AUDIT REPORT FORTUNE ESCROW, INC. CLOSING AGENT CONTRACT GLENDORA, CALIFORNIA 00-FW-222-1006 AUGUST 23, 2000 OFFICE OF AUDIT, SOUTHWEST DISTRICT FORT WORTH, TEXAS Issue Date August 23, 2000 Audit Case Number 00-FW-222-1006 TO: Joseph C. Bates Acting Director Single Family Homeownership Center, 9JHH FROM: D. Michael Beard District Inspector General for Audit, 6AGA SUBJECT: Fortune Escrow, Inc. Closing Agent Contract We performed an audit of Fortune Escrow, Inc. Closing Agent contract. Our attached report contains two findings. Within 60 days, please furnish this office, for each recommendation in this report, a status on: (1) corrective action taken; (2) the proposed corrective action and the date to be completed; or (3) why action is not considered necessary. Also, please furnish us copies of any correspondence or directives issued related to the audit. If you have any questions, please contact Theresa A. Carroll, Assistant District Inspector General for Audit, at (817) 978-9309. Management Memorandum THIS PAGE LEFT BLANK INTENTIONALLY 00-FW-222-1006 Page ii Executive Summary We performed an audit of Fortune Escrow, Inc. (Fortune), a closing agent for HUD, as part of a nationwide effort to review closing agents. Our audit objective was to determine whether management controls were adequate to ensure the prevention of fraud, waste, and abuse. To meet this objective, we performed audit steps to determine whether Fortune complied with the contract terms and conditions of a closing agent. Overall, Fortune substantially complied with its HUD contract. However, Fortune did charge HUD for ineligible wire transfer fees. Although we noted some exceptions, Fortune performed the Fortune sufficiently following contractual duties acceptably: performed some closing agent duties. • Issued clear title; • Paid only allowable expenses; • Forwarded closing documents to HUD timely; • Wired correct amounts; • Recorded Grant Deed timely; and • Prepared the Grant Deeds correctly. Fortune overcharged HUD for wire transfer fees. Fortune’s Fortune Escrow contract with HUD included any wire transfer fees in the closing overcharged HUD agent fee. However, Fortune charged HUD $50 for each wire $43,900. transfer. Fortune may owe HUD at least $43,900 based on the closings that occurred from June 1, 1999, through September 15, 1999. This report recommends that the Santa Ana Homeownership Center require Fortune to reimburse HUD for the ineligible wire transfer fees. We discussed the findings in the report with Fortune on October 19, 1999. We provided a draft of this report to Fortune on August 8, 2000. They provided us with written comments on August 16, 2000, which are included in this final report. Page iii 00-FW-222-1006 Executive Summary THIS PAGE LEFT BLANK INTENTIONALLY 00-FW-222-1006 Page iv Table of Contents Management Memorandum i Executive Summary iii Introduction 1 Findings 1 Fortune Charged Ineligible Wire Transfer Fees 7 2 Fortune Not Always Attentive 9 Management Controls 17 Appendices A Schedule of Questioned Costs 19 B Auditee Comments 21 C Distribution 41 Page v 00-FW-222-1006 Table of Contents Abbreviations CFR Code of Federal Regulations HUD U.S. Department of Housing and Urban Development OIG Office of Inspector General RESPA Real Estate Settlement Procedures Act SAMS Single Family Asset Management System 00-FW-222-1006 Page vi Introduction Fortune Escrow, Inc. (Fortune) contracted with the U.S. Background Department of Housing and Urban Development (HUD) to provide closing services for single family properties owned by HUD and located within the counties of Santa Barbara, San Luis Obispo, Ventura, and Los Angeles in the State of California. The effective date of the contract was October 1, 1997. Fortune conducted business in its offices located at 302 W. Foothill Boulevard, Glendora, California. Its contract number was C-SFC-00017. Although Fortune’s closing agent contract was up for its first year renewal option, HUD only extended Fortune’s contract until December 31, 1999, because HUD wanted to consolidate the four closing agents in Los Angles into one closing agent with multiple offices. Fortune closed 878 properties from June 1, 1999, through September 15, 1999. As of December 7, 1999, HUD valued its contract with Fortune at $1,005,092. Fortune had an indefinite quantity contract that provided closing services for single family properties owned by HUD. The primary objectives of the contract were to ensure that: (1) properties closed