oversight

Muskegon Housing Commission, Audit of Low Rent Public Housing, Section 8 and Single Room Occupancy Programs, Muskegon, Michigan

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-11-29.

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

                AUDIT REPORT




           MUSKEGON HOUSING COMMISSION
       LOW RENT PUBLIC HOUSING, SECTION 8 AND
         SINGLE ROOM OCCUPANCY PROGRAMS

                MUSKEGON, MICHIGAN

                    01-CH-202-1002

                 NOVEMBER 29, 2000

                OFFICE OF AUDIT, MIDWEST
                    CHICAGO, ILLINOIS




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                                                                           Issue Date
                                                                                 November 29, 2000

                                                                           Audit Case Number
                                                                                 01-CH-202-1002




       TO:            Michael A. Williams, Director, Troubled Agency Recovery Center North, PB1

                           /signed/
       FROM:          Dale L. Chouteau, District Inspector General for Audit, 5AGA

       SUBJECT:       Muskegon Housing Commission
                      Audit of Low Rent Public Housing, Section 8 and Single Room Occupancy
                       Programs
                      Muskegon, Michigan

       We completed an audit of Muskegon Housing Commission’s financial operations, which included its
       Low Rent Public Housing, Section 8 and Single Room Occupancy Programs. The audit was conducted
       in response to a request from the Director, Troubled Agency Recovery Center North, and the Director,
       Office of Public Housing, Michigan State Office. The objectives of the audit were to determine:
       whether the Muskegon Housing Commission improperly transferred funds between its programs, and
       complied with the Annual Contributions Contract and other applicable HUD regulations.

       We found that the Housing Commission transferred $836,893 between housing programs without HUD
       authorization. In addition, we estimated that $298,970 of Section 8 subsidy funds were improperly
       used by the Housing Commission to pay operating expenses of the Low Rent Public Housing Program.
       We also found that the Housing Commission: improperly pledged 14 Low Rent Public Housing
       Program homes and proceeds from the sales of those homes as collateral for a loan; paid $51,233 of
       Public Housing funds to double insure its employees; and could not provide documentation to support
       expenses of $12,989 charged to its credit card accounts.

       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, or Ronald Huritz,
       Assistant District Inspector General, at (312) 353-6236, Extension 2675.




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       Executive Summary
       We completed an audit of Muskegon Housing Commission’s financial operations, which included its
       Low Rent Public Housing, Section 8 and Single Room Occupancy Programs. The audit was conducted
       in response to a request from the Director, Troubled Agency Recovery Center North, and the Director,
       Office of Public Housing, Michigan State Office. Our audit objectives were to determine: whether the
       Muskegon Housing Commission improperly transferred funds between its programs, and complied with
       the Annual Contributions Contract and other applicable HUD regulations.

       We found that the Housing Commission transferred $836,893 between housing programs without HUD
       authorization. In addition, we estimated that $298,970 of Section 8 subsidy funds were improperly used
       by the Housing Commission to pay operating expenses of the Low Rent Public Housing Program. The
       Housing Commission pledged 14 Low Rent Public Housing Program homes and proceeds from the
       sales of those homes as collateral for a loan in violation of HUD regulations. The Housing Commission
       did not cease these activities after being instructed by HUD to do so.

       We also found that the Housing Commission used $51,233 of Public Housing funds to pay employee
       health insurance premiums for the same coverage the employees were also receiving from the City of
       Muskegon. The Housing Commission could not provide supporting documentation for $12,989 in
       expenses charged to its credit card accounts.

       As of August 1, 2000, HUD was in the process of instituting a Limited Denial of Participation action
       against the Executive Director. On the same date, the City of Muskegon Board of Housing
       Commissioners terminated his employment.


   Unauthorized Transfers of                  As of April 2000, the Housing Commission had transferred
   Public Housing and Section 8               $836,893 from its Public Housing Program to fund the Single
   Funds                                      Room Occupancy Program and operating expenses of the
                                              Family Investment Center. In addition, a combination of
                                              administrative fees and subsidy funds totaling $665,000 were
                                              transferred from the Section 8 account to the Low Rent Public
                                              Housing account. Of the latter amount, we estimated that
                                              $298,970 of Section 8 subsidy funds were improperly used to
                                              pay operating expenses of the Low Rent Public Housing
                                              Program. The Housing Commission had been making such
                                              transfers in varying amounts since at least October 1995. The
                                              Housing Commission did not comply with HUD instructions to
                                              discontinue the transfers. Transferring funds between housing
                                              programs is not permitted by the Annual Contributions
                                              Contract. As a result, sufficient funds were not available to
                                              satisfy Public Housing Program needs.

       Unauthorized Use Of Public             The Housing Commission obtained two loans, one from First of
       Housing Assets                         America Bank for $480,000 secured by the Family Investment

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                                      Center building, and a second from the Michigan Housing Trust
                                      Fund for $140,000. To secure the second loan, the City of
                                      Muskegon, acting on behalf of the Housing Commission,
                                      executed a blanket mortgage covering 14 Low Rent Public
                                      Housing (Turnkey III) homes, and pledged future income
                                      expected to be received from the sale of the homes. Part 2,
                                      Section 313 of the Annual Contributions Contract prohibits the
                                      Housing Commission from pledging income from the sale of
                                      these properties without approval from HUD. The 14 homes
                                      pledged as collateral were covered by a Declaration of Trust
                                      agreement. The Housing Commission sold nine of the Turnkey
                                      III homes, but did not release the Declaration of Trust for five
                                      of the homes. Consequently, HUD regulations were violated,
                                      and purchasers of the five homes did not receive clear title to
                                      their properties.

         Double Health Insurance      The Housing Commission obtained Blue Cross/Blue Shield
         Premiums                     health insurance coverage for all Housing Commission
                                      employees, including the Executive Director, who were already
                                      covered under the City of Muskegon’s health plan. Since
                                      November 1998, the Housing Commission has paid at least
                                      $15,379 in premiums to the City for coverage, and $47,989 to
                                      Blue Cross/Blue Shield for the same coverage. HUD instructed
                                      the Housing Commission on November 30, 1999, to stop
                                      paying the second premium for employees covered under the
                                      City of Muskegon’s health plan, but it continued to pay the
                                      premiums. As a result, the funds, which could have been used
                                      for Public Housing Program needs, were misspent on
                                      unnecessary insurance.

         Unsupported And Ineligible   The Housing Commission had no supporting documentation for
         Charges                      $12,989 in charges to its credit card accounts, including:
                                      $2,199 for airline tickets; $1,485 for restaurant and retail
                                      purchases; and $9,305 for hardware and miscellaneous items.
                                      In addition, we noted expenses totaling $2,040 that were
                                      charged by the Executive Director for personal items, such as
                                      clothing and medicine. Management did not consistently follow
                                      its procurement policy to ensure that employees returned
                                      necessary support for credit card expenses. As a result,
                                      provisions of OMB Circular A-87 and the Housing
                                      Commission’s policy were violated, and HUD housing funds
                                      may have been misspent on unallowable items.


