now using the
                         original pre-existing waiting list at HUD’s request.

                         In January 1997, HUD became concerned about potential
HUD Directives Ignored
                         charges of housing discrimination. To avoid possible conflicts
                         of interest, HUD strongly recommended that the Cooperative
                         either create a membership committee or delegate the
                         responsibility to the management agent. The Board chose to
                         form a member selection committee.

                         Initially, some members wanted to be transferred into larger
                         units because of their family size. HUD agreed that if a family
                         size qualified for a larger unit, it could be moved if such a unit
                         was available.        The Board stated in an April 1998
                         correspondence to HUD that it would accommodate move-ins
                         of all current members in need of transfer, and so-called “split
                         member families” before it would accommodate all others. Split
                         families are households with teenagers or young adults who
                         wish to live in two separate units. HUD disapproved of giving a
                         family two separate units and told the Board that the same
                         requirements that apply to any other prospective member also
                         apply to “split” families. HUD reiterated that vacancies should
                         be alternately filled by Cabrini Green tenants and people from
                         the regular waiting list.

                         The Cooperative’s attorney recommended in May 1998 that
                         management draft membership selection standards, policies and
                         procedures for HUD’s review. Policies and procedures were
                         drafted by the Board. According to a key provision of the
                         Member Selection Policy, first priority was to be given to
                         current residents of the Cooperative in good standing. The
                         Board’s actions indicated that it used this provision to justify
                         ignoring normal waiting list requirements when providing housing
                         to “split” family members. HUD informed us that it received a
                         draft copy of the Member Selection Policy, but did not formally
                         approve the policy.        We found no evidence that the
                         Cooperative implemented the policy.

                         The Board ignored HUD’s directives. Twenty of the 25 new
                         move-ins were children of current members or “split” families.
                         A former Board member told us that some of the 25 new
                         occupants were not even living on the property. In order to


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                              justify getting a new unit, children temporarily moved back in
                              with their parents to claim “split” family status.

                              Although a Member Selection Committee was established, the
 Board President Controlled   Board President prevented the committee from functioning in its
 Member Selection Process     full capacity. The former chairman of the selection committee
                              told us that the Board President withheld the waiting list from
                              the committee and the number of units that were available. The
                              former chairman also claimed that the Board President
                              threatened to dismiss committee members if they disagreed with
                              her decisions and instructed the committee not to make units
                              available to Cabrini Green residents because there were not
                              enough apartments for them.

                              The Board President by-passed the tenant selection process by
                              granting subsidized housing to her personal associates. Although
                              the selection committee was supposed to interview all of the
                              prospective tenants, it did not learn about some move-ins until
                              after the Board President allowed new tenants to move in. In
                              addition, three vacant units were provided to associates of the
                              Board President who were hired to work on-site (as discussed
                              in Finding 2), two of whom were provided rent-free units.

                              Diversified’s control over move-in activities was weak. It did
                              not get involved with the member selection process until after
                              some move-ins occurred, at which time it would process the
                              applicants’ paperwork. Diversified had a responsibility to
                              ensure that tenant selection policies and procedures were
                              established and adhered to by the on-site manager. When the
                              agent learned that people were moving into the property, it had
                              a duty to determine how the members were selected, evaluate
                              the selection criteria used by the Board, and report abuses to
                              HUD in a timely manner.

                              As part of the HUD agreement to sell the property to the
 Vouchers Issued To           Cooperative, and in order to facilitate the change from a
 Tenants’ Children            project-based subsidy to a tenant-based subsidy, HUD set
                              aside 112 Section 8 vouchers for Cooperative members.
                              These vouchers were intended for members who were
                              previously subsidized or who would have a hardship paying the
                              market rates set by HUD. Thirteen Section 8 vouchers were
                              provided by the Chicago Housing Authority to members’
                              children before existing members had an opportunity to use

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                     them. The members’ children were not previously receiving
                     subsidies and were living either with their parents or off-site.
                     The children were not members of the Cooperative at the time
                     of the sale and were not the intended recipients of the rental
                     assistance set aside by HUD. Issuing vouchers to members’
                     children was a conflict of interest and may have denied rental
                     assistance to other members who needed it.

                     The Board has requested 30 additional vouchers for eligible
                     tenants needing assistance but who failed to get vouchers for
                     whatever reason. Unfortunately, all of the vouchers have been
                     issued, according to HUD. Remaining members who qualify for
                     assistance will have to go through the same process as every
                     other family in Chicago seeking vouchers.


                     Excerpts from the Cooperative’s comments on our draft finding
The Cooperative’s
                     follow. Appendix A, Pages 29 to 32, contains the full text of
Comments             the comments.