within the time frame stipulated in the sales contract; (2) prompt and accurate payment of all closing costs was made; (3) the net proceeds of each sale were deposited into a non-interest bearing escrow account and request initiated for the wire transfer of the proceeds via FEDWIRE to HUD’s account with the U.S. Treasury on the day of closing or not later than the next banking day; and (4) the complete and accurate closing package was submitted to HUD within 2 working days of closing. In the State of California an escrow company performs the following: • Serves as the communication link to all parties in the transaction; • Prepares escrow instructions; • Requests a preliminary title search to determine the basis upon which title insurance may be issued; • Complies with lender’s requirements specified in escrow agreement; • Receives purchase funds from the buyer; Page 1 00-FW-222-1006 Introduction • Prepares or secures the deed or other documents related to escrow; • Prorates taxes, interest, insurance and rents according to instructions; • Secures releases of all contingencies or other conditions as imposed on any particular escrow; • Records deeds and any other documents as instructed; • Requests issuance of the title insurance policy; • Closes escrow when all of the instructions of buyer and seller have been carried out; • Disburses funds as authorized by instructions, including charges for title insurance, recording fees, real estate commissions and loan payoff; and • Prepares final statements for the parties accounting for the disposition of all funds deposited in escrow. To conduct a closing, Fortune’s contract required it as closing agent to: • Establish individual property files and maintain in numerical sequence by escrow number, cross-referenced by FHA case number, property address, and purchaser’s name. • Coordinate with the Management and Marketing (M&M) contractor1, purchaser, broker, and mortgagee to establish a firm closing date on or before the date specified in the sales contract. • Perform a title examination, including land, judgment and tax records, and any other records that may contain information that affects the title or may reflect a lien, encumbrance, or defect on the title. • Order a preliminary title report and forward it to the M&M contractor and mortgagee within 4 business days of initial assignment. • Prepare deed and escrow instructions within 5 days of initial assignment and forward to the M&M contractor for signature. • Explain all closing papers and documents to the purchaser at closing. 1 In 1999, HUD embarked upon a new partnership with the private sector in the management and marketing of HUD homes. The management and marketing (M&M) contractors coordinate sales of single family properties with the closing agents. 00-FW-222-1006 Page 2 Introduction • Administer requests by brokers for extensions of sales closing date. • Complete all necessary documents at closing. • Prorate unpaid property taxes to the date of closing. • Accept only cashier’s or certified check, postal money order, or broker’s trust account check that has been certified by a bank or trust account made payable to the contractor. • Deposit the sales proceeds and initiate the request for the wire transfer of the proceeds due HUD on the day of closing or the next banking day. Obtain the bank’s dated confirmation of the wire transfer and verify that the correct amount of sales proceeds was wire transferred. • Schedule the filing of the deed for record. • Deliver the closing package to the M&M contractor no later than 2 business days after closing. According to information obtained from HUD’s Single Family Asset Management System (SAMS), Fortune closed 878 properties as a closing agent from June 1, 1999, to September 15, 1999. For each closing it performed, HUD paid Fortune a $323 closing agent fee from the closing proceeds. Our audit objectives were to determine whether management Audit Objectives controls were adequate to ensure the prevention of fraud, waste, and abuse. We obtained background information by: Scope and Methodology • Reviewing prior closing agent audit programs. • Participating in a teleconference with KPMG regarding its findings for the fiscal year 1998 FHA Financial Statement Audit. • Reviewing the KPMG briefing paper regarding the fiscal year 1998 FHA Financial Statement Audit. To accomplish our audit objectives, we: • Examined the closing agent contract and HUD’s Property Disposition Handbook. • Obtained