oversight

The Neighborhood Assistance Corporation of America Generally Administered Its HUD Grants Used for Housing Counseling Activities in Accordance With HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-02-16.

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

                                                                 Issue Date
                                                                      February 16, 2011
                                                                  
                                                                 Audit Report Number
                                                                      2011 BO 1004




TO:          Vicki B. Bott, Deputy Assistant Secretary for Single Family Housing, HU


FROM:
             John A. Dvorak, Regional Inspector General for Audit, Region 1, 1AGA


SUBJECT: The Neighborhood Assistance Corporation of America Generally Administered
           Its HUD Grants Used for Housing Counseling Activities in Accordance With
           HUD Requirements


                                    HIGHLIGHTS

 What We Audited and Why


We audited the Neighborhood Assistance Corporation of America (NACA), a Department of
Housing and Urban Development (HUD)-approved organization providing housing counseling
services to qualified home buyers or homeowners with unaffordable mortgage payments. The
audit was initiated at the direction of HUD’s Inspector General. Our audit objective was to
determine whether NACA properly administered its HUD grants used for housing counseling
activities in accordance with HUD requirements. Since HUD has the responsibility to approve
and ensure compliance with counseling requirements, the audit did not evaluate NACA’s initial
and continued approval as a counseling agency.

To achieve our objective, we determined whether (1) NACA provided counseling services in
accordance with the HUD grants and properly addressed client complaints; (2) HUD funds were
properly accounted for and used to pay only counselor salaries; (3) NACA’s process for
documenting and reporting program results/outcomes complied with HUD grant requirements;
(4) NACA staff was adequately trained and experienced in housing counseling and whether
management staff adequately monitored the work of the counselors; and (5) NACA complied
with HUD disclosure and conflict-of-interest requirements.
   What We Found


 NACA generally administered its HUD grants used for housing counseling activities in
 accordance with HUD requirements. With respect to HUD’s conflict of interest disclosure
 requirements, NACA adequately informed its counseling clients of its relationships with major
 industry partners. However, NACA needs to resolve issues raised by HUD with respect to how
 it discloses relationships that its local offices may have with local industry partners, such as
 lenders and realtors. This report discusses each area audited as indicated above to achieve our
 objective. This report contains no recommendations because HUD has already asked NACA to
 identify every industry partner with which NACA has a financial relationship, and amend their
 disclosures to fully disclose these arrangements. Therefore, no further action is necessary with
 respect to our report.

Auditee’s Response

 We provided NACA and HUD officials with a discussion draft report on November 17, 2010 and
 held an exit conference with NACA on November 19, 2010. NACA did not provide formal
 written comments because the report contained no recommendations. Subsequent to issuing the
 discussion draft report, HUD officials met with us and relayed a number of concerns regarding
 NACA. Those concerns were formalized in a letter to NACA dated December 21, 2010. We
 performed additional audit work based on HUD’s letter and the additional information HUD
 provided regarding consumer complaints against NACA and determined that additional
 information was either unrelated to NACA’s administration of the HUD grants, or did not
 significantly impact our audit conclusion. Although OIG’s review did not disclose any
 significant systemic deficiencies or concerns regarding NACA’s administration of the Housing
 Counseling grant, HUD’s Office of Single Family has pending issues that they are continuing to
 address with NACA.

 We provided NACA with a second draft audit report on February 9, 2011, and held a second exit
 conference on February 14, 2011 to discuss the draft report. NACA choose not to submit formal
 comments on the report, but indicated it generally agreed with the report.




                                                 2
                          TABLE OF CONTENTS



Background and Objective                                                      4

Results of Audit                                                              6
      NACA Properly Administered Its HUD Grants Used for Housing Counseling
      Activities in Accordance With HUD Requirements


Scope and Methodology                                                         14

Internal Controls                                                             16




                                          3
                      BACKGROUND AND OBJECTIVE

The Neighborhood Assistance Corporation of America (NACA) is a nonprofit home ownership
organization providing housing counseling services to low-to-moderate- income people who will
live in communities that need increased home ownership and improvement or people who have
difficulty obtaining reasonable and affordable credit.