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        Recommendations            We recommended that the Director, Troubled Agency
                                   Recovery Center, ensures that the Muskegon Housing
                                   Commission sells the Family Investment Center building to pay
                                   off any outstanding mortgages, implements a plan to repay the
                                   Public Housing Program for funds transferred to other
                                   programs; and strengthens controls to ensure compliance with
                                   HUD regulations and its own procurement policy.

       Auditee Response To Draft   Housing Commission interim management indicated in its
       Findings                    response to our Draft Findings that its positions on all issues
                                   discussed in the audit were under review. Management began
                                   evaluating the effectiveness of its policies and procedures only a
                                   short time before we conducted the exit conference and could
                                   not give us specific details as to how the issues would be
                                   resolved.

                                   We presented our draft findings to the Housing Commission
                                   during the course of the audit. We held an exit conference with
                                   the Interim Director on October 6, 2000. The Housing
                                   Commission provided comments to our draft findings, which are
                                   included in their entirety as an Appendix 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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       Management Memorandum                                                     i



       Executive Summary                                                       iii



       Introduction                                                            1



       Findings

       1     Muskegon Housing Commission Transferred Funds Between
             Housing Programs Without HUD Authorization                        3

       2     Low Rent Homes Pledged to Secure Loans in Violation
             Of HUD Regulations                                                9

       3     Public Housing Funds Used To Double Insure Five Employees       13

       4     Unsupported and Ineligible Expenses Charged to
             Housing Commission Credit Cards                                17



       Management Controls                                                   21


       Follow Up On Prior Audits                                             23


       Appendices
           A Schedule of Questioned Costs                                    25


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           B Auditee Comments               27

           C Distribution                   33




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       Introduction
       The Muskegon Housing Commission was established in 1965 under the laws of the State of Michigan.
       The Housing Commission was created to provide and manage decent, safe and sanitary housing for
       low-income residents according to programs approved by the City of Muskegon’s Board of Housing
       Commissioners. The Board consists of five unpaid members who formulate and direct the Housing
       Commission’s policies. The Chairman of the Board is Boyd Arthur. The Executive Director is
       responsible for the day-to-day operations. As of August 1, 2000, HUD was in the process of instituting
       a Limited Denial of Participation action against the former Executive Director. On the same date, the
       Board of Housing Commissioners terminated his employment. The Housing Commission’s Interim
       Executive Director is Janet Williams. The Housing Commission’s official records are maintained at 1823
       Commerce Street, Muskegon, Michigan.

       In January 1999, Muskegon Housing Commission was declared by HUD to be a “troubled” housing
       authority and was placed under supervision of the Troubled Agency Recovery Center in Cleveland,
       Ohio.

       Of 196 total units managed by the Housing Commission, 160 units are designated for elderly and
       disabled individuals, including 36 units in the Single Room Occupancy Program. The Housing
       Commission also manages six multi-family apartment units in three duplex structures, and 30 units in the
       Homeownership Program. There are currently 164 Section 8 recipients. In Fiscal Years 1996 and
       1999, HUD awarded the Housing Commission $15,000 and $261,843, respectively, for
       Comprehensive Improvement Assistance Program grants.

       A legislative change in 1996 permitted Michigan housing authorities to seek a separation from the
       municipal bodies that previously controlled their operations. The State’s Housing Facilities Act
       Amendment now allows a housing commission to own property in its own name and act as a separate
       legal entity when entering into contracts. Since the legislative change, the Muskegon Housing
       Commission had been attempting to separate from the City to control its operations. The separation
       became effective August 16, 2000.




       Audit Objectives                       The audit objectives were to determine whether the Muskegon
                                              Housing Commission improperly transferred funds between its
                                              programs, and complied with the Annual Contributions
                                              Contract and other applicable HUD regulations.

       Audit Scope and Methodology            To achieve our objectives, we interviewed Troubled Agency
                                              Recovery Center and other HUD staff regarding the
                                              Commission’s operations. We reviewed Recovery Center
                                              records, including: monitoring review reports; correspondence
                                              with the Housing Commission; and subsidy disbursements. We

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                        interviewed Housing Commission staff and reviewed Housing
                        Commission records on-site, such as: monthly financial
                        statements; the procurement policy; City of Muskegon’s travel
                        policy and reimbursement records; the Housing Commission’s
                        bank account statements and cancelled checks for the audit
                        period; monthly credit card billing statements; and various
                        accounts payable invoices.

                        The audit, which was conducted in accordance with generally
                        accepted government auditing standards, covered the period
                        November 1, 1995, through June 30, 2000. We performed the
                        audit between December 1, 1999, and July 21, 2000.

                        We provided a copy of this report to the Commission’s Interim
                        Executive Director.




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                                                                                                   Finding 1


            Muskegon Housing Commission Transferred
            Funds Between Housing Programs Without
                      HUD Authorization
       The Muskegon Housing Commission transferred $836,893 from its Public Housing Program to finance
       operations of its Single Room Occupancy Program and the Family Investment Center. In addition, a
       combination of Section 8 administrative fees and subsidy funds totaling $665,000 were transferred from
       the Section 8 account to the Low Rent Public Housing Program to pay operating expenses. Of this
       latter amount, we estimated that $298,970 of the transferred funds represented an inappropriate use of
       Section 8 subsidy funds. Such transfers and uses were not permitted by the Annual Contributions
       Contract and other HUD regulations. The transfers took place over a four-year period beginning in
       October 1995. The Housing Commission continued this activity despite being instructed by HUD to
       cease the transfers. As a result, HUD requirements were violated, and sufficient funds may not have
       been available to operate Muskegon Housing Commission’s Public Housing and Section 8 Programs.




       Background                             Public housing authorities in the State of Michigan operate
                                              under the Housing Facilities Act (Public Act 18) enacted in
                                              1933. This act gave cities and other municipal bodies in the
                                              State the authority to create, construct, finance and operate
                                              housing commissions. In March 1996, the City of Muskegon
                                              purchased a commercial building located at 1823 Commerce
                                              Street in Muskegon, Michigan to be used as the Muskegon
                                              Housing Commission’s administrative offices. A major portion
                                              of the building now serves as the Housing Commission’s
                                              headquarters. An adjacent portion was reconfigured to
                                              accommodate 36 living units under HUD’s Single Room
                                              Occupancy Program.

                                              In September 1996, the Housing Commission was awarded
                                              $403,520 in low income housing tax credits by the Michigan
                                              State Housing Development Authority. In order to benefit from
                                              the tax credits, the awardee must be an entity other than a
                                              municipal body. Therefore, prior to receiving the credits, the
                                              Housing Commission created a non-profit entity, the Family
                                              Investment Center Limited Housing Development Corporation
                                              (hereafter, “Family Investment Center”). In November 1996,
                                              the Family Investment Center Limited Dividend Housing
                                              Association Limited Partnership was formed. The Partnership

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                        is comprised of the Corporation as the general partner, and the
                        Executive Director of the Housing Commission as the limited
                        partner.