                     We find it necessary to deny that any of the conduct described
                     in this finding, in any way, constitutes a violation of the Fair
                     Housing Laws of either the United States, State of Illinois or
                     City of Chicago. In addition, we advise you that our current
                     management agent informed the Board that: (a) they had a
                     difficult time locating the appropriate people to contact now that
                     Gautreaux no longer exists; (b) the contacts they have been
                     working with have now been able to produce two recent
                     Cabrini Green applicants in all the time it has been working with
                     the Cooperative; (c) this Board intends to honor and implement
                     the Leadership Council Memorandum of Agreement, which
                     was entered at the time of the Cooperative’s taking title to the
                     property.


                     The practice of allocating scarce Federally funded resources to
OIG Evaluation of
                     family members or other related parties is not in keeping with
The Cooperative’s    the spirit of Fair Housing and Equal Opportunity laws. The
Comments             clear intent of those laws is to promote and protect the right of
                     equal housing opportunity against discriminatory practices.
                     Selecting applicants from a waiting list in non-sequential order,
                     maintaining a second waiting list separate from the main list, and
                     offering available units to related parties on a preferential basis,
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                        may     be    construed      as discriminatory practices.
                        Recommendation 3A below, if implemented, will determine
                        whether such practices existed.

                        With respect to the Cooperative’s statement that the Gautreaux
                        Decree no longer exists, HUD’s Office of Assistant General
                        Counsel advised OIG that legal proceedings giving rise to the
                        decree in the case of Gautreaux v. Landrieu have not been fully
                        settled.     However, the Cooperative entered into a
                        Memorandum of Understanding with the Leadership Council
                        for Metropolitan Open Communities on October 28, 1996.
                        This agreement obligated the Cooperative to provide housing
                        for 20 residents displaced from the Cabrini Green public
                        housing site on an alternating basis with other persons on the
                        Cooperative’s waiting list. The terms of the Memorandum of
                        Understanding exist independently of the Gautreaux Decree and
                        remain in force, according to HUD.


                        Excerpts from Diversified’s comments to our draft finding
 Diversified’s
                        follow. Appendix B, Pages 33 to 37, contain the full text of the
 Comments               comments.

                        The substantial number of move-ins (approximately 25), which
                        were afforded to friends and family members of [the former
                        Board President], occurred between November and December
                        of 1998. By the very nature of the job description and
                        responsibilities of an on-site manager, one has great latitude in
                        controlling the day to day activities of the property. In this
                        instance, the on-site manager moved these individuals into the
                        apartments and neither forwarded the corresponding
                        paperwork concerning the move-ins nor reported the move-ins
                        to the Property Supervisor. Thus, Diversified did not become
                        aware of the on-site manager’s practices regarding move-ins for
                        two months. Unfortunately, this practice is far too common in
                        the “rental world”. Once Diversified became apprised of the
                        situation, they responded.




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                     As the employer of the on-site manager, Diversified had a duty
OIG Evaluation of
                     to closely monitor the manager’s actions to ensure that
Diversified’s        established policies and procedures were followed. Diversified
Comments             assured HUD that constant supervisory oversight was being
                     provided at the property that should have detected the absent
                     paperwork before a two-month period elapsed.


                     The record and evidence will show that all current members
The Former Board
                     already residing at the Cooperative had the opportunity to be
President’s          certified to receive vouchers. Because there were vouchers
Comments             allocated to the Cooperative that had not been used even after
                     all current, eligible households had been served, the Chicago
                     Housing Authority allowed the distribution of the remaining
                     vouchers to adult members of households that had already
                     received vouchers. No rental assistance was “denied” existing
                     members who were eligible to receive it.



                     From interviews we conducted with tenants, we concluded that
OIG Evaluation of    some members were under the mistaken belief that they only
Former Board         had to pay a portion of their rent and the Cooperative would
President’s          take care of the balance. Due to poor communication by the
                     management agent, members who could not afford to pay
Comments
                     market rates were not informed that they needed vouchers to
                     meet their rent obligations.


                     We recommend that the Director, Multifamily Hub:
Recommendations
                     3A.      Refers this matter to the Office of Fair Housing and
                              Equal Opportunity to determine whether any laws were
                              violated and, if so, ensures that appropriate actions are
                              taken;

                      3B.     Ensures that the new management agent assumes
                              control of the tenant selection process from the Board;

                      3C.     Ensures that residents of Cabrini Green are provided
                              housing opportunities at the Cooperative consistent with
                              the intent of the Gautreaux Agreement;

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                        3D.     Ensures that the Cooperative makes a reasonable effort
                                to determine whether persons on the prior waiting list
                                are still interested in units;

                        3E.     Ensures that control measures are implemented to
                                prevent the Board from circumventing the waiting list.