The Chief Executive Officer started the organization approximately 30 years ago. The NACA
headquarters office is located in Jamaica Plain, MA, a neighborhood within Boston. There are
38 sub offices located throughout the country with approximately 789 counselors. Of the 789
counselors, 549 are located at NACA’s Charlotte, NC, counseling center. The counselors in
Charlotte perform counseling exclusively by telephone, whereas counselors in all other locations
conduct one-on-one or face-to-face counseling. Payroll and other financial transactions are
processed exclusively through NACA’s headquarters in Jamaica Plain, MA. NACA received two
U.S. Department of Housing and Urban Development (HUD) grants of more than $1.1 and $1.2
million in October 2008 and October 2009, respectively, to be used to pay salaries of
counselors. The NACA counselors provided two types of counseling activities: prepurchase
home-buyer counseling (purchase program) and assisting with resolving or preventing mortgage
delinquencies (Home Save program).

All clients counseled are provided a purchase participation agreement to review and sign, and
under this agreement, the clients can elect either to be a NACA member or a nonmember. A
nonmember may participate in a group counseling workshop and obtain prepurchase counseling
but is not charged fees for counseling activities. However, for those trying to obtain a mortgage
through NACA, there is a minimal $20 yearly fee per household. In addition, for homeowners
who have purchased a home through the NACA program, there is a membership fee of $50 per
month over a period of up to 10 years.

Under the Home Save program, HUD funds pay counselors to evaluate a client’s existing
mortgage and document a budget to determine an affordable mortgage amount. The counselor
determines the budget based on the client’s income verifications, liabilities taken from the
client’s credit report, and expenses. The counselor reviews the affordable mortgage payment and
develops a solution, such as initiating a repayment plan, forbearance agreement, or traditional
mortgage modification. The HUD grant pays for counseling only up to the point at which the
counselor develops a solution and the client’s file is ready for submission to a lender/servicer.

All clients counseled are provided a participation agreement to review and sign, and under this
agreement, the clients can elect either to be a Home Save member or a nonmember. Neither a
NACA member nor nonmember is to be charged a fee for a service provided through the Home
Save program. Home Save clients are eligible for a broad range of home ownership services,
including extensive written materials regarding home ownership issues and budgeting;
homeowner classes, which include important budgeting information; additional telephone and
one-on-one financial counseling; and post solution follow-up and assistance. The agreement
states that NACA reserves the right to, from time to time, make special assessments on members.

                                                4
NACA uses an internal client management system called Lynx, which interfaces with HUD’s
databases for the collection and reporting of agency and client-level data. Lynx automates much
of the housing counseling process, including client intake, file maintenance, financial and credit
analysis, outreach, client notification, and reporting. Lynx is a paperless system with clients
providing documents for scanning. Lynx requires complete information and documentation for
determination of an effective and quality counseling session. Lynx tracks information at the
individual client level, counselor level, and branch level.

Our audit objective was to determine whether NACA properly administered its HUD grants used
for housing counseling activities in accordance with HUD requirements. To achieve our
objective, we (1) determined whether NACA clients were provided counseling services in
accordance with HUD requirements and whether NACA took proper steps to address client
complaints; (2) ensured that HUD funds were properly accounted for and used to pay only
counselor salaries; (3) evaluated NACA’s process for documenting and reporting program
results/outcomes, including determining whether reports were prepared and submitted to HUD in
a timely manner, verifying the authenticity of statistics in reporting documents, and determining
how outcome/results were quantified and whether they showed that NACA was achieving its
goals; (4) determined whether NACA staff was adequately trained and experienced in housing
counseling and whether management staff adequately monitored the work of the counselors; and
(5) determined whether NACA complied with HUD disclosure and conflict-of-interest
requirements.

Our audit scope did not include determining whether NACA met all of HUD’s requirements as a
counseling agency approved to receive HUD and other federal funding since that was outside of
our objective of determining whether NACA properly administered its housing counseling grant.
In addition, our audit scope did not include reviewing NACA’s activities that were unrelated to
and outside of HUD’s counseling grant and that occurred after clients were qualified for
homeownership borrowing credit or after a mortgage modification or home save/sale solution
was submitted by a NACA specialist to a lender/servicer/investor.