                        Through a series of transfers, ownership of the Commerce
                        Street building was transferred by quit claim deed from the City
                        of Muskegon to the Family Investment Center Limited Dividend
                        Housing Association Limited Partnership.           The Housing
                        Commission pays a monthly rental of $887 to the Family
                        Investment Center for the use of its office space.

   HUD Requirements     Article IV, Section 401, Part D, of the Annual Contributions
                        Contract allows the housing commission to “...withdraw monies
                        from the General Fund only for 1) the payment of development
                        costs, 2) the payment of operating expenditures, 3) the
                        purchase of investment securities as approved by the
                        Government, 4) other purposes specified in [the Annual
                        Contributions Contract], and 5) other purposes specifically
                        approved by the Government”.

                        Article IV, Section 422 of the Annual Contributions Contract
                        states the housing commission “...shall not, without the approval
                        of the Government, obtain, from any source whatsoever, any
                        loan in connection with the Projects other than those specifically
                        provided for under this Contract”.

                        HUD Handbook 7420.7, Section 8-2d(3)(a), Unauthorized
                        Transfers, states that transfers of amounts from the Operating
                        Reserve to another non-Section 8 program account does not
                        constitute use of the Operating Reserve for other housing
                        purposes, even if the account to which funds would be
                        transferred is designated for housing purposes. Operating
                        Reserve funds must be expended to be considered used for
                        other housing purposes.

                        24 CFR Part 982, Section 982.152(v)(3), states that
                        administrative fees may only be used to cover costs incurred to
                        perform housing authority administrative responsibilities for the
                        program in accordance with HUD regulations and requirements.

                        24 CFR Part 982, Section 982.155(b)(1), states that if funds in
                        the administrative fee reserve are not needed to cover housing
                        authority administrative expenses, the housing authority may use

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                                       these funds for other housing purposes permitted by State and
                                       local law. However, HUD may prohibit use of the funds for
                                       certain purposes.

                                       As of April 2000, the Housing Commission had transferred
        Unauthorized Transfers Of
                                       $836,893 from its Public Housing Program to fund the Single
        Public Housing And Section 8
                                       Room Occupancy Program and operating expenses of the
        Funds
                                       Family Investment Center.

                                       In addition, a combination of Section 8 administrative fees and
                                       subsidy funds totaling $665,000 were transferred from the
                                       Section 8 account to the Low Rent Public Housing Program.
                                       These transferred funds were used by the Housing Commission
                                       to pay operating expenses of the Low Rent Public Housing
                                       Program. Regulation 24 CFR Part 982.155(b)(1) allows funds
                                       in the administrative fee reserve to be used for other housing
                                       purposes permitted by State and local law, but HUD may
                                       prohibit use of the funds for certain purposes. We were unable
                                       to find any documentation indicating that HUD imposed a
                                       restriction on the Housing Commission’s use of the
                                       administrative fees. Because the administrative fees and subsidy
                                       funds were commingled, we could not determine what portion
                                       of the Section 8 transfers related to administrative fees.
                                       Between fiscal year 1996 and fiscal year 2000, the Housing
                                       Commission received $366,030 in administrative fees for the
                                       Section 8 voucher and certificate programs.            Using a
                                       conservative approach, we estimated that $298,970 ($665,000
                                       minus $366,030) of the Section 8 fund transfers represented an
                                       inappropriate use of Section 8 subsidy funds.

                                       The Housing Commission had been making such transfers in
                                       varying amounts since at least October 1995. Transferring
                                       funds between housing programs is not permitted by the Annual
                                       Contributions Contract and HUD Handbook 7420.7. In
                                       March 1999, the Troubled Agency Recovery Center became
                                       aware of the situation and instructed the Housing Commission in
                                       writing to cease the transfers.          However, the Housing
                                       Commission did not comply with this instruction and continued
                                       to make periodic transfers from the two programs.

       Family Investment Center        Since October 1995, the Family Investment Center has not
       Could Not Meet Expenses         been able to generate enough revenue on its own because it has
                                       failed to lease available office space in the Commerce Street

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       Finding 1


                                  building to other businesses or services. It has also been
                                  unsuccessful at selling the low income housing tax credits.
                                  Because the cost to rehabilitate the Single Room Occupancy
                                  units and recurring operating costs exceeded the revenue
                                  generated by the Family Investment Center, the Housing
                                  Commission paid most of the Family Investment Center
                                  expenses directly out of Public Housing Funds. This depleted
                                  the Public Housing Program’s operating budget, creating the
                                  need to transfer $665,000 in administrative fees and subsidy
                                  funds from Section 8 to the Public Housing General Fund. The
                                  effect of this activity was that the Housing Commission became
                                  delinquent in paying its bills.

                                  The Executive Director of the Housing Commission informed us
                                  that the main deterrent to bringing businesses or services into
                                  the building was the lack of a separate point of entry. Because
                                  of its layout, employees and patrons of such businesses or
                                  services would have to enter the building either through the
                                  Housing Commission’s front office or an adjoining back alley.
                                  A further deterrent is that businesses cannot effectively advertise
                                  outside the building because of limited visibility from the alley
                                  and the Housing Commission entrance.

       Housing Commission Could   The tax credits were awarded to the Housing Commission to
       Not Sell Tax Credits       fund the rehabilitation of the Single Room Occupancy units. At
                                  the time of the award, Internal Revenue Service regulations did
                                  not allow municipal entities to sell the tax credits. As indicated
                                  earlier, prior to the 1996 amendment to the Housing Facilities
                                  Act, the Housing Commission could not own property in its
                                  own name, leading to the formation of the Corporation and
                                  Partnership. The City of Muskegon controlled Housing
                                  Commission operations and personnel, and at some point,
                                  replaced the original independent Board of Directors of the
                                  Corporation with its own appointees. Thus, the Housing
                                  Commission failed to sell the tax credits to investors because of
                                  the City’s ties to the Corporation’s Board of Directors.

                                  As a result of the unauthorized transfers of funds and the
                                  inability to sell the tax credits, two critical housing programs
                                  were denied adequate funding.




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                           Excerpts from the auditee’s comments on our draft finding
       Auditee Comments    follow. Appendix B contains the complete text of the
                           comments:

                           Consultation with current on-site personnel, the Troubled
                           Agency Recovery Center and assigned consultants are under
                           review. Muskegon Housing Authority will continue its efforts to
                           seek recovery and/or remedy for the Public Housing Program
                           affected by the financial transactions identified. Strategies to
                           replenish funds at a sufficient level to safeguard and restore trust
                           in the financial and operational management systems are under
                           consideration.

       OIG Evaluation of   Discussion at the exit conference of the various options
       Auditee Comments    available to Housing Commission management demonstrated
                           their commitment to resolving the longstanding issues.