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Management Controls
In planning and performing our audit, we considered the management controls of Neighborhood
Commons Cooperative and Diversified Realty Group in order to determine our auditing procedures, not
to provide assurance on the controls. Management controls include the plan of the organization,
methods and procedures adopted by management to ensure that its goals are met. Management
controls include the processes for planning, organizing, directing and controlling program operations.
They include the systems for measuring, reporting and monitoring program performance.


                                       We determined the following management controls were
 Relevant Management                   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.

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

                                       We assessed all of the relevant controls identified above.

                                       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.

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

                                       •   Program Operations

                                       The Cooperative’s and management agent’s controls did not
                                       ensure that the property operated according to program
                                       requirements. HUD found that management did not: adhere to
                                       the HUD-approved budget; attempt to obtain goods and
                                       services at competitive prices; submit monthly reports; ensure

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Management Controls


                        that funds were used for eligible expenses only; collect monthly
                        rents; obtain authorization for non-revenue producing units;
                        apply eviction and fee procedures in a consistent manner;
                        prevent the owners from overstepping their authority; have a
                        written tenant selection policy; fill 21 units in accordance with
                        waiting list procedures; and adhere to its agreement with the
                        Leadership Council to alternately fill 20 units with displaced
                        Cabrini Green residents. Due to the weak control environment,
                        numerous control weaknesses identified by HUD, and the
                        transition of management agents, we did not rely on any
                        controls relating to program operations when planning our
                        survey and audit work.

                        •   Validity and Reliability of Data

                        The Cooperative’s and management agent’s controls did not
                        ensure that rental receipt information was accurate. We noted
                        differences in rent data between the manual payment history
                        cards and the computerized rent ledgers because management
                        did not perform routine reconciliations of the records. Due to
                        the weak control environment, numerous control weaknesses
                        identified by HUD, and the fact that the Independent Public
                        Accountant issued two qualified opinions because of the tenant
                        accounts receivable problem discussed in Finding 1, we did not
                        rely on any controls relating to the validity and reliability of data
                        when planning our survey and audit work.

                        •    Safeguarding Resources

                        The Cooperative’s and management agent’s controls did not
                        ensure that only eligible expenses were paid with project funds.
                        The management agent approved questionable payments to
                        pay personal expenses of some Board members. Bank
                        deposits were not routinely made every day, and when receipts
                        were left in the office overnight, they were not secured in a
                        locked container. Due to the weak control environment cited
                        above, we did not rely on any controls related to the
                        safeguarding of resources when planning our survey and audit
                        work.




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Follow Up On Prior Audits
This is the first audit of Neighborhood Commons Cooperative by HUD’s Office of Inspector General.




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                                                                                           Appendix A



May 30, 2000

Mr. Ronald F. Huritz
Assistant District Inspector General for Audit
Department of Housing and Urban Development
77 West Jackson Boulevard
Suite 2646
Chicago, Illinois 60604-3507

Re:       Response to Audit Findings
          Neighborhood Commons Cooperative

Dear Mr. Huritz:

This letter acknowledges receipt of the audit findings for Neighborhood Commons. The Board of
Directors has met and discussed these findings and our responses are attached.

Please note that the current Board of Neighborhood Commons has three new members who, along with
the pre-existing Board Members, have positively impacted the overall performance of the Board of
Directors.

We make use of our legal counsel for advice and counsel. We have new and capable management
which has been helpful to us in facing many of the existing problems the newly constituted Board faced.
Our Board has grown and is learning more about its roles, responsibilities and limits and we intend to
make further improvements in our performance.

Please feel free to contact me if I can answer any questions. We look forward to the audit meeting.

Sincerely,

Shirley Hardiman
President
Neighborhood Commons Cooperative




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Appendix A




                                 RESPONSES TO AUDIT REPORT
                                 INSPECTOR GENERAL REPORT
                                         MAY, 2000


Finding 1. Tenant Accounts Receivable Balance

To the degree that we have knowledge, our research indicates your assumptions and comments fairly
and appropriately state the facts. We agree that our new management agent has significantly improved
the rental collections at NCC, however, please note that their directions were approved and supported
by the Board of Directors. With respect to Section 3 and 4, we refer you to Ms. Avraham’s response.

Recommendations:

1.A       We agree.
1.B       We agree.
1.C          This finding has no relationship to NCC’s current situation. We have no comment.