information from SAMS. Page 3 00-FW-222-1006 Introduction • Obtained from SAMS a listing of closings performed by Fortune from which we attempted to select an audit sample. However, because Fortune did not maintain its files by FHA case number nor cross-referenced the closing files by the FHA case number, we had to rely on Fortune to provide a sample of its closings (see scope limitation). • Interviewed HUD and Fortune staff regarding the closing process. • Obtained an understanding of Fortune’s closing process. • Tested 100 closing files for the following specific attributes: 1. The property closed timely and, if the property did not close timely, we documented the number of days late; 2. The closing file contained an extension request and approval, if applicable; 3. The correct extension fee was collected, if applicable; 4. Only allowable closing expenses were paid; 5. The sales proceeds were deposited timely; 6. The correct sales proceeds less expenses amount was wired timely; 7. The Deed was recorded timely; 8. The correct amount was collected for the taxing authority; 9. Clear title was issued; 10. The title insurance premium was not split; 11. A Warranty Deed was prepared; 12. The Warranty Deed was forwarded to HUD timely; 13. The selling amount on the sales contract and the HUD-12 was identical; 14. Closing costs for the buyer were identical on both pages of the HUD-1; and 15. The correct amount of extension fees was on the HUD-1, if applicable. 2 The HUD-1 is the Settlement Statement used in the sale of properties. 00-FW-222-1006 Page 4 Introduction We were unable to select a random sample of closings on Scope Limitation which to base our audit work. Fortune did not keep records of HUD closings as its contract required. The contract stipulated that Fortune keep records in a manner so each HUD closing could later be identified. Fortune did not keep such records thus, we could not match SAMS data with Fortune’s. Fortune identified HUD closings for our sample testing. Thus, we are not able to conclude we made our selection from the entire universe of HUD closings. We conducted the audit at Fortune’s offices located in Audit Period and Sites Glendora, California, during October 1999. The audit covered closings performed during the period June 1, 1999, through September 15, 1999. We selected this period because HUD had changed its closing process with the advent of the M&M contracts in June 1999. The M&M contractor for the Santa Ana HOC is Golden Feather Realty Service (Golden Feather). We conducted our audit in accordance with generally accepted government auditing standards. Page 5 00-FW-222-1006 Introduction THIS PAGE LEFT BLANK INTENTIONALLY 00-FW-222-1006 Page 6 Finding 1 Fortune Charged Ineligible Wire Transfer Fees Fortune charged HUD a contractually ineligible fee to wire transfer the sales proceeds to the Treasury. The closing agent contract stated that the closing agent shall be responsible for the cost of the wire transfer fees because the unit price was inclusive of all costs. Fortune, erroneously thinking it could charge wire fees, charged HUD a $50 wire transfer fee for each closing. If Fortune made that charge on every sale, it overcharged HUD $43,900 in wire transfer fees for the closings during the selected audit period. The contract clearly stated wire transfer fees are the closing Contract Requirement agent’s responsibility. In Section B. IV of the contract, Price Schedule, the contract had the following note: “The contractor shall be responsible for the cost of the wire transfer fees . . .” The President of Fortune Escrow stated that she was unaware Fortune says overcharge that the contract made the closing agent responsible for wire an error. fees. She also stated a previous closing agent contract did allow the agent to charge the wire fee and that Golden Feather (the M&M contractor) had informed her HUD paid wire fees. Fortune charged HUD a $50 wire fee, which included $30 for the outgoing wire, $5 for a wire confirmation, and $15 for internal costs and staff time. However, even if the closing agent contract allowed for wire fees, Fortune was overcharging because it included its internal cost and staff time. We noted the fee on the 100 files selected for audit. Thus, those files reflect a $5,000 ineligible cost. Further, during our audit period, Fortune completed 878 closings, indicating it overcharged up to $38,900. Auditee Comments Fortune responded that the wire transfer fee was clearly allowed because HUD included the wire fee in correspondence regarding allowable closing costs. Further, Fortune responded that the wire fee charged to HUD was the company’s standard wiring fee and there was no overcharge. Page 7 00-FW-222-1006 Finding 1 Although documentation provided by Fortune showed that it OIG Evaluation of believed HUD allowed reimbursement for the wire fee, the Comments contract does not allow the fee. Recommendations We recommend that the Santa Ana Homeownership Center Director: 1A. Require Fortune to reimburse HUD $5,000. 