                                                5
                                RESULTS OF AUDIT


NACA Generally Administered Its HUD Grants Used for Housing
Counseling Activities in Accordance With HUD Requirements

NACA generally complied with HUD requirements in administering its fiscal years 2009 and
2010 HUD grants. Specifically, it (1) provided counseling services to clients in accordance with
HUD requirements and followed adequate measures to address client complaints, (2) ensured
that HUD funds were properly accounted for and used to pay only counselor salaries, (3)
prepared and submitted accurate and reliable reports to HUD in a timely fashion and successfully
achieved its program goals, and (4) ensured that its staff was adequately trained and experienced
in housing counseling and NACA management sufficiently monitored the work of the
counselors. However, although NACA informed its counseling clients of its relationships with
major industry partners, it needs to resolve issues raised by HUD with respect to how it discloses
relationships that its local offices may have with local industry partners, such as lenders and
realtors. This report contains no recommendations because HUD has already asked NACA to
identify every industry partner with which NACA has a financial relationship, and amend their
disclosures to fully disclose these arrangements.



 Counseling Services Were
 Provided in Accordance With
 HUD Requirements


               We determined that housing counseling services provided by NACA were
               performed in accordance with grant agreements and HUD regulations based on a
               review of client files supporting counseling sessions in a sample of 20 NACA
               clients and observations made during two counseling sessions conducted at
               NACA’s headquarters office in Jamaica Plain, MA. The files showed that
               housing counselors documented the activities required by the grant agreements,
               including:

                  Preparing a budget based on an analysis of the client’s income, expenses,
                   spending habits, and use of credit.

                  Preparing an action plan that outlined what counselors and the clients would
                   do to meet the client’s housing goals.

                  Conducting a reasonable discussion of alternatives and options available to the
                   clients and providing a comprehensive “Community Resource Guide,” which

                                                6
                      included the names of local agencies and organizations, besides NACA, that
                      offered mortgages as well as services related to mortgage modifications and
                      forbearance agreements/repayment plans.


                     Making an effort to have follow-up communication with the client to ensure
                      that the client progressed toward his/her housing goals. NACA recently
                      implemented a change in the NACA-Lynx system to better assist clients in
                      progressing toward their housing goal. The NACA-Lynx is now designed to
                      send out an automatic e-mail to a client if there is no update on a client file for
                      30 days. This e-mail will alert the client and the counselor that there has been
                      no contact received by the client for 30 days and advise the client to contact
                      his/her counselor or office manager/supervisor immediately to ensure
                      completion of outstanding issues.

                  We conducted interviews with eight of the twenty former NACA clients we
                  attempted to contact. Of the eight, two were pursuing loans and six were looking
                  for assistance under the Home Save program. Of the remaining twelve clients, six
                  relocated and could not be reached and six clients failed to return OIG’s repeated
                  phone calls. The eight clients stated they were satisfied with NACA services and
                  found counselors were helpful and supportive during the entire process. For
                  example, one NACA counselor was instrumental in preventing a foreclosure of a
                  client’s home and another counselor helped to modify a client’s mortgage to what
                  was affordable.

                  We followed up on 58 client complaints we received from HUD’s Office of
                  Single Family Program Development in September and December 2010.1 The
                  complaints covered the period from July 2008 to November 2010. We
                  determined that 17 of the complaints were related to counseling services covered
                  under the HUD grants.2 We found that NACA had made a reasonable effort to
                  address all 17 complaints. Eight of the complaints dealt with NACA’s failure to
                  have follow-up communication with clients, but as noted, NACA had
                  implemented a change that should increase communication between counselors
                  and clients. The remaining 41 of 58 complaints involved issues that arose after
                  the client was approved by NACA for qualification of a mortgage or after a
                  NACA counselor developed a solution for the client’s current mortgage related
                  problems and the client’s file was ready for submission to a lender/servicer.
                  Since NACA counseled more than 59,000 clients from October 1, 2008, to June
                  30, 2010, we determined the number of housing counseling complaints (less than


1
  We did not determine the extent of the complaints because neither NACA nor HUD maintained a complaint log
showing the number of complaints made against NACA regarding the counseling program.
2
  The complaints included: Lack of communication or follow up between NACA, client and/or servicer (8); Client
failed to adhere to NACA policies and procedures (2); non-specific but clients were approved for mortgage
modifications (2); and the information provided was too vague and lacked sufficient details to determine the specific
complaint or client status (5). NACA does not maintain a file or record of complaints.