       Recommendations     We recommend that the Director, Troubled Agency Recovery
                           Center, in conjunction with the Director, Office of Public
                           Housing, Michigan State Office, assures that the Muskegon
                           Housing Commission:

                           1A.     Repays $298,970 to the Section 8 Program for subsidy
                                   funds that were inappropriately used by the Housing
                                   Authority to pay operating expenses of the Low Rent
                                   Public Housing Program;

                           1B.     Sells the Family Investment Center building to pay off
                                   any outstanding mortgages, and applies the balance of
                                   the sale proceeds to repay the Public Housing Program
                                   $836,893 that were improperly transferred to the Single
                                   Room Occupancy Program;

                           1C.     Sells any excess or unused assets it may have, such as
                                   vehicles or real estate, to repay the programs;

                           1D.     Establishes procedures and controls to preclude
                                   prohibited inter-program fund transfers in the future.


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                                                                                                     Finding 2


          Low Rent Homes Pledged To Secure Loans In
                Violation of HUD Regulations
       The Muskegon Housing Commission pledged 14 Low Rent Public Housing Program homes, and
       proceeds from the future sale of the homes, as collateral for a $140,000 loan obtained from the
       Michigan Housing Trust Fund. The purpose of the loan was to purchase and remodel the Family
       Investment Center building used for the Single Room Occupancy Program. As of May 2000, the
       Housing Commission had reduced the loan balance by $90,000 resulting from the sale of nine homes. A
       Declaration of Trust in favor of HUD was not released for five of the property sales. This arrangement
       was not approved by HUD, and violates the Annual Contributions Contract, Administrative Use Plan
       and Declaration of Trust restrictions.



       Background                             In March 1996, the Muskegon Housing Commission sought to
                                              purchase and renovate a commercial building to serve as the
                                              site of its Single Room Occupancy Program and the Housing
                                              Commission’s administrative offices.

                                              The City of Muskegon would not issue its full faith and credit to
                                              enable the Housing Commission to acquire one loan of sufficient
                                              amount to purchase the site, which was to become known as
                                              the Family Investment Center. Therefore, the Housing
                                              Commission obtained two loans, one from First of America
                                              Bank for $480,000 secured by the Family Investment Center
                                              building, and a second from the Michigan Housing Trust Fund
                                              for $140,000. To secure the second loan, the City of
                                              Muskegon, acting on behalf of the Housing Commission,
                                              executed a blanket mortgage covering the 14 homes, and
                                              pledged future income expected to be received from the sale of
                                              the homes, known as “Turnkey III” properties. The homes are
                                              part of the Housing Commission’s inventory of Low Rent Public
                                              Housing Program homeownership properties.

                                              The Turnkey III Homeownership Opportunity Program is a
                                              lease-purchase approach to help eligible low-income families
                                              buy homes in certain public housing projects developed
                                              specifically for homeownership.

       HUD Requirements                       The HUD Declaration of Trust requires the Housing
                                              Commission to retain title to public housing property and to

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                                   “...refrain from transferring, conveying, assigning, leasing,
                                   mortgaging, pledging, or otherwise encumbering or
                                   permitting...any transfer, conveyance, assignment, lease
                                   mortgage, pledge or other encumbrance of said property…”.

                                   Part 2, Section 313 of the Annual Contributions Contract
                                   prohibits the Housing Commission from pledging income from
                                   low rent public housing without approval from HUD.

        Declaration Of Trust Not   In November 1993, the Housing Commission signed a
        Released                   Declaration of Trust giving HUD a secured interest in the
                                   properties listed in the agreement. The 14 homes pledged as
                                   collateral for the Michigan Housing Trust Fund Loan were
                                   covered by the Declaration of Trust agreement. The Housing
                                   Commission sold nine of the Turnkey III homes between 1997
                                   and 1999. Of the nine, only four had a Partial Release of
                                   Declaration of Trust executed. The other five homes are still
                                   under the Declaration of Trust, according to a HUD attorney in
                                   the Michigan State Office. The title insurance company that
                                   closed the home sales apparently overlooked the Declaration of
                                   Trust that was recorded by the Muskegon County Registrar of
                                   Deeds on November 1, 1993.

                                   In May 1999, HUD was aware that the Trust Fund had
                                   accepted the homes as collateral encumbered by the
                                   Declaration of Trust agreement. HUD was also aware that the
                                   Housing Commission did not initiate requests for Partial
                                   Releases for the five homes sold between 1997 and 1999. The
                                   Director of Public Housing for HUD’s Michigan State Office
                                   told us that she discussed this matter verbally with the Housing
                                   Commission Executive Director, but that no reference was
                                   made to the problem in HUD’s monitoring report dated June
                                   18, 1999. She indicated further that HUD was waiting for the
                                   OIG to issue this Audit Report before taking corrective action.
                                   The Housing Commission is presently working with the title
                                   company to remove the clouded title from those homes.

                                   When a property is sold that is encumbered by a Declaration of
                                   Trust, it is the Housing Commission’s responsibility to initiate a
                                   request to HUD to execute a Partial Release of Declaration of
                                   Trust. The Housing Commission did not have controls in place
                                   to ensure that Partial Releases were consistently obtained from
                                   HUD prior to the sales, and that the title insurance company

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                                    was notified of the Declaration of Trust at the time title searches
                                    were conducted. As a result, the Declaration of Trust was
                                    violated, and purchasers of the homes will not receive clear title
                                    to their properties until all Partial Releases have been executed.

       Unauthorized Use Of Public   As of May 2000, the Housing Commission had reduced the
       Housing Assets               Michigan Housing Trust Fund loan balance by $90,000 through
                                    the sale of nine of the Turnkey III homes. This amount was a
                                    portion of the total obligation owed to the Public Housing
                                    Program by the Family Investment Center. As discussed in
                                    Finding 1, the Family Investment Center was obligated to the
                                    Public Housing Program in the amount of $836,893 as of April
                                    2000. This situation resulted from the Housing Commission’s
                                    unauthorized interprogram transfers of funds from the Public
                                    Housing Program to the Single Room Occupancy Program.

                                    In addition to the monthly mortgage payments of $359, the
                                    Housing Commission was responsible for paying the Michigan
                                    Housing Trust Fund the lesser of $10,000 or the net sale
                                    proceeds from the sale of each mortgaged home. This action is
                                    not permitted by the Declaration of Trust or the Annual
                                    Contributions Contract. The City of Muskegon Housing
                                    Commissioners told us they were not aware they were violating
                                    HUD regulations by pledging the 14 homes and a portion of the
                                    sales proceeds.

                                    In a letter dated March 3, 1999, HUD instructed the Housing
                                    Commission that the use of sales proceeds in this manner was
                                    prohibited. The Housing Commission had been granted waivers
                                    by HUD in 1992 allowing it to retain and use the proceeds of
                                    Turnkey III home sales to provide housing assistance for low-
                                    income families. The waivers did not allow the sales proceeds
                                    to be used for any other purpose. The City of Muskegon
                                    Housing Commissioners voted in March 1999 to amend the
                                    Administrative Use Plan for the Turnkey III homes to allow the
                                    Housing Commission to use the sales proceeds for any program
                                    related to low-income families. However, the Housing
                                    Commission Executive Director failed to submit a formal
                                    request to HUD to amend the Administrative Use Plan.