1B. Determine the number of sales closed by Fortune during its closing agent contract with HUD and require that it reimburse HUD for any additional ineligible wire transfer fees, potentially $38,900 for the period June 1, 1999, through September 15, 1999. 00-FW-222-1006 Page 8 Finding 2 Fortune Not Always Attentive Fortune was not very attentive to the details of its contract with HUD. As a result, we noted numerous contract infractions with closings, which Fortune could have avoided with a thorough review of the closing package prior to the closings. While Fortune was substantially compliant with its HUD contract, the below listed problems show a disregard to detail. Since the contract between Fortune and HUD expired on December 31, 1999, we have not made recommendations regarding the following issues. However, some issues may be addressed in an internal report to HUD. Fortune did not maintain a separate trustee account for its HUD No trustee account in closings. The closing agent contract stated that the contractor HUD’s name. would establish a separate non-interest bearing escrow account. Instead, Fortune commingled the escrow moneys from its other closings with that from HUD closings in one non-interest bearing account. The President of Fortune stated that because its computer was not year 2000 compliant, it was unable to handle two escrow accounts. However, we noted that the computer problem was resolved in March 1999, and at that time, Fortune did not establish separate accounts. Fortune did not always immediately deposit or wire sales Untimely sales proceeds proceeds to HUD. The closing agent contract requires that the deposited and wired to closing agent deposit and wire proceeds to HUD on the day of HUD. closing or the next banking day. In 7 of 100 closing files reviewed, Fortune deposited funds on the second day after closing. Further, in 73 out of the 100, Fortune did not wire the sales proceeds timely. The President of Fortune stated that it is difficult to get the wires out timely because of California real estate and escrow laws. In California, the deed must be recorded and the title company must determine the amount of escrow fees due prior to the title company notifying the escrow company of the deed recording. Further, the date of closing is the date the deed is recorded, not the date the closing occurs. Additionally, according to Fortune, it must balance its escrow amounts prior to remitting the proceeds to HUD. Page 9 00-FW-222-1006 Finding 2 Santa Ana HOC personnel did not require the closing agents within its jurisdiction to pay late fees for untimely wires of proceeds to HUD. Fortune calculated the extension fees incorrectly in 11 out of Extension fees3 100 closing files reviewed. Generally, Fortune included the day calculated incorrectly. the property was originally to close in the calculation or did not include in the calculation all the days that the closing was late. Prudent business practice requires that the extension fees3 be calculated correctly. Because HUD did not receive all the extension fees it was entitled to, HUD did not receive the maximum return from each sale. The following table illustrates the ten properties for which the extension fees were incorrectly calculated. Date Should Extension Close Date Days Extension Fee Owed Over/(Under) FHA Case No. Closed Late Fee Paid Payment 041-886962 7/30/99 8/2/99 3 50 75 (25) 041-823791 5/20/99 6/9/99 19 270 285 (15) 041-723800 8/16/99 9/13/99 13 350 0 350 041-955685 7/26/99 9/10/99 46 925 1150 (225) 041-858107 6/7/99 6/14/99 7 200 175 25 041-982876 8/12/99 8/16/99 4 75 100 (25) 041-933567 7/19/99 7/21/99 2 25 50 (25) 041-857928 6/18/99 6/22/99 4 125 100 25 041-828163 6/10/99 6/21/99 11 300 275 25 041-910878 6/14/99 6/17/99 3 50 75 (25) 041-973946 6/18/99 8/19/99 2 425 50 375 Golden Feather established a closing time frame of 45 days throughout the Santa Ana HOC jurisdiction. However, Fortune held even the 203(k)4 loans to the 45-day closing time frame. HUD regulations5 state in 4310.5 Revision 2 Chapters 10-24 and 11-12.E that a 203(k) loan is allowed up to a 60-day closing time frame and a 30-day free extension if the delay in closing was not the purchaser’s fault. In one instance (FHA case number 041-723800), a nonprofit purchased a property with a 203(k) loan. The sales contract 3 An extension fee is a fee paid if scheduled closing dates cannot be met. 4 The 203(k) program allows a buyer to obtain one mortgage loan to finance acquisition and repair, provided the amount of repairs required makes financing feasible. 