                                                         7
          one half percent) relating to the housing counseling grant did not warrant an audit
          finding within the scope of this audit.



HUD Funds Were Supported
and Used To Pay Counselor
Salaries

          We determined that HUD funds were adequately supported and were used only to
          pay counselor salaries by reconciling drawdowns totaling more than $1.1 million
          (fiscal year 2008 grant) to bank statements and payroll records. This was the first
          grant NACA received from HUD, and the funding represented only 5.94 percent
          of the total funding (more than $18.8 million) awarded to NACA in that year for
          its counseling activities. A review of NACA’s allocation method ensured that
          each counselor was equally weighted in the allocation of salaries to the grant.
          The HUD funding contributed $1,419 toward each counselor’s annual salary,
          which translated to an hourly rate of $0.68 paid to each counselor for counseling
          services.


Program Results Showed That
NACA Was Achieving Its Goals



          We determined that NACA’s system for documenting and reporting program
          results and outcomes was adequate. The quarterly reports (HUD form 9022) and
          quarterly logic models (HUD form 96010) were properly prepared and submitted
          in a timely manner to HUD. The quarterly reports and quarterly logic models
          show goals accomplished, such as the number of people purchasing a home or
          pursuing a mortgage modification. We verified the authenticity of statistics by
          reconciling data from the fiscal year 2009 quarterly report to documents generated
          from NACA-Lynx. When comparing NACA’s counseling volume, including
          workshops, attributed to the HUD grant in all of 2009 (35,034), NACA’s
          counseling volume for just the first two quarters of 2010 (58,087) had already
          exceeded 2009’s counseling volume.

          As previously stated, the NACA benchmark for a successful outcome or the
          achievement of a goal occurs when a client receives one-on-one counseling.
          Compared to counseling attributed to the HUD grant reported on the 2009
          quarterly report, NACA’s counseling statistics for just the first three quarters of
          2010 had already exceeded last year’s counseling activity (see table below).




                                            8
                                 Activity                     FY 2009         Oct. 2009 to       Change
                                                                               June 2010
                Purchased housing                                    32                    39           7
                Mortgage ready in 90 days                           499                   746         247
                Other - purchase program                              5                     0         <5>
                Mortgages modified                                8,272                22,425      14,153
                Initiated forbearance                               459                   423       <36>
                agreement/repayment plan
                Currently receiving foreclosure                   6,655                20,052      13,397
                prevention/budget counseling
                Total clients receiving one-on-one               15,922                43,685      27,763
                counseling

                The recipients of HUD housing counseling grants are also required to report
                activities under the grant in a format prescribed by HUD, namely quarterly logic
                models. The logic model established specific goals attributed to the relevant grant
                and includes designated time frames required by the grant agreement. Our review
                of logic models showed that NACA exceeded its goals. For NACA’s first goal of
                providing information and advice regarding home buying and home ownership,
                NACA projected that it would counsel 551 households for fiscal year 2009. In
                just the first quarter of 2009, 306 households were counseled, which is 55 percent
                of NACA’s goal. NACA’s second goal was to provide information and advice
                regarding resolving or preventing mortgage delinquency or default. NACA
                projected that it would counsel 551 households during the year, and in the first
                quarter, 391 households were counseled, which is about 71 percent of its goal.3


    Counselors Were Adequately
    Trained and Experienced and
    Counselor Activities Were
    Properly Monitored


                HUD Handbook 7610.1, states that a housing counseling agency must employ
                staff trained in housing counseling and at least half of the counselors must have at
                least six months experience in the job they will perform in the agency’s housing
                counseling program. NACA’s 2008 grant application indicated that staff was
                experienced in housing counseling with an average of 5.5 years of housing
                counseling-related experience. We obtained a listing/schedule of the years of
                counseling experience by counselor which showed counselors’ years of
                experience outside of NACA and the years of experience in one-on-one

3
 NACA submits goals for its counseling program to HUD through the annual logic model (HUD Form 96010) as
part of the application process. Subsequently, the goals are approved by HUD as part of the grant.

                                                    9
           counseling with NACA. A review of a sample of personnel files substantiated
           that one-half of the NACA counselors had at least 6 months’ experience in one-
           on-one counseling with NACA alone. We also observed training certificates for
           counselors whose counseling sessions OIG observed at NACA’s headquarters
           office in Jamaica Plain, MA. In addition, NACA provides 50 hour live classroom
           education required within 45 days of hire for all counselors. Other forms of
           training include weekly conference calls, powerpoint presentations, and web-
           based conferences for all staff nationwide with management to further develop
           counseling skills and education.