Finding 2. Abuse of Board of Director’s Authority

To our knowledge, we believe some of your assumptions and comments are fair and appropriately state
the facts with the following comments: (1) the Cooperative has a new President and new officers; (2)
the person discussed in your findings no longer holds a position of authority; (3) the plan under the new
Board and Management is to continue our efforts to establish more than an acceptable level of fiscal
management; and (4) our legal counsel was not aware nor did he participate in any way in the creation
of a management agreement between Diversified and NCC.

We recognize that in order for our current Management Agent to fulfill their responsibilities as
Management Agent, it was necessary for them to take a strong position on some issues. This may have
caused some misunderstandings between the Board and Management. We also acknowledge and
understand that in order to cancel the Management Agreement for “cause”, the reasons should be
clearly stated and a new agent be HUD approved.

We recommend there be clarification on the Cooperative Housing trip that was taken to Florida. Other
Board Members from other cooperatives attend educational conferences such as this. However, we
specially call your attention to these facts: (a) Mr. Gideon Adjetey and Ms. Denise Threatt did not
attend that conference. Ms. Jean Mays did attend, however, she paid her own air fare. We refer you
to Ms. Avraham’s response.

Recommendations:


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2.A     All findings and required responses to issues regarding Jesse Avraham must be
    responded to by Ms. Avraham. We have no comment.
2.B     We have no response or comments regarding Ms. Avraham and/or Warren Jones.

We ask that your report be more specific in describing board positions as they relate to your report.
There is currently a new Cooperative President and there is also one other ex-President besides Ms.
Avraham. The By-Laws identify this position as the Cooperative President. There is no position
known as “Board President”.

2.C            We accept whatever technical assistance provided.

2.D       Not applicable. We have no comment.

2.E       This is acceptable to the Board and Management.

2.F      The Board takes your comments under advisement and understands the recommendation.
However, it is the Board’s position that recommending such action is not necessary. This Board will
work to see that this not be a scenario for NCC. There also needs to be an understanding on HUD’s
part that the Board has a right to re-direct Management when Management may become inconsistent
with legitimate Board established policy.

2.G       The Board does not expect such sanctions to be necessary.

Finding 3 Failing to Provide Equal Opportunity in Housing

We respond to this Finding with the advice of our legal counsel. We find it necessary to deny that any
of the conduct described in this Finding, in any way, constitutes a violation of the Fair Housing Laws of
either the United States, State of Illinois or City of Chicago. In addition, we advise you that our current
management informed the Board that: (a) they had a difficult time locating the appropriate people to
contact now that Gautreaux no longer exists: (b) the contacts they have been working with have now
been able to produce two recent Cabrini Green applicants in all the time it has been working with the
Cooperative; (c) this Board intends to honor and implement the Leadership Council Memorandum of
Agreement, which was entered at the time the Cooperative’s taking title to the property. These two
applicants’ processing is being assisted in every way and we anticipate approval and occupancy to take
place shortly.

We accept the facts presented regarding the Regulations mandated by FHA Programs and the
Gautreaux Agreement.

Considering the limited knowledge the current Board has, with respect to past management practices,
we are unable to dispute or confirm the facts outlined in your report regarding the previous use of the
waiting list and the ignoring of HUD’s directives to the previous Board and Committee.


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The current Board does not dispute your description of the actions of the previous President or
Committee. Due to a lack of knowledge we (a) have no comment and (b) suggest that responses
regarding the past president be responded to by the past president.

Recommendations:

3.A       We disagree with this recommendation for reasons outlined above.

3.B       The Management Agent is now in control of the official waiting list.

3.C         Gautreaux no longer exists. However, due to our new management agent’s efforts an
appropriate contact has been made and a working relationship established with two applicants moving
through our selection system.

3.D     This is currently part of our selection process. Our list is maintained in chronological order and
applicants are notified from that list, except for Cabrini Green applicants who go to the top of the list in
this manner: (1) the next three available units to catch up for the time we were not able to institute this
program and (2) then every other new applicant will be from the Cabrini Green list.

3.E   It is the goal of our current Board to ensure that the waiting list is appropriately managed by
management, in accordance with the selection criteria established by the Board of Directors.




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                                                                                              Appendix B


May 31, 2000

Ronald F. Huritz
Assistant District Inspector General for Audit
U.S. Department of Housing and Urban Development
Office of Inspector General for Audit, Midwest
Ralph H. Metcalfe Federal Building
77 West Jackson Boulevard, Suite 2646
Chicago, IL 60604-3507
SENT VIA HAND DELIVERY

RE: Inspector General Audit “Draft” of May 5, 2000

Dear Mr. Huritz:

Following this page, please find Diversified Realty Group, LLC’s Responses to the three draft audit
findings made by the HUD Office of Inspector General.