5 Single Family Property Disposition Handbook. 00-FW-222-1006 Page 10 Finding 2 provided for a 60-day closing time frame, as described above. However, Golden Feather allowed only the standard 45-day closing time frame for this sale. It allowed an initial 15-day extension of the closing date at no charge. After the 15-day extension, it began charging extension fees until the sale closed. When the sale closed on the 75th day, the nonprofit was charged extension fees for 14 days. However, had Golden Feather followed HUD’s 203(k) guidelines regarding this sale, including a 30-day extension at no charge, the nonprofit would have been charged no extension fees. Thus, the nonprofit was charged inappropriate fees. In 6 of 100 closing files reviewed, the closing costs charged to Approved closing cost HUD exceeded the amount approved on the sales contract. amounts exceeded. Section C. III of the closing agent contract stated that the contractor shall pay only actual closing costs not to exceed the amount specified on line 5 of the sales contract. Because Fortune was not diligent in its review of the closing contracts, HUD did not receive the maximum return from each sale. The following table illustrates the properties for which the allowable closing costs were exceeded. Generally, this occurred when the sale was to a nonprofit and the closing costs should have been included in the nonprofit’s total discount, not as an additional amount paid by HUD. Approved Closing FHA Case Costs on Sales Closing Costs on Difference Number Contract HUD-1 041-853958 3,500.00 3,593.83 93.83 041-8917526 0 1,269.56 1,269.56 041-9556857 0 487.50 487.50 041-858107 3,843.00 3,844.10 1.10 041-850422 0 198.00 198.00 041-910772 2,777.00 2,789.31 12.31 Fortune did not include the day of sale in the calculation of the Tax proration incorrectly tax proration because its computer program only calculated calculated. through the day before the sale. Section C. IV.E.12.b. of the contract stated that the closing agent at closing shall prorate unpaid taxes to the date of closing. The contract further stated, if HUD prepaid the taxes, the closing agent shall collect the 6 This is an example where the nonprofit discount was exceeded. See page 7 for discussion of that finding. 7 Ibid. Page 11 00-FW-222-1006 Finding 2 appropriate amount from the purchaser. In the instances where the taxes were unpaid as of closing, HUD did not pay for 1 day’s worth of taxes. In the instances where HUD prepaid the taxes, the purchaser did not pay 1 day’s worth of taxes. Closing files maintained by Fortune lacked documentation. Closing files lack Specifically, the closing files lacked: extension requests (27 out documentation. of 100 reviewed), documentation of when the post closing files were sent to HUD (4 out of 100 reviewed), a HUD-1 (3 out of 100 reviewed), documentation of when a deed was recorded (1 out of 100 reviewed), and documentation of when sales proceeds were received and deposited (1 out of 100 reviewed). Section C. IV.E.13.i. of the closing agent contract stated that the contractor shall maintain a complete record of each closing . . . retain all pertinent records . . . . Fortune provided a computer-generated copy of the HUD-1s for those files that lacked a settlement statement. However, Fortune was not diligent in its efforts to maintain all the pertinent records for each closing. Thus, Fortune did not maintain a complete record of all closings nor retain all pertinent records. In 3 of 558 nonprofit closing files reviewed (5.5 percent), the 30 Nonprofit discount percent discount that nonprofits receive was not calculated incorrectly calculated. correctly. As a result, HUD did not receive $19,702 in sales proceeds. A nonprofit is allowed a 30 percent discount when it purchases a HUD-owned property in a revitalization area.9 However, the 30 percent discount was to include the