           NACA’s quality control staff ensured that counseling activities were performed in
           compliance with HUD Handbook 7610.1, which stipulates that supervisors must
           review client files to determine the adequacy and effectiveness of the housing
           counseling and document results. We determined that NACA complied with
           these requirements through our review of logs maintained by supervisors to
           document and track counselor work activities and performance. In addition, we
           reviewed reports documenting supervisor evaluations of specific counseling
           sessions. NACA procedures state that a counselor’s written narrative and
           recorded phone calls are reviewed and rated to ensure that the counseling is
           comprehensive, accurate, and professional, and grades based on these ratings are
           posted in the Lynx system.


NACA’s Conflict of Interest
Disclosures Informed Clients of
Relationships with Major
Industry Partners



           NACA provided its clients with a disclosure statement/participation agreement
           that described the various types of services provided and identified entities with
           which NACA had a financial relationship. The disclosure statement stipulated
           that NACA had agreements with major servicers and investors to restructure loans
           by reducing the interest rate to a mortgage payment the client could afford. The
           disclosure further stated that the client was not obligated to receive any other
           services offered by NACA or its exclusive partners. In addition, the disclosure
           provided information on alternative services, programs, and products. One of the
           options included in the disclosure statement involved the short sale designed for
           clients at risk of foreclosure. All clients whose files we reviewed signed the
           disclosure document acknowledging that they were informed about what was
           contained in the document.

           We assessed a concern stated by HUD as to whether or not a potential conflict of
           interest existed because NACA provides both counseling services and mortgage
           brokerage services to its clients. HUD had also expressed concerns about the fact

                                           10
                 that NACA receives funds from other entities and was using those funds to
                 compensate counselors. While this was not a major component of our audit, we
                 did assess these concerns. Our legal counsel researched the conflict of issue
                 provisions related to housing counseling services and reached the following
                 conclusions.

                 Housing counseling services are governed generally by 24 CFR Part 214 and
                 HUD Handbook 7610.1. Conflict of interest matters are specifically addressed at
                 24 CFR § 214.303, and HUD Handbook paragraph 6-2. In drafting its conflict of
                 interest regulation, HUD clearly contemplated circumstances in which housing
                 counseling agencies would provide more than just housing counseling services4.
                 In response to a comment suggesting that the definition of a conflict of interest
                 should not prevent housing counseling agencies from providing opportunities in
                 mortgage underwriting, pricing, houses, or services to its clients, the preamble to
                 HUD’s final rule implementing the Housing Counseling Program clearly states
                 that HUD “believes the conflicts of interest requirements should not limit the
                 housing counseling agency from providing additional, related services. Therefore,
                 HUD has revised the conflicts of interest provision to allow for additional
                 flexibility in agency activities.5” Moreover, HUD revised the proposed rule to
                 clarify that it intended to allow employees of housing counseling agencies to
                 provide additional related services as long as the provision of those services were
                 occurring as part of an employee’s employment with the housing counseling
                 agency.6

                 24 CFR Section 214.303(f)(1) and HUD Handbook 7610.1, paragraph 6-2.B.
                 generally prohibits a NACA employee from engaging in activities that create a
                 real or apparent conflict of interest. Such a conflict would arise if the employee
                 has a direct financial interest in the client. Our audit found no instance where a
                 NACA counselor obtained a direct financial interest in the client (the person being
                 counseled) such as being the client’s landlord, broker, creditor, underwriter of a
                 mortgage, or collection agent as to the property. The audit found that the
                 counselors employed by NACA were just that, NACA employees. The audit
                 found no violation of this conflict of interest regulation.