                                    As a result, the Housing Commission violated the Annual
                                    Contributions Contract and Administrative Use Plan.


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                           The center of this issue appears to rest with financial projections
        Auditee Comments   for the purchase and renovation of the property located at 1823
                           Commerce, which is the site of the Single Room Occupancy
                           program as well as the Housing Commission administrative
                           offices. A full analysis of all existing systems is currently
                           underway, which includes the impact of the conceptual and
                           financial projections originally calculated, versus project viability
                           for the SRO project.           Real property transactions and
                           procedures for sales of all homes in the portfolio are under
                           development.

                           The Interim Director and Housing Commission staff indicated to
       OIG Evaluation of
                           us at the exit conference that they were considering terminating
       Auditee Comments
                           the Single Room Occupancy Program, an action that would be
                           necessary if the Commerce Street building was sold. The
                           Housing Commission’s administrative offices would then be
                           relocated to Hartford Terrace, one of the high-rise properties
                           operated by the Housing Commission.



       Recommendations     We recommend that the Director, Troubled Agency Recovery
                           Center, in conjunction with the Director, Office of Public
                           Housing, Michigan State Office, assures that the Muskegon
                           Housing Commission:

                           2A.     Takes action to sell the Family Investment Center
                                   building and payoff any outstanding mortgages on the
                                   building;

                           2B.     After the mortgages are retired, applies the remaining
                                   proceeds to pay down the Family Investment Center
                                   debt owed to the Public Housing Program;

                           2C.     Immediately ceases using proceeds from Turnkey III
                                   home sales to pay the Michigan Housing Trust Fund
                                   loan; and

                           2D.     Establishes a control procedure to notify HUD when
                                   Partial Releases of Declaration of Trust should be
                                   executed at the time homes are sold.


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                                                                                                   Finding 3


          Public Housing Funds Used To Double Insure
                        Five Employees
       The Muskegon Housing Commission used $51,233 of Public Housing funds to pay insurance premiums
       to private insurance companies for the same types of coverage it was paying the City of Muskegon to
       provide. The Housing Commission paid twice for health, life and disability benefits for five of its
       employees who were also provided the same coverage by the City of Muskegon. In addition, duplicate
       premiums were paid for the Executive Director’s health insurance coverage. As a result, Public Housing
       funds that could have been used for program needs were misspent on unnecessary insurance.



       OMB Requirement                        OMB Circular A-87, Attachment A, Paragraph C.1 states that
                                              to be allowable under Federal awards, a cost must be
                                              necessary and reasonable for proper and efficient performance
                                              and administration of Federal awards.



       Double Health Insurance                The Housing Commission obtained Blue Cross/Blue Shield
       Premiums                               health insurance coverage for all Housing Commission
                                              employees, including the Executive Director, who were already
                                              covered under the City of Muskegon’s health plan. Since
                                              November 1998, the Housing Commission has paid at least
                                              $15,379 in premiums to the City for coverage, and $47,989 to
                                              Blue Cross/Blue Shield for the same coverage. This double
                                              coverage has existed since the process of separating the
                                              Housing Commission from the City of Muskegon began. (See
                                              Background section of Finding 1.) The Housing Commission
                                              informed us that the private insurance was purchased to avoid
                                              any lapse of coverage when the separation took place;
                                              however, the separation has been delayed for several years due
                                              to a number of unresolved legal issues.

                                              HUD instructed the Housing Commission on November 30,
                                              1999, to stop paying the second premium for employees
                                              covered under the City of Muskegon’s health plan, but it
                                              continued to pay the premiums.

       Duplicate Health Insurance             In addition to the double coverage cited above, the Housing
       Premiums Paid For Executive            Commission has paid duplicate health insurance premiums to
       Director                               Blue Cross/Blue Shield for the Executive Director since


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                                    November 1998. The duplicate premiums total $3,775 (this
                                    amount is included in the $47,989).

                                    The Housing Commission began paying the duplicate premiums
                                    because Blue Cross/Blue Shield required a minimum of ten
                                    employees to be enrolled in the plan to qualify for group health
                                    coverage. However, we noted that double paying for the
                                    Executive Director actually resulted in a total of 11 subscribers
                                    to the plan. We could not determine why the Executive Director
                                    was listed twice on premium invoices under slightly different
                                    Social Security numbers. The Executive Director offered no
                                    explanation for the duplicate coverage, but did indicate that only
                                    one of the two Social Security numbers was valid.

                                    The City of Muskegon’s Board of Housing Commissioners was
                                    aware of the duplicate payments for the Executive Director;
                                    however, the Board took no action to stop the duplicate
                                    payments. The effect of these duplicate payments for private
                                    coverage, in combination with the double coverage from the
                                    private carrier and the City, was that the Executive Director
                                    was triple-insured for the same type of insurance. (As of
                                    August 1, 2000, HUD was in the process of instituting a
                                    Limited Denial of Participation action against the Executive
                                    Director. On the same date, the City of Muskegon Board of
                                    Housing Commissioners terminated his employment.)

       Double Life And Disability   The Housing Commission paid double life and disability
       Insurance Payments           insurance premiums for five employees who were already
                                    covered by another life and disability plan offered through the
                                    City of Muskegon. Since December 1998, the Housing
                                    Commission has paid a least $1,514 to the City of Muskegon
                                    for this insurance, and paid $3,244 to the Business Men’s
                                    Assurance Company of America for the same employees.

                                    The reason for this double coverage is the same as that for the
                                    double health insurance. The Executive Director attempted to
                                    avoid any lapse of coverage when the Housing Commission
                                    separated from the City.

                                    The double coverage and duplicate payments for health, life and
                                    disability insurance resulted in $51,233 of Public Housing funds
                                    being misspent on unnecessary insurance.


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                           These funds could have been put to better use to support
                           Public Housing program needs.


                           This particular issue is under analysis regarding the relationship
       Auditee Comments    to the separation/autonomy agreement with the City of
                           Muskegon and its ultimate impact on protection of the current
                           and future personnel.

       OIG Evaluation of   Discussion at the exit conference addressed the possibility of
       Auditee Comments    recovering some portion of the overpaid premiums directly from
                           the insurance carrier. We consider this a viable option that
                           should be pursued by Housing Commission management.



       Recommendations     We recommend that the Director, Troubled Agency Recovery
                           Center North, assures that the Muskegon Housing Commission:

                           3A.     Establishes a repayment plan to repay the Public
                                   Housing Program $51,233 for the double insurance
                                   payments paid to the private insurance companies;

                           3B.     Cancels the former Executive Director’s insurance
                                   coverage with both the City of Muskegon and the
                                   private carrier.