It is our understanding that DRG’s comments will be included verbatim in the final report.

It is further our understanding the draft findings are subject to revision.

We look forward to the conclusion of this matter.

Very truly yours,
BOBBY L. WARE AND ASSOCIATES, LLC

Bobby L. Ware
Attorney-at-Law

BW:ce
cc: Debra Hunter
enclosures (omitted for brevity)




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Appendix B




                             Responses of Diversified Realty Group, LLC

RE: Inspector General Audit “Draft” of May 5, 2000

IG FINDING #1:

“As of May 1999, the unpaid rents of current tenants living in the 168-unit Cooperative exceeded
$270,000, and would have been significantly higher if the Cooperative had not received excess
subsidies from the Chicago Housing Authority. Management failed to adequately collect monthly rent
payments because it did not take corrective actions in a timely manner to uniformly apply the HUD-
approved rent schedule, resolve voucher subsidy problems and maintain accurate books and records.
The failure to collect rents seriously impacts the Cooperative’s ability to make its mortgage payments
and maintain the property in a safe and sanitary condition. In addition, there is an increased risk that a
claim will be paid from HUD’s insurance fund.”

ISSUE A:                        Whether management “failed to adequately collect monthly rent
                                payments...because it did not take corrective actions in a timely
                                manner....”

DRG RESPONSE:                   DRG disagrees with the statement above referenced in Finding #1. As
                                early as 2/24/97, Diversified Realty Group, LLC (hereinafter referred to
                                as DRG) sent a letter to the Director of Multifamily Housing at the U.S.
                                Department of Housing and Urban Development, hereinafter referred to
                                as “HUD”, advising Mr. Edward J. Hinsberger that the Section 8
                                (CHAC) rent receivables were $116,000 in arrears as of the date of
                                the letter. At that time, DRG requested clarification on the rent
                                schedule due to the fact that the schedule received in November of
                                1996 (with the Closing documents) listed a Rent Schedule based on the
                                old “236” program, which cited both Basic and Market rents.
                                Unfortunately, when NCC became a cooperative in November of
                                1996, the cooperative no longer fell within the 236 program and only
                                Market rents could be considered. It should also be noted that, when
                                DRG made its request, DRG stressed that the review was urgent,
                                advising that the viability of the project could come into jeopardy
                                without subsidies.

                                While HUD eventually tendered correspondence to the Chicago
                                Housing Authority, (hereinafter referred to as “CHAC”), requesting the
                                release of funds, the matter of clarification still remained unresolved. In
                                fact, it was not until April 24, 1998, more than 18 months after the

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                               project opened and 14 months subsequent to DRG’s initial request, that
                               DRG and CHAC were provided with information from HUD about the
                               official rent rates.

ISSUE B:                       DRG disagrees with the portion of finding #2 which states, “As of May
                               1999, the balance of the delinquent rents...was about $270,000.”

DRG RESPONSE:                  A meeting was held between DRG and HUD on April 15, 1998. At
                               that meeting DRG presented HUD with a list of write-offs for unpaid
                               CHAC monies in the amount of $200,088.59, which had been on
                               record for almost a year. HUD advised that it would follow-up and
                               respond in writing and on April 24, 1998, HUD (in the monthly
                               Accounting Report) directed DRG to write-off back rents which related
                               to non-payments by CHAC resultant of the units failure to meet
                               Housing Quality Standards. As of 4/15/98, more than $200,000
                               remained outstanding and the Certification process was still incomplete,
                               thus DRG had no way of knowing that the arrears were related to
                               anything other than “failing to meet housing quality standards” and wrote
                               them off accordingly.

CONCLUSION:                    The requested clarification on the Rent Schedule would have
                               tremendously assisted the remedial process of reconciling the accounts.

RECOMMENDATIONS:               1.A.    DRG has no objection to the IG’s recommendation.
                               1.B.    DRG has no objection to the IG’s recommendation.
                               1.C.    DRG has no objection to the IG’s recommendation.


IG FINDING #2:

“The Neighborhood Commons Board of Directors abused its authority and mismanaged the
Cooperative by undermining the management agent; taking control of the daily operations of the
property; ignoring directives from HUD; and taking actions which benefited members of the Board, their
relatives and friends. The Regulatory Agreement stipulates that the mortgagor shall provide for the
management of the project in a manner satisfactory to the Commissioner. In our opinion, the Board
members lacked integrity and conducted themselves as though they were above the rules and
regulations communicated to HUD. Consequently, program requirements were not met, applicable
regulations were not followed, and project resources were used for ineligible or inappropriate
purposes.”