                 24 CFR Section 214.303(f) (2) and Handbook 7610.1 paragraph 6-2.C. prohibit a
                 NACA employee from referring clients to mortgage lenders, brokers, builders, or
                 real estate sales agents or brokers in which the employee has a financial interest,

4
  See 24 CFR 214.303(f)
5
  See 72 FR 55638, 55644
6
  Conclusion based upon a comparison of section 214.303(e) in the proposed rule, 69 FR 77118 to section
214.303(f) in the final rule, 72 FR 55638. Further, HUD’s “Application for Approval as Housing Counseling
Agency” reaffirms that HUD fully anticipated that some housing counseling agencies would engage in additional,
related services and that doing so would not necessarily disqualify them from serving in such a capacity. The
application asks to “Describe any other housing programs or activities the applicant agency and branches or
affiliates offer. Examples include administering down payment assistance programs, developing housing projects,
managing apartment buildings, rehabilitating and reselling HUD homes, and selling real estate.” See form HUD-
9900, section B, Part 1, subsection 5.

                                                       11
            or accepting a fee or any other consideration for referring a client to mortgage
            lenders, brokers, builders, or real estate sales agents or brokers. The audit did not
            find any evidence that the counselors received a fee or other
            compensation directly from NACA partners for informing the clients about
            NACA related services and did not find any “steering” of clients to NACA-related
            entities. Accordingly, the audit found no violation of this conflict of interest
            regulation.


HUD Needs to Assess NACA’s
Disclosures of Its Relationships
with Local Industry Partners


            24 C.F.R. Section 214.303(g) and Handbook 7610.1 paragraph 4-10.G. require
            NACA to provide all clients with a disclosure statement that explicitly describes
            the various types of services provided by the agency and any financial
            relationships between the agency and any industry partners. The very fact that the
            disclosure rules require disclosure of any financial relationships between NACA
            and other industry partners, such as lenders, realtors, and perhaps title and escrow
            companies, demonstrates that such relationships were anticipated by HUD and are
            permissible, so long as they are fully disclosed. The disclosure rules also require
            that when clients are counseled, they be advised that they are under no obligation
            to receive any other service provided by the agency or its exclusive partner.
            Furthermore, the agency must provide information on alternative services,
            programs, and products. The audit found that NACA generally provided the
            above disclosures with regard to its major industry partners and is generally
            meeting the disclosure requirements with respect to those partners.

            However, NACA disclosures did not list individual industry partners having a
            relationship with its local offices, particularly smaller entities or individuals, such
            as real estate agents. In responding to this issue that was raised by HUD during
            its monitoring reviews, NACA stated that its industry partners were constantly
            changing so they could not continually update the disclosure statements to reflect
            all financial relationships with the specific entities. Also, NACA further contends
            that it is meeting its disclosure obligations by generally disclosing that they are
            mortgage brokers and receive fees from various partners for home purchase loans,
            restructuring/modifying loans, and real estate activities. Moreover, it contended
            that maintaining and keeping such lists current would be unreasonable and
            administratively difficult. Whether or not this disclosure meets applicable
            requirements is ultimately for HUD to determine. Our audit did not address the
            extent to which such local relationships may exist and was limited to assessing the
            content of NACA’s standard disclosures. However, if financial relationships
            between the local partners and the local NACA office exist and the specific
            partners are not identified, NACA’s standard disclosure might not meet the
            regulatory requirement.

                                              12
             Although OIG’s review did disclose a potential deficiency regarding NACA’s
             standard disclosure, HUD’s Office of Single Family had formalized and
             addressed this issue in the letter they sent to NACA dated December 21, 2010.
             Therefore, this report does not contain any recommendations regarding the
             potential deficiency identified since HUD has already asked NACA to identify
             every industry partner with which NACA has a financial relationship, and amend
             NACA’s disclosures to fully disclose these arrangements.



Conclusion


         NACA generally complied with HUD requirements in administrating its fiscal years
         2008 and 2009 HUD housing counseling grants. Specifically, it (1) provided
         counseling services to clients in accordance with HUD requirements and followed
         adequate measures to address client complaints, (2) ensured that HUD funds were
         properly accounted for and used to pay only counselor salaries, (3) prepared and
         submitted accurate and reliable reports to HUD in a timely fashion and successfully
         achieved its program goals, and (4) ensured that its staff was adequately trained and
         experienced in housing counseling and counseling activities were sufficiently
         monitored. However, there is a potential deficiency regarding NACA’s standard
         disclosure, namely a possible failure by NACA to include all local partners with
         which it has financial relationships with in its standard disclosure as required by
         regulation. Since HUD has already asked NACA to identify every industry partner
         with which NACA has a financial relationship, and amend its disclosures to fully
         disclose these arrangements, this report does not contain any recommendations
         regarding this potential deficiency and requires no further action with respect to this
         report.




