Issue Date
May 31, 1996
Audit Case Number
96-CH-229-1009
TO: Robert J. Turner, Director of Housing, Michigan State Office
FROM: Dale L. Chouteau, District Inspector General for Audit, Midwest
SUBJECT: Partners For Affordable Home Ownership Program
Single Family Housing Division, Real Estate Owned Branch
Detroit, Michigan
We completed a review of the nine nonprofit organizations that bought properties at a 30 percent
discount under the Partners For Affordable Home Ownership Program. The review was done to
address the Michigan State Office's concern that some nonprofit agencies may have purchased
homes from HUD at a 30 percent discount to make unallowed profits. Our objectives were to:
assess the validity of HUD's concerns; and determine whether the nonprofit agencies complied
with HUD's program requirements.
We concluded that six of the nine nonprofit organizations complied with HUD's requirements.
Three nonprofit organizations, however, made unallowed profits and were not in compliance with
HUD's requirements. The three organizations sold homes purchased from HUD at a 30 percent
discount for amounts higher than allowed by HUD's program requirements. One of the three
nonprofit agencies also violated HUD's conflict of interest requirements; another nonprofit
agency did not have an adequate accounting system to capture property related costs and
revenues; and, the third agency did not have a source of funds to finance its participation in the
program. Officials for all three nonprofit agencies said they were not aware of HUD's program
requirements, although they signed an addendum containing the sales restrictions with the
purchase of each home. As a result, low and moderate income home buyers paid more for their
homes than HUD's program intended.
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 furnish us copies of any
correspondence or directives issued because of the audit.
Should your staff have any questions, please have them contact me at (312) 353-7832.
Management Memorandum
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96-CH-229-1009 Page ii
Executive Summary
We completed a review of the nine nonprofit organizations that bought properties at a 30 percent
discount under the Partners For Affordable Home Ownership Program. The review was done to
address the Michigan State Office's concern that some nonprofit agencies may have purchased
homes from HUD at a 30 percent discount to make unallowed profits. Our objectives were to:
assess the validity of HUD's concerns; and determine whether the nonprofit organizations
complied with HUD's program requirements.
Under HUD's Partners For Affordable Home Ownership Program, nonprofit organizations are
allowed to purchase homes from HUD at a 30 percent discount from the HUD appraised value.
The intent of the program is to expand home ownership by providing the nonprofit agencies an
incentive to buy the homes, make needed repairs and resell the homes to qualified low-income
buyers. HUD restricts the sale price the nonprofit agencies can charge the home buyer to the net
development cost plus ten percent of the net development cost.
We concluded that six of the nine nonprofit organizations complied with HUD's requirements.
Three nonprofit organizations, however, made unallowed profits and were not in compliance with
HUD's requirements. The three nonprofit agencies sold HUD homes purchased at a 30 percent
discount for amounts higher than allowed by HUD. One of the three nonprofit agencies also
violated HUD's conflict of interest requirements; another nonprofit agency did not have an
adequate accounting system to capture property related costs and revenues; and, the third agency
did not have a source of funds to finance its participation in the program. Officials for all three
nonprofit agencies said they were not aware of HUD's program requirements, although they
signed an addendum containing the sales restrictions with the purchase of each home. As a
result, low and moderate income home buyers paid more for their homes than HUD's program
intended.
Second Chapel Hill, a nonprofit organization: (1) sold five
Second Chapel Hill Did
homes it purchased from HUD for amounts higher than
Not Comply With HUD's
allowed; and (2) violated HUD's conflict of interest
Requirements
requirements. The Director of the organization said he was
unaware of HUD's requirements. As a result, low and
moderate income persons paid more for their properties
than HUD's program intended, and Second Chapel Hill
made unallowed profits of $80,488.
The 40/40 Institute, a nonprofit organization, sold two
The 40/40 Institute Did
homes purchased from HUD at a 30 percent discount for
Not Follow Requirements
amounts higher than allowed by HUD's requirements. The
40/40 Institute did not have an adequate accounting system
to capture property related costs and revenues. The
Institute's president said he was unaware of HUD's
requirements. As a result low and moderate income
Page iii 96-CH-229-1009
Executive Summary
persons may have paid more for properties than HUD's
program intended and the 40/40 Institute may have realized
excessive funds of $3,291.