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                                                                                                   Finding 4


       Unsupported and Ineligible Expenses Charged to
            Housing Commission Credit Cards
       The Muskegon Housing Commission could not provide documentation to support $12,989 in expenses
       charged to its two Visa credit card accounts. The unsupported expenses were for restaurant and retail
       purchases and airline tickets. In addition, expenses totaling $2,040 were charged by the Executive
       Director for personal items. The Housing Commission did not consistently follow its procurement policy
       that required all expenses to be documented. As a result, provisions of OMB Circular A-87 and the
       Housing Commission’s policy were violated, and HUD housing funds may have been misspent on
       unallowable items.




       OMB Regulation                         OMB Circular A-87, Section C (1a) states that allowable costs
       And Housing Commission                 must be necessary and reasonable for proper and efficient
       Policy                                 performance and administration of Federal awards.

                                              OMB Circular A-87, Section C (1j) states that costs must be
                                              adequately documented to be allowable.

                                              Muskegon Housing Commission’s Procurement Policy and
                                              Procedures Amendment, Paragraph 4, requires all procurement
                                              of equipment, material, supplies and repairs or service to be
                                              documented.

       Unsupported And Ineligible             The Housing Commission maintained two separate credit card
       Charges                                accounts. One card is used primarily for expenses associated
                                              with out-of-town conferences attended by Housing Commission
                                              personnel; the other card is used for local purchases in
                                              Muskegon. Both cards bear the names “Muskegon Housing
                                              Commission” and that of the Executive Director. Visa would
                                              not issue a corporate card without including an individual’s
                                              name.

                                              We reviewed 58 monthly billing statements for both of the
                                              Housing Commission’s Visa credit card accounts. Our review
                                              covered all charges to each account for the period September
                                              1997 through January 2000. The Housing Commission had no
                                              supporting documentation for $12,989 in charges, including:
                                              $2,199 for airline tickets; $1,485 for restaurant and retail
                                              purchases; and $9,305 for hardware and miscellaneous items.

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       Finding 4


                                   In addition, we noted expenses totaling $2,040 that were
                                   charged by the Executive Director for personal items, such as
                                   clothing and medicine. We determined that the Housing
                                   Commission paid all credit card charges from either Public
                                   Housing or Section 8 program funds. These unsupported and
                                   ineligible charges are not allowed by OMB Circular A-87 or
                                   the Housing Commission’s Procurement Policy and Procedures
                                   Amendment.

                                   As of August 1, 2000, HUD was in the process of instituting a
                                   Limited Denial of Participation action against the Executive
                                   Director. On the same date, the City of Muskegon Board of
                                   Housing Commissioners terminated his employment.

       Housing Commission Staff    The Assistant Director informed us that the Housing
       Were Aware Of               Commission staff were aware of the policy requiring receipts to
       Documentation Requirement   be submitted for all credit card purchases, but they sometimes
                                   failed to do so. The Executive Director admitted that he did not
                                   always return receipts after making credit card purchases. He
                                   said he was unaware that personal items could not be charged
                                   to the accounts. Although he indicated that he reimbursed the
                                   Housing Commission for his personal purchases, we could not
                                   independently verify his statement. Management did not
                                   consistently follow-up to ensure that employees returned
                                   necessary support for credit card expenses.

                                   We noted that controls over the credit cards were weak.
       Credit Cards Not Properly   Although a lockable container was generally used to store the
       Controlled                  cards when not in use, on two occasions we observed that one
                                   card was in the Executive Director’s possession although he
                                   had no need for the card at the time. In addition, the Housing
                                   Commission did not maintain a usage log for recording to whom
                                   the cards were issued and for what purpose. Improperly
                                   safeguarding the credit cards exposes a Housing Commission
                                   asset to possible misuse.

                                   The Housing Commission’s failure to obtain receipts from its
                                   employees to support all credit card purchases violated OMB
                                   Circular A-87 and its own procurement policy. As a result,
                                   HUD housing funds may have been misspent on non-program
                                   uses.



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                           Analyses are underway to establish a coherent and consistent
       Auditee Comments
                           policy addressing credit card issuance and usage. This effort
                           will be coordinated with the review and re-development of all
                           existing and required policies and procedures. It is the current
                           consensus that a clear and consistent procurement policy will
                           provide the necessary guidance for all areas affected by
                           stronger internal controls within the organization .


       OIG Evaluation of   The Housing Commission’s interim management indicated
       Auditee Comments    during the exit conference that it recognized the urgent need to
                           adopt and enforce a policy controlling this Housing Commission
                           asset.



        Recommendations    We recommend that the Director, Troubled Agency Recovery
                           Center North, assures that the Muskegon Housing Commission:

                           4A.    Directs the credit card issuer to remove the former
                                  Executive Director’s name from both accounts, and
                                  reissues new cards in the names of the Housing
                                  Commission and the successor Executive Director;

                           4B.    Obtains receipts from its employees to support the
                                  $12,989 in undocumented charges, to the extent
                                  possible;

                           4C.    Enforces its Procurement Policy and Procedures
                                  Amendment for future charges made to the credit cards;
                                  and

                           4D.    Establishes a usage log to strengthen controls over
                                  credit card activity.




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       Management Controls
       In planning and performing our audit, we considered the management controls of the Muskegon
       Housing Commission in order to determine our auditing procedures, not to provide assurance on the
       controls. Management controls 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.




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

                                             ·   Program Operations - Policies and procedures that
                                                 management has implemented to reasonably ensure that a
                                                 program meets its objectives.

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

                                             ·   Compliance with Laws and Regulations - Policies and
                                                 procedures that management has implemented to
                                                 reasonably ensure that resource use is consistent with laws
                                                 and regulations.

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

                                             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.

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


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       Management Controls



                             ·   Program Operations

                             The Housing Commission’s controls did not ensure that
                             adequate oversight was exercised by the Commission’s Board
                             of Directors and the City of Muskegon’s Housing
                             Commissioners. In discussions with the Housing Commission’s
                             Chairman of the Board, we learned that a number of actions
                             taken by the former Executive Director were not discussed with
                             the Chairman or other directors, particularly the pledging of
                             Turnkey III homes and proceeds of the home sales to secure a
                             loan. (See Finding 2).

                             ·   Compliance with Laws and Regulations

                             The Housing Commission’s former Executive Director did not
                             comply with instructions received from HUD on various
                             occasions. Specifically, HUD and the Troubled Agency
                             Recovery Center directed the Housing Commission to
                             discontinue making transfers of funds from its Low Rent Public
                             Housing and Section 8 Programs to its Single Room
                             Occupancy Program. In addition, the Housing Commission
                             ignored HUD’s instructions to discontinue paying double
                             insurance premiums to obtain coverage for its employees. (See
                             Findings 1 and 3).

                             ·   Safeguarding Resources

                             Controls over the Housing Commission’s credit cards were
                             weak. It did not ensure that only authorized persons used the
                             cards for official Housing Commission business, and did not
                             enforce its procurement policy requiring receipts to be
                             submitted for all expenses charged to the credit cards. (See
                             Finding 4).