                                            13
                        SCOPE AND METHODOLOGY

We performed our audit work between August and October 2010. We completed our fieldwork
at the auditee’s office located at 3607 Washington Street, Jamaica Plain, MA. Our audit covered
the period October 1, 2008, through September 30, 2010, and was extended as necessary to meet
our audit objectives. To complete our audit , we

          Researched and reviewed applicable HUD handbooks, regulations, grant agreements,
           and HUD noticies.
          Reviewed NACA’s policies and procedures related to housing counseling and
           reviewed the organization’s monitoring policies and procedures to ensure that they
           were consistent with HUD requirements.
          Interviewed NACA, and HUD program staff.
          Evaluated the internal controls and conducted sufficient tests to determine whether
           controls were functioning as intended, including making an assessment of the
           reliability of financial data.
          Reviewed independent auditors’ reports.
          Evaluated NACA’s computer system (NACA-Lynx) to determine the nature of the
           system, extent of use, NACA’s experience with the computer system, its ability to
           operate and maintain the system, how access to the system is controlled, who assigns
           access, and how results are monitored.
          Traced two Line of Credit Control System drawdowns totalling more than $1.1
           million to bank statements and operating accounts and reconciled amounts from
           operating accounts to payroll records.
          Evaluated NACA’s allocation method and determined the amount of HUD funding
           allocated per counseler.
          Evaluated NACA management practices for monitoring counselor activities and
           determined whether staff was adequately trained and experienced in counseling
           activities. We tested the years of counselors’ experience by selecting the first ten
           counselors as their names appeared on a listing/schedule showing years of experience
           by counselor to experience shown on staff resumes and other documents from
           personnel records.
          Evaluated NACA’s counseling sessions for assurance that counseling was performed
           in accordance with HUD rules and regulations. We selected a random sample of 20
           identification (ID) numbers generated by NACA’s computer system and representing
           an intake counseling session for individuals either pursuing home ownership (5) or a
           mortgage modification /forbearance agreement (15). The sample size of 20 was
           obtained from a universe of 6,245 ID numbers that represented intake or new
           counseling activity that took place in June of 2009 for all NACA sub offices. The
           universe was too large for a 100 percent selection and there was insufficient
           information available to make a risk-based selection. Based on discussions with
           NACA staff, June of that year was least likely to include counseling activity from a
           “Save the Dream” event. Any of these events would include massive counseling
           sessions, and our universe was large enough without having to include such an event.

                                              14
          Verified the authenticity of data in HUD 9022 reports and logic models and
           determined whether reports were submitted to HUD in a timely manner and whether
           NACA achieved its goals established for counseling activities.
          Determined whether NACA complied with HUD disclosure and conflict-of-interest
           requirements.
          After the November 2010 draft report was issued, we performed additional audit
           work as follows: interviewed HUD general counsel staff regarding their position on
           NACA conflict-of -interest issues; reviewed and evaluated separate performance
           reviews HUD conducted at 18 NACA sub offices; conducted interviews with eight of
           the 20 clients whose files were initially subject to OIG review; and reviewed all HUD
           provided client/congressional complaints on NACA and evaluated NACA’s efforts to
           address the counseling related complaints.

 We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




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                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

      Effectiveness and efficiency of operations,
      Reliability of financial reporting, and
      Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.


 Relevant Internal Controls
               We determined that the following internal controls were relevant to our audit
               objective:

                     Procedures to ensure that HUD funds are properly accounted for and used to
                      pay only counselor salaries.
                     Procedures to reasonably ensure that clients are provided counseling
                      services in accordance with HUD requirements.
                     Procedures to ensure that program outcomes/results are reported
                      accurately and in a timely manner.
                     Procedures to ensure compliance with HUD disclosure and conflict-of-
                      interest requirements.
                     Procedures to ensure that staff is adequately monitored.

               We assessed the relevant controls identified above.

                We evaluated internal controls related to the audit objective in accordance with
                generally accepted government auditing standards. Our evaluation of internal
                controls was not designed to provide assurance on the effectiveness of the
                internal control structure as a whole. Accordingly, we do not express an opinion
                on the effectiveness of NACA’s internal controls.




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