ISSUE:                         Whether fees were improperly paid to Board President by the
                               Managing Agency.


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DRG RESPONSE:                  Because DRG realized that the ultimate responsibility for reconciling the
                               books and records would fall within their purview, notwithstanding
                               extenuating circumstances, DRG made the decision to absorb the cost
                               of resolving the books. Because Ms. Avraham had a good working
                               relationship with CHAC, DRG contracted Ms. Avraham on a
                               temporary basis for the exclusive task of reconciling the tenant
                               receivables with CHAC. She was paid Ten Dollars per hour ($10.00)
                               for Ten hours a week for a total monthly payment of approximately
                               $450.00. Once it became apparent 3 months later that Ms. Avraham
                               could not accomplish this goal, the project was terminated. DRG then
                               hired Account temps in an effort to complete the task.

CONCLUSION:                    Diversified hired an independent contractor, whom it believed,
                               possessed the requisite skill to assist with its endeavors [to] reconcile
                               the accounts and collect rents, she was ineffective, DRG terminated her
                               services. Nothing more, nothing less.

RECOMMENDATIONS:               2.A.   DRG has no objection to the IG’s recommendation.
                               2.B.   DRG has no objection to the IG’s recommendation.
                               2.C.   DRG has no objection to the IG’s recommendation.
                               2.D.   DRG has no objection to the IG’s recommendation.
                               2.E.   DRG has no objection to the IG’s recommendation.
                               2.F.   DRG has no objection to the IG’s recommendation.
                               2.G.   DRG has no objection to the IG’s recommendation.


IG FINDING #3:

“Management failed to provide an equal opportunity to housing at the Cooperative when it filled vacant
units with relatives and friends of preferred Cooperative members. The Regulatory Agreement requires
full compliance with HUD rules regarding nondiscrimination and equal opportunity in housing. The
Cooperative Board exercised excessive control over the new member selection process to benefit a
limited number of members. Additionally, Section 8 vouchers intended for members already residing at
the Cooperative instead were improperly awarded to family members of Cooperative tenants.
Consequently, the Board discriminated against citizens of the surrounding community when providing
housing, and against other Cooperative members when providing subsidies.”

ISSUE:                         Whether the Managing Agent was “negligent when it failed to ensure the
                               adequate tenant selection policies and procedures were established...

DRG RESPONSE:                  The substantial number of move-ins [approximately Twenty-Five (25)],
                               which were afforded to friends and family members of Ms. Avraham,
                               occurred between November and December of 1998. By the very

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                                nature of the job description and responsibilities of an on-site manager,
                                one has great latitude in controlling the day to day activities of the
                                property. In this instance, the on-site manager moved these individuals
                                into the apartments and neither forwarded the corresponding
                                paperwork concerning the move-ins nor reported the move-ins to the
                                Property Supervisor. Thus, DRG did not become aware of the on-site
                                Manager’s practices regarding move-ins for two months.
                                Unfortunately, this practice is far too common in the “rental world”.
                                Once DRG became apprised of the situation, they responded.

CONCLUSION:                     DRG was precluded by NCC from resolving the outstanding matter
                                with regard to the move-in list because of the timing. DRG is an equal
                                opportunity employer and has consistently subscribed to all aspects of
                                Fair Housing.

RECOMMENDATIONS:                3.A.   DRG has no objection to the IG’s recommendation.
                                3.B.   DRG has no objection to the IG’s recommendation.
                                3.C.   DRG has no objection to the IG’s recommendation.
                                3.D.   DRG has no objection to the IG’s recommendation.
                                3.E.   DRG has no objection to the IG’s recommendation.

SUMMARY:

In January of 2000, DRG placed Dale Randle as its Controller, not only to ensure that the Accounting
Department of DRG remains fluent, but also to assist with potentially volatile situations which may occur
in new or less sophisticated start-up entities requiring management. DRG believes that this was a major
step to ensure that it maintains and provides an affluent accounting to its clients. Mr. Randle brings
more than 17 years of experience to DRG.