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       Follow Up On Prior Audits
       The Office of Inspector General issued an audit report on March 30, 1994, pertaining to the Muskegon
       Housing Commission’s Low Income Housing and Turnkey III Homeownership Programs (Report 94-
       CH-202-1020). The audit objectives were to determine whether the Housing Commission
       administered its public housing and homeownership activities in an efficient, effective and economical
       manner, and complied with the terms of its Annual Contributions Contract and other applicable laws.

       Seven recommendations resulted from this audit. All recommendations were closed by Management
       Decisions during 1994, and posted to the Departmental Automated Audit Management System.

       None of the issues identified in the 1994 Audit Report were repeated in this report.




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                                                                                                 Appendix A

       Schedule of Questioned Costs


                                                                    Type of Questioned Costs
       Recommendation
         Number                                             Ineligible 1/            Unsupported 2/

           1A                                                $298,970
           1B                                                 836,893
           3A                                                                          $51,233
           4B                                                _______                    12,989

          Total                                             $1,135,863                  $64,222




             1/    Ineligible costs are questioned costs charged to a HUD program or activity that the
                   auditor believes are not allowable by law, contract, or Federal, State or local policies or
                   regulations.

             2/    Unsupported costs are costs charged to a HUD-financed or HUD-insured program or
                   activity and eligibility cannot be determined at the time of audit. The costs are not
                   supported by adequate documentation or there is a need for a legal or administrative
                   determination on the eligibility of the costs. Unsupported costs require a future decision
                   by HUD program officials. This decision, in addition to obtaining supporting
                   documentation, might involve a legal interpretation or clarification of Departmental
                   policies and procedures.




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                                                                                                   Appendix B

       Auditee Comments

       September 25, 2000

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

       Dear Mr. Huritz:

                This is in response to your correspondence of September 15, 2000 which contained Draft
       Audit Findings resulting from your review of the Muskegon Housing Commission (MHC). The purpose
       of this reply is to acknowledge receipt of the summary of issues, with subsequent responsive comment
       as appropriate, with indication of agreement/disagreement of each area identified, and followed by
       preliminary/alternative options, to the extent possible at this time. Attached, please find MHC
       response(s) to the Draft Findings, in the order presented.

                Understanding that final conclusions have not been made at this time, MHC would like to clarify
       that management position(s) at all levels are currently under review, with the intent to establish more
       functional/accountable means and methods for effective internal/management controls for an agency
       suited to accommodate the needs of the populace, i.e., program beneficiaries.

              That said, MHC would like to extend a cooperative stance in addressing the issues at hand.
       We expect additional exchanges of information in the future; please remain in contact. Thanking you in
       advance for a prompt and courteous reply.

       Sincerely,

       MUSKEGON HOUSING COMMISSION


       Janet Williams, Interim Director

       Encl.




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       Appendix C




                                   OIG/DRAFT & MHC/RESPONSE


           MUSKEGON HOUSING COMMISSION TRANSFERRED $1,501,893
          BETWEEN HOUSING PROGRAMS WITHOUT HUD AUTHORIZATION

       OIG/DRAFT FINDING:                      MHC transferred $836,893 from its Public Housing Program to
       finance operations of its Single Room Occupancy Program. Transfers of $665,000 in administrative
       fees and Section 8 subsidy funds made from the Section 8 account to the General Fund account were
       used to pay operating expenses. Such transfers and uses are not permitted by the Annual Contributions
       Contract and other HUD regulations. The transfers took place over a four-year period beginning in
       October 1995. The Housing Commission continued this activity despite being instructed by HUD to
       cease the transfers. As a result, HUD requirements were violated, and sufficient funds may not have
       been made available to operate Muskegon Housing Commission’s Public Housing and Section 8
       Programs.

       OIG/RECOMMENDATION assures that MHC:

       1A.     Sells the Family Investment Center building to pay off any outstanding mortgages, and applies
               the balance of the sale proceeds to repay the Public Housing and Section 8 programs; and

       1B.     Sells any excess or unused assets it may have, such as vehicles or real estate, to repay the
               programs.



       MHC/Initial Response:
       Consultation with current on-site personnel, HUD/TARC, and TARC-assigned consultants are under
       review, including the chronological and accuracy of information available at this time regarding the
       identified issues. These tasks involve extreme internal management review, coordinated with financial
       analyses of all current systems, which may ultimately impact alternative solutions to the draft
       recommendations to date. Certainly the sale of excess and/or unused assets may be viable
       considerations; however, MHC would like a coordinated approach to better address the issues,
       including the equation of past revenues generated by tenants into the financial overview, as well as
       projections for the future. It is our belief that short- and long-term solutions may be influenced by more
       detailed information at some point in the future. In the meantime, MHC will continue its efforts to seek
       recovery and/or remedy for the Public Housing Program, affected by the financial transactions identified.
       Additionally, strategies to replenish funds at a sufficient level to safeguard and restore trust in the


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       financial and operational management systems are under consideration, with consultation(s) with all
       interested parties.




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       Appendix C


             LOW RENT HOMES PLEDGED TO SECURE LOANS IN VIOLATION OF HUD
                                  REGULATIONS

       OIG/DRAFT FINDING: The Muskegon Housing Commission pledged 14 Low Rent Public Housing
       Program homes, and proceeds from the future sale of the homes, as collateral for a $140,000 loan
       obtained from the Michigan Housing trust Fund. The purpose of the loan was to purchase and remodel
       the Family Investment Center building used for the Singe Room occupancy Program. As of May 2000,
       the Housing Commission had reduced the loan balance by $90,000 resulting from the sale of nine
       homes. A Declaration of trust in favor of HUD was not released for five of the property sales. This
       arrangement was not approved by HUD, and violates the Annual Contributions Contract,
       Administrative Use Plan and Declaration of Trust restrictions.

       OIG/RECOMMENDATION assures that MHC:

       2A.     Takes action to sell the Family Investment Center building and payoff any outstanding
               mortgages on the building;

       2B.     After the mortgages are retired, applies the remaining proceeds to pay down the Family
               Investment Center debt owed to the Public Housing Program;

       2C.     Immediately ceases using proceeds from Turnkey III home sales to pay the Michigan Housing
               Trust Fund loan; and

       2D.     Establishes a control procedure to notify HUD when partial Releases of Declaration of Trust
               should be executed at the time homes are sold.


       MHC/Initial Response:
       As above, a review of the historical context and accuracy of information available at this time regarding
       this issue is underway. Also as above, the center of this issue appears to rest with financial projections
       for the purchase and renovation of the property located at 1823 Commerce, which is the site of the
       Single Room Occupancy (SRO) program, as well as the MHC administrative offices. A full analysis of
       all existing systems is currently underway, which includes the impact of the conceptual and financial
       projections originally calculated, versus project viability for the SRO project. Included in the analysis is
       the applicability of remaining debt to the Public Housing Program, possible re-use of current functions of
       the (Commerce) facility, the status of remaining units under the Turnkey III home sales and the
       projected revenue outcome with the Michigan Housing Trust fund balance. Real property transactions
       and/or procedures for sales of all homes in the MHC portfolio are under development, in conjunction
       with standard real estate property transactions, which include full disclosure on behalf of MHC upon
       transfer of ownership.