amounts of closing costs and commissions requested on the sales contract. Fortune’s Escrow Officer stated that Fortune did not get sales contract changes in writing and Fortune was instructed to follow the verbal instructions of Golden Feather personnel when real estate transactions should be in writing. Because Fortune was not diligent in its review of the closing documents and relied on verbal instructions, HUD did not receive the maximum return on property sales. In one instance, the sales contract showed that the nonprofit requested a 29.25 percent discount off the sales price of $65,000, or $19,013. However, on the HUD-1, the nonprofit 8 Of the files reviewed, 55 of the 100 were sales to nonprofit organizations. 9 Revitalization Area means a neighborhood that has a significant concentration of vacant properties, including properties needing extensive repairs that have been in HUD's inventory at least 8 months; exhibits other characteristics of economic distress; and has been targeted by the locality for establishing affordable housing and providing adequate supportive services. 00-FW-222-1006 Page 12 Finding 2 received a 30 percent discount of $19,500, a difference of $487. There was no amendment to the contract in the file approving the adjustment to 30 percent. In another instance, the sales contract showed that the nonprofit would receive a 30 percent discount off the sale price of $95,560, or $28,668, less the approved commission of $717, bringing the allowed discount to $27,951. The HUD-1 showed that the discount received by the nonprofit was $28,668 in addition to the approved commission. Thus, HUD did not maximize its return on the property and received $717 less than it was owed. In a final instance, on a sales contract dated May 25, 1999, and approved by HUD on May 28, 1999, the nonprofit did not request any discount. A note attached to the sales contract dated June 7, 1999, shows that Golden Feather approved a 30 percent discount. However, a subsequent sales contract requesting the 30 percent discount was not prepared nor approved. Also, the nonprofit did not request any closing costs on the approved sales contract. When the property closed on July 9, 1999, the nonprofit not only received the 30 percent discount of $18,300, but also received credit for $198 in closing costs. In 2 of 100 closing files reviewed, clear title was not passed to Property closed without the purchaser because of liens. Section J, Attachment 9 of the clear title. closing agent contract stated that the evidence of title shall show that according to public records that there are not any outstanding prior liens. Fortune’s Escrow Officer stated that liens were cleared with time. However, because the liens were not cleared prior to closing, the purchaser did not receive clear title. Fortune did not maintain the closing files by a system that Closing files not allowed retrieval by FHA case number. Instead, Fortune maintained by system maintained the closing files by its escrow number, cross- that allows retrieval by referenced by address. The contract stated that the contractor FHA case number. shall establish property files and maintain in numerical sequence by escrow number, cross-referenced by FHA case number, property address, and purchaser’s name. Prior to fieldwork, the auditors selected a random sample using information obtain from SAMS that only included the FHA case numbers. However, because Fortune did not cross-reference the closing files by FHA case number, it was unable to pull the selected closing files. Because Fortune did not cross-reference by FHA Page 13 00-FW-222-1006 Finding 2 case number, it was not in compliance with its contractual terms and conditions. Fortune’s hours of operations were 8:30 a.m. to 5:00 p.m. The Fortune not open during closing agent contract required that Fortune be open from core hours. 8:00 a.m. to 4:30 p.m. The President of Fortune acknowledged that Fortune was not open during the hours required by the contract. Thus, Fortune was not in compliance with its contractual terms and conditions. Fortune showed the extension fees on the HUD-1 on lines 109 Extension fees shown on and 409 when the contract required placement on lines 104 and HUD-1 incorrectly. 