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Appendix C


May 30, 2000

Mr. Ronald F. Huritz
Assistant District Inspector General for Audit
U.S. Department of Housing & Urban Development
Office of Inspector General for Audit, Midwest
77 West Jackson Blvd. Suite 2646
Chicago, IL 60604-3507

RE: Your May 4, 2000 Audit Findings Letter with Attachments to Shirley Hardiman, President,
    Neighborhood Commons Cooperative

Dear Mr. Huritz:

        ATTACHMENT TO MAY 30, 2000 LETTER TO RONALD HURITZ FROM NCC
            Re: Response to Audit Findings – Neighborhood Commons Cooperative

As indicated in the Board of Directors’ May 30th “Response to Audit Findings”, this attachment is
hereby submitted. The following overall comments are also offered.

1. Three Board members from the former Board (Erma Woodley, Deborah Joyner, Jean Mays (also
   current) who were in office and responsible for the decisions made by the Board of Directors entity
   were not interviewed or questioned in reference to the Audit Findings as were all other former
   Board members.
2. Warren Jones was not interviewed, questioned, nor given an opportunity to respond in
   reference to the Audit Findings.
3. The draft Findings misrepresent the relationship between Warren Jones and Jessie Avraham.
   Warren Jones is not the “ex-husband” of Jessie Avraham and should not be represented as such.

Finding 1 - Excessive Tenant Accounts Receivable Balance

IG Recommendation: (See Board of Directors response dated May 30th)

The following comments of this writer are made to clarify, correct, and otherwise offer information that
will make the official final report more accurate and free of bias.

Comment 3 - “Management Agent Failed to Collect Monthly Rent Payments”

The statements made in this section are clear as to the reasons the management agent failed to collect
correct monthly rent payments, including the statement from the owner of Diversified Realty Group
regarding difficulties. However, even with this clear-cut evidence which can be verified, the IG
comments “due to the Board’s substantial influence over management discussed in Finding 2, we


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question whether it exacerbated the problems...” casts responsibility and blame on the Board of
Directors.

Finding 2 neither proves nor substantiates that the Board had substantial influence over the day to day
operations of Diversified Realty Group, its policies, procedures, or its main office operations, including
accounting and record keeping. The Board had nothing to do with the fact that DRG did not change the
rent structure and did not implement the correct rent structure from the beginning of its tenure. The
Board had nothing to do with the fact that CHAC paid excessive subsidies.

This writer makes note that the IG must be very careful that it distinguishes the time frame in which
activities took place. The problems outlined in the audit began under a different Cooperative President.
It should also be noted that during the period of time mentioned that Ms. Avraham was not even a
member of the Board of Directors. Certain mismanagement by Diversified Realty Group occurred
under a different regime.

It is a spurious accusation and overly exaggerated that both Boards of NCC or its Presidents (former
and past) could possibly be responsible for the Standard Operating Procedures of DRG and the main
office of that company, since all accounting and accounts receivable matters are inevitably and rightly the
responsibility of the Management Agent.

This writer questions the IG interpretation and submits that the Board of Directors in no way coerced or
influenced the routine and standardized management protocol of Diversified Realty Group.

Comment 4 - “HUD-Approved Rent Schedule Not Uniformly Applied”

Again, the IG appears to making every effort to include the Board as a reason for Diversified’s
ineptness. To say that “The Cooperative did not uniformly apply the HUD-approved rent schedule” is,
to say the least, evading the reality. The Management Agent had full control of administering the rent
schedule. As a matter of fact and record which the IG has apparently overlooked, the two Managers
responsible, along with the Management Agent, for applying the incorrect rents were hand-picked by
Diversified. One of those managers was responsible for applying the incorrect rents from the beginning
that led to the problems that plague the property to this day.

Also, the IG failed to indicate that these issues began during Diversified’s initial tenure under a previous
Cooperative President, not Ms. Avraham. The implications of the IG’s statements are far-reaching and
potentially libelous.

Again, to make an official statement based on what “Diversified’s owner told us...” could be considered
irresponsible in an official report that is supposed to be factual and not supplanted with comments from
the entity that caused the problem and who is looking for someone else to blame.

Finding 2 - The Board of Directors Abused Its Authority


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IG Recommendations: (See Board of Directors response dated May 30th)

2.A.    This writer disagrees with this recommendation and suggests that “to debar the Board President
        from all Federal programs” is excessive.

2.B.    This writer disagrees with this recommendation and based on my knowledge of the situation
        suggests that “to debar the ex-manager from all Federal programs” is excessive.

This writer suggests that this action is not necessary because the previous President is no longer
President, the ex-manager is no longer manager, and a new management agent is in place. Further, no
Federal laws relating to the operation of the property were violated. If this suggestion is not acceptable,
it is hopeful that an alternative action can be mutually agreed upon at the exit interview.