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                                                                                                       Finding 4


                          PUBLIC HOUSING FUNDS USED TO DOUBLE INSURE
                                        FIVE EMPLOYEES

       OIG/DRAFT FINDING: The Muskegon Housing Commission used $51,233 of Public Housing
       funds to pay insurance premiums to private insurance companies for the same types of coverage it was
       paying the City of Muskegon to provide. The Housing Commission paid twice for health, life and
       disability benefits for five of its employees who were also provided the same coverage by the City of
       Muskegon. In addition, duplicate premiums were paid for the Executive Director’s health insurance
       coverage. As a result, Public Housing funds that could have been used for program needs were
       misspent on unnecessary insurance.

       OIG/RECOMMENDATION assures that MHC:

       3A.     Establishes a repayment plan to repay the Public Housing Program $51,233 for the double
               insurance payments paid to the private insurance companies;

       3B.     Cancels the Executive Director’s insurance coverage with both the City of Muskegon and the
               private carrier.

       MHC/Initial Response:
       This particular issue is under analysis regarding the relationship to the ‘separation/autonomy’ agreement
       with the City of Muskegon and its ultimate impact on development of viable protection of the current
       and future personnel compliment. The financial review of this issue is underway including this amount,
       also for consideration in the equation for restoration to the Public Housing Program.

       It is important to note at this time that the autonomy/separation issue has been resolved, effective August
       16, 2000 and the impact upon on all real property assets, personnel compliment and associated benefit
       calculations will also be determined by the following areas in consideration for a viable and recoverable
       Housing Authority:

               1.      Governance – MHC and/or Family Investment Center;
               2.      Viability of PHA Programs vs. SRO;
               3.      Current and potential appraised valuation of all assets, including equipment, real
                       property; and
               4.      A well-defined and coordinated strategy to replenish/restore the appearance of
                       misappropriation of Public Housing and other funding sources, therefore restoring a
                       level of public trust by affected client populations.




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       Appendix C


               UNSUPPORTED AND INELIGIBLE EXPENSES CHARGED TO HOUSING
                             COMMISSION CREDIT CARDS

       The Muskegon Housing Commission could not provide documentation to support $12, 989 in expenses
       charged to its two Visa credit card accounts. The unsupported expenses were for restaurant and retail
       purchases and airline tickets. In addition, expenses totaling $2,040 were charged by the Executive
       Director for personal items. The Housing Commission did not consistently follow its procurement policy
       that required all expenses to be documented. As a result, provisions of OMB Circular A-87 and the
       Housing Commission’s policy were violated, and HUD housing funds may have been misspent on
       unallowable items.

       OIG/RECOMMENDATION assures that MHC:

       4A.     Directs the credit card issuer to remove the former Executive Director’s name from both
               accounts, and reissues new cards in the names of the Housing Commission and the successor
               Executive Director;

       4B.     Obtains receipts from its employees to support the undocumented charges to the extent
               possible;

       4C.     Enforces its Procurement Policy and Procedures Amendment for future charges made to the
               credit cards; and

       4D.     Establishes a usage log to strengthen controls over credit card activity.

       MHC/Initial Response:
       As with all other financial issues, analyses are underway to establish a coherent and consistent policy
       addressing credit card issuance and usage. This effort will be coordinated with the review and re-
       development of all existing and required policies and procedures, with a particular focus toward
       regulatory and OMB compliance objectives. It is the current consensus that a clear and consistent
       procurement policy will provide the necessary guidance for all areas affected by stronger internal
       controls within the organization.




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                                                                                                     Appendix C

       Distribution
       Secretary
       Deputy Secretary
       Chief of Staff
       Office of Administration
       Acting Assistant Secretary for Congressional and Intergovernmental Relations
       Deputy Assistant Secretary, Office of Public Affairs
       Deputy Assistant Secretary for Administrative Services, Office of the Executive Secretariat
       Deputy Assistant Secretary for Intergovernmental Relations
       Acting Deputy Chief of Staff
       Deputy Chief of Staff for Policy
       Deputy Chief of Staff for Programs
       Special Counsel to the Secretary
       Senior Advisor to the Secretary
       Special Assistant for Inter-Faith Community Outreach
       Executive Officer for Administrative Operations and Management
       General Counsel
       Assistant Secretary for Housing/Federal Housing Commissioner
       Assistant Secretary for Policy Development and Research
       Assistant Secretary for Community Planning and Development
       Assistant Deputy Secretary for Field Policy and Management
       Office of Government National Mortgage Association
       Assistant Secretary for Fair Housing and Equal Opportunity
       Director, Office of Departmental Equal Employment Opportunity
       Chief Procurement Officer
       Assistant Secretary for Public and Indian Housing
       Director, Office of Departmental Operations and Coordination
       Office of the Chief Financial Officer
       Chief Information Officer
       Acting Director, Enforcement Center
       Acting Director, Real Estate Assessment Center
       Director, Office of Multifamily Assistance Restructuring
       Secretary’s Representative, Midwest (2)
       Senior Community Builder, Michigan State Office
       Director, Office of Public Housing, Michigan State Office
       Director, Troubled Agency Recovery Center North (2)
       Acting General Deputy Assistant Secretary, Public and Indian Housing
       Deputy Assistant Secretary, Office of Administration and Budget/Chief Financial Officer
       Deputy Assistant Secretary, Office of Native American Programs
       Deputy Assistant Secretary for Public and Assisted Housing Delivery
       Deputy Assistant Secretary, Office of Troubled Agency Recovery
       Deputy Assistant Secretary for Public Housing Investments

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       Audit Liaison Officer, Office of Public and Indian Housing
       Deputy Assistant Chief Financial Officer for Financial Management
       Director, Audit Coordination Division, Departmental Audit Liaison Officer
       Director, Risk Management Division
       Chief Financial Officer, Audit Liaison Officer
       Primary Audit Liaison Officer – Eastern Districts (Philadelphia)
       Acquisitions Librarian
       The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, 340 Dirksen Senate
          Office Building, United States, Senate, Washington, DC 20510
       The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs, 706
          Hart Senate Office Building, United States, Senate, Washington, DC 20510
       The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn
          Building, House of Representatives, Washington, DC 20515
       The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform, 2204
          Rayburn Building House of Representatives, Washington DC 20515
       Armando Falcon, Director, Office of Federal Housing Enterprise Oversight, 1700 G Street, NW
          Room 4011, Washington, DC 20552
       Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212 O’Neil House
          Office Building, Washington, DC 20515
       Stanley Czerwinski, Associate Director, Resources, Community and Economic Development
          Division, United States General Accounting Office, 441 G Street, NW, Room 2T23, Washington
          DC 20548
       Steve Redburn, Chief, Housing Branch, Office of Management & Budget, 725 17th Street, NW,
          Room 9226, New Executive Office Building, Washington, DC 20503




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