404. The President of Fortune stated that it used lines 109 and 409 since 1994 and HUD never told it that the use of those lines was incorrect. Further, Fortune’s computer system only allowed the extension fees to be inserted on lines 109 and 409. However, the closing agent contract Section C. IV.E.10.d. stated that the full amount of the extension fees shall be shown on lines 104 and 404 on the HUD-1. Because Fortune showed the extension fees on line 109 and 409 and not 104 and 404, it was not in compliance with the terms and conditions of the contract. Untimely Sales Proceeds Deposited and Wired to HUD Auditee Comments and OIG Evaluation of Fortune stated that the process does not consistently allow for Comments the immediate release of seller funds, as in other states, in which recording the Deed is not required prior to disbursement of funds from escrow. We noted in the report the conditions that Fortune mentioned in its response. Extension Fees Calculated Incorrectly Fortune responded that it did not “hold” any transactions to a predetermined formulated closing schedule, but to the sales contract or written instructions from HUD or M&M contractor personnel. Although Fortune stated that it did not “hold” any transactions to any predetermined formula regarding closing, it did, as the example in the report shows, hold a 203(k) loan to a 45-day closing when the nonprofit should have been allowed a 60-day closing. 00-FW-222-1006 Page 14 Finding 2 Tax Proration Incorrectly Calculated Fortune stated that in California the tax proration was calculated to the date of recording the Deed. HUD requirements and the contract stated that the tax proration should include the date of closing. Nonprofit Discount Incorrectly Calculated Fortune responded that discrepancies resulted from a lack of consistent, clear, and non-contradictory directions from HUD and the M&M contractor, and the high volume of transactions Fortune processed. However, because there were only 3 out of 55 instances where this occurred, we believe it was caused by oversight. Closing Files Not Maintained by FHA Case Number Fortune responded that the software system was not available to allow it to maintain case files by FHA case number. However, this is a contract requirement. Extension Fees Shown on HUD-1 Incorrectly Fortune responded that it utilized a HUD-1 format specifically modified and in compliance with RESPA laws and instructions by the Santa Ana HOC. However, RESPA Appendix A to Part 3500 specifically states that lines 104, 105, 404, and 405 are to be additional amounts owed by the borrower. Further, the contract specifically states that the extension fees are to be shown on lines 104 and 404. Recommendation Since the contract between Fortune and HUD expired on December 31, 1999, we have not made recommendations for this finding. Page 15 00-FW-222-1006 Finding 2 THIS PAGE LEFT BLANK INTENTIONALLY 00-FW-222-1006 Page 16 Management Controls In planning and performing our audit, we obtained an understanding of the management controls that were relevant to our audit. Management is responsible for establishing effective management controls. Management controls, in the broadest sense, include the plan of 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. • Policies and procedures of the sales process at HUD. • Administrative controls to ensure that accurate data is input from the settlement statement into the Single Family Asset Management System. • Policies and procedures of the cash receipts and disbursements controls at the closing agent. • Administrative controls to ensure the closing documents were kept secure. A significant weakness exists if management controls do not Significant Weakness. give reasonable assurance that resource use is consistent with laws, regulations, and policies; that resources are safeguarded against waste, loss, and misuse; and that reliable data are obtained, maintained, and fairly disclosed in reports. Our review did not disclose significant weaknesses. Page 17 00-FW-222-1006 Management Controls THIS PAGE LEFT BLANK INTENTIONALLY 00-FW-222-1006 Page 18 Appendix A Schedule of Questioned Costs Type of Questioned Costs Issue Ineligible 1/ 1A Ineligible costs $ 5,000 1B Ineligible wire transfer fees 38,900 Total $43,900 1 Ineligible costs are costs charged to a HUD-financed or insured program or activity that the auditor believes are not allowable by law, contract, or federal, state, or local policies or regulations. Page 19 00-FW-222-1006 Appendix A THIS PAGE LEFT BLANK INTENTIONALLY 00-FW-222-1006 Page 20 Appendix B Auditee Comments Page 21 00-FW-222-1006 Appendix B 00-FW-222-1006 Page 22 Appendix B Page 23 00-FW-222-1006 Appendix B 00-FW-222-1006 Page 24 Appendix B Page 25 00-FW-222-1006 