Since this writer is not an attorney, it is not possible to address the misleading and inaccurate statements
throughout Finding 2. At the least, this writer was stunned that an official IG report would contain so
much bias and an obvious attempt to defame and discredit. Finding 2 is entitled “The Board of
Directors Abused Its Authority”. However, the entire body of the report is profuse with personal and
defamatory statements directed at this writer. Because of the implications of the recommendation, it is
believed that it will be in the best interest of all involved if I accede to legal advice and confront my
accusers at the proper forum. This, I hope, will be the exit interview. I am hopeful that all significant
persons, including Deborah Hunter, President of DRG, will be invited to the exit interview. This will
allow all parties to voice their opinions and comments before the IG concludes its final
recommendations.

As I mentioned to Mr. Mike Chacone during the brief interview he had with me on November 9 of
1999, his questions were not conducive to the audit report or the initial findings. While I was
determined to focus on the issues of the initial findings as outlined by Edward Hinsberger’s office and
the Board’s response to those findings, Mr. Chacone insisted on asking personal and inappropriate
questions. My belief at that time was that I was being personally attacked and defamed and I relayed
my impressions to him at that time. My concerns have now proven to be well-founded.

I did not then, and do not now believe that my personal affairs violated anything that has to do with the
Operations, Management or Ownership of NCC. Neither the Cooperative nor the members were
affected by my personal affairs.

Finding 3 - The Cooperative Failed to Provide Equal Opportunity in Housing

IG Recommendations: (See Board of Directors response dated May 30th)

The following comments of this writer are made to clarify, correct, and otherwise offer information in an
effort to make the official final report more accurate and free of bias.



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The summary statement “Additionally, Section 8 vouchers intended for members already residing at the
Cooperative instead were improperly awarded to family members of Cooperative tenants...” should be
examined.

The record and evidence will show that all current members already residing at the Cooperative had the
opportunity to be certified to receive vouchers. Because there were vouchers allocated to NCC that
had not been used even after all current, eligible households had been served, CHAC allowed the
distribution of the remaining vouchers to adult members of households that had already received
vouchers. No rental assistance was “denied” existing members who were eligible to receive it. There
was no misappropriation of CHAC vouchers either by Management or the Board of Directors. This
statement is fact and is a matter of record.

Thank you for the opportunity to respond to the draft audit findings.

Respectfully Submitted,

Jessie B. Avraham
Board Member and Previous President
Neighborhood Commons Cooperative

cc: Board of Directors




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                        (THIS PAGE LEFT BLANK INTENTIONALLY)




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                                                                               Appendix D

Distribution
Secretary’s Representative, Midwest (2)
Director, Chicago Multifamily Hub, Midwest
Deputy Secretary, SD (Room 10100)
Chief of Staff, S (Room 10000)
Special Assistant to the Deputy Secretary for Project Management, SD (Room 10100)
Assistant Secretary for Administration, A (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 and Policy, S (Room 10226)
Deputy Assistant Secretary for Public Affairs, W (Room 10222)
Special Assistant for Inter-Faith Community Outreach, S (Room 10222)
Executive Officer for Administrative Operations and Management, S (Room 10220)
Senior Advisor to the Secretary for Pine Ridge Project, W (Room 10216)
General Counsel, C (Room 10214)
Director of Federal Housing Enterprise Oversight, 0 (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 Vice President, Government National Mortgage Association, T (Room 6100)
Assistant Secretary for Fair Housing and Equal Opportunity, E (Room 5100)
Chief Procurement Officer, N (Room 5184)
Assistant Secretary for Public and Indian Housing, P (Room 4100)
Chief Information Officer, Q (Room 8206)
Director of Departmental Operations and Coordination, I (Room 2124)
Chief Financial Officer, F (Room 2202)
Deputy Chief Financial Officer for Finance, FF (Room 2202)
Director of Enforcement Center, V (200 Portals Building)
Director of Real Estate Assessment Center, V (1280 Maryland Avenue, SW, Suite 800)
Director of Multifamily Assistance Restructuring, Y (4000 Portals Building)
Assistant Deputy Secretary for Field Policy and Management, SDF (Room 7108)
Director of Budget, FO (Room 3270)
Internal Control and Audit Resolution Officer, 3AFI (2)
Special Adviser/Comptroller, D (Room 7228) (2)
Departmental Audit Liaison Officer, FM (Room 2206) (2)
Acquisitions Librarian, Library, AS (Room 8141)
Deputy Staff Director, Counsel, Subcommittee on 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

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Appendix D


    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)
Steve Redburn, Chief, Housing Branch, Office of Management and Budget, 725 17th Street,
    N.W., Room 9226, New Executive Office Building, Washington DC 20503




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