Appendix B 00-FW-222-1006 Page 26 Appendix B Page 27 00-FW-222-1006 Appendix B 00-FW-222-1006 Page 28 Appendix B Page 29 00-FW-222-1006 Appendix B 00-FW-222-1006 Page 30 Appendix B Page 31 00-FW-222-1006 Appendix B 00-FW-222-1006 Page 32 Appendix B Page 33 00-FW-222-1006 Appendix B 00-FW-222-1006 Page 34 Appendix B Page 35 00-FW-222-1006 Appendix B 00-FW-222-1006 Page 36 Appendix B Page 37 00-FW-222-1006 Appendix B 00-FW-222-1006 Page 38 Appendix B Page 39 00-FW-222-1006 Appendix B THIS PAGE LEFT BLANK INTENTIONALLY 00-FW-222-1006 Page 40 Appendix C Distribution Secretary's Representative, 6AS Comptroller, 6AF Director, Accounting, 6AAF Director, Single Family Homeownership Center, 9JHH Saul N. Ramirez, Jr., Deputy Secretary, SD (Room 10100) Kevin Simpson, Deputy General Counsel, CB (Room 10214) Jon Cowan, Chief of Staff, S (Room 10000) B. J. Thornberry, Special Asst. to the Deputy Secretary for Project Management, SD (Rm 10100) Joseph Smith, Acting Assistant Secretary for Administration, A (Room 10110) Hal C. DeCell III, A/S for Congressional and Intergovernmental Relations, J (Room 10120) Ginny Terzano, Sr. Advisor to the Secretary, Office of Public Affairs, S (Room 10132) Roger Chiang, Director of Scheduling and Advance, AL (Room 10158) Howard Glaser, Counselor to the Secretary, S (Room 10218) Rhoda Glickman, Deputy Chief of Staff, S (Room 10226) Todd Howe, Deputy Chief of Staff for Operations, S (Room 10226) Jacquie Lawing, Deputy Chief of Staff for Programs & Policy, S (Room 10226) Patricia Enright, Deputy A/S for Public Affairs, W (Room 10222) Joseph Hacala, Special Asst for Inter-Faith Community Outreach, S (Room 10222) Marcella Belt, Executive Officer for Admin Operations and Management, S (Room 10220) Karen Hinton, Sr. Advisor to the Secretary for Pine Ridge Project (Room 10216) Gail W. Laster, General Counsel, C (Room 10214) Armando Falcon, Office of Federal Housing Enterprise Oversight (Room 9100) William Apgar, Assistant Secretary for Housing/FHA, H (Room 9100) Susan Wachter, Office of Policy Development and Research (Room 8100) Cardell Cooper, Assistant Secretary for CPD, D (Room 7100) George S. Anderson, Office of Ginnie Mae, T (Room 6100) Eva Plaza, Assistant Secretary for FHEO, E (Room 5100) V. Stephen Carberry, Chief Procurement Officer, N (Room 5184) Harold Lucas, Assistant Secretary for Public & Indian Housing, P (Room 4100) Gloria R. Parker, Chief Information Officer, Q (Room 8206, L’Enfant Plaza) Frank L. Davis, Director, Office of Dept Operations and Coordination, I (Room 2124) Office of the Chief Financial Officer, F (Room 2202) Edward Kraus, Director, Enforcement Center, V, 200 Portals Bldg., Wash. D.C. 20024 Donald J. LaVoy, Acting Director, REAC, X, 800 Portals Bldg., Wash. D.C. 20024 Ira Peppercorn, Director, Office of MF Asst Restructuring, Y, 4000 Portals Bldg., D.C. 20024 Mary Madden, Assistant Deputy Secretary for Field Policy & Mgmt, SDF (Room 7108) (2) Deputy Chief Financial Officer for Operations, FF (Room 2202) David Gibbons, Director, Office of Budget, FO (Room 3270) Rebecca J. Holtz, Housing Program Officer, HUCI (Room 9146) FTW ALO, 6AF (2) San Francisco ALO, 9AF Page 41 00-FW-222-1006 Appendix C DISTRIBUTION (Cont’d) Housing ALO, HF (Room 9116) (2) Dept. ALO, FM (Room 2206) (2) Acquisitions Librarian, Library, AS (Room 8141) Director, Hsg. & Comm. Devel. Issues, US GAO, 441 G St. NW, Room 2474 Washington, DC 20548 Attn: Judy England-Joseph Henry A. Waxman, Ranking Member, Committee on Govt Reform, House of Rep., Washington, D.C. 20515 The Honorable Fred Thompson, Chairman, Committee on Govt Affairs, U.S. Senate, Washington, D.C. 20510 The Honorable Joseph Lieberman, Ranking Member, Committee on Govt Affairs, U.S. Senate, Washington, D.C. 20510 Cindy Fogleman, Subcomm. on Gen. Oversight & Invest., Room 212, O'Neill House Ofc. Bldg., Washington, D.C. 20515 The Honorable Dan Burton, Chairman, Committee on Govt Reform, House of Representatives, Washington, D.C. 20515 Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug Policy & Human Resources, B373 Rayburn House Ofc. Bldg., Washington, D.C. 20515 Steve Redburn, Chief, Housing Branch, Office of Management and Budget 725 17th Street, NW, Room 9226, New Exec. Ofc. Bldg., Washington, D.C. 20503 Inspector General, G Fortune Escrow, Inc. 00-FW-222-1006 Page 42
Fortune Escrow, Inc. Closing Agent Contract
Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-08-23.
Below is a raw (and likely hideous) rendition of the original report. (PDF)