The Detroit Non-Profit Housing Corporation sold two
Detroit Non-Profit
homes purchased from HUD at a 30 percent discount for
Housing Did Not Adhere
amounts higher than allowed by HUD. The Corporation
To HUD's Requirements
did not have a source for funds needed to participate in the
program. The program administrator said she was not
aware of the HUD's requirements regarding sale price
restrictions. Consequently, low and moderate income
persons paid more than HUD's program intended and the
corporation received excess funds of $1,614 from the sales.
We recommend HUD require: the three nonprofit
organizations to provide documentation to support the
unsupported expenditures or prepay on the applicable
homeowners' mortgages the amount of expenses that cannot
be supported; the three nonprofit organizations to prepay on
the applicable homeowners' mortgages the amount of
ineligible expenses; Second Chapel Hill to eliminate the
conflict of interest; the 40/40 Institute to develop an
adequate accounting system; and, the Detroit Non-Profit
Housing Corporation obtain a source of funds for continued
participation in the program. We also recommend that the
nonprofit agencies be removed from the program and
administrative penalties be initiated if the nonprofit
agencies do not comply with all of HUD's requirements and
the recommendations in this report.
We presented our draft findings to the nonprofit
organizations and the HUD Michigan State Office. We
held an exit conference with the Director of Single Family
Housing, Michigan State Office on May 20, 1996. The
40\40 Institute and the Detroit Non-profit Housing
Corporation provided their written comments. Second Hill
Chapel did not provide a written response to the audit. We
included the written comments we received in their entirety
with each finding.
96-CH-229-1009 Page iv
Table of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1 Second Chapel Hill Did Not Comply With
HUD's Requirements 3
2 The 40/40 Institute Did Not Follow HUD's
Requirements 7
3 Detroit Non-Profit Housing Did Not Adhere
To HUD's Requirements 11
Internal Controls 15
Follow Up On Prior Audits 17
Appendices
A Schedule of Questioned Costs 19
B Distribution 21
Page v 96-CH-229-1009
Table of Contents
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96-CH-229-1009 Page vi
Introduction
Under the Partners For Affordable Home Ownership program, HUD allows nonprofit
organizations to purchase homes from the HUD inventory at a 30 percent discount of HUD's
appraised value. The homes are located in HUD designated revitalization areas. The intent of
the program is to expand home ownership by providing the nonprofit agencies an incentive to
buy the homes, make needed repairs and resell the homes to qualified low-income buyers. HUD
restricts the sale price the nonprofit agencies can charge the home buyers to the net development
cost plus ten percent of the net development cost.
HUD expects the program to reduce the inventory of its acquired properties in a manner that
expands home ownership opportunities, strengthens neighborhoods and communities, and
ensures a maximum return to the mortgage insurance fund. Under the program in Detroit, nine
nonprofit organizations purchased 61 homes valued at $805,262 between November 1993 and
September 1995.
Our objectives were to assess: the validity of HUD's
Audit Objectives
concern that some nonprofit agencies were acquiring homes
at a 30 percent discount to make unallowed profits; and
determine whether the nonprofit organizations complied
with HUD's requirements.
We interviewed HUD's staff to determine the reasons for
Audit Scope And
their concern. We interviewed the staff at the nonprofit
Methodology
organizations to determine how the agencies operated their
housing activities and what information the local HUD
office provided to assist the nonprofit agencies in
complying with HUD's requirements. We reviewed HUD's
property disposition files containing property settlement and
closing documents and the nonprofit organizations' records
related to: housing activity accomplishments; cash
disbursements; advertising; and other marketing documents.
We reviewed the documents to assess the agencies'
compliance with HUD's requirements.
The audit covered the period November 19, 1993 through
September 30, 1995. We extended the period as necessary.
Our field work was conducted between September 1995
and April 1996. The audit period was longer than normal
because of delays caused by the Government furloughs and
a higher priority audit assignment. We conducted the audit
in accordance with generally accepted government auditing
standards. We provided a copy of this report to the Director
of Housing, Michigan State Office.
Page 1 96-CH-229-1009
Introduction
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96-CH-229-1009 Page 2
Finding 1
Second Chapel Hill Did Not Comply With
HUD's Requirements
Second Chapel Hill, a nonprofit organization: (1) sold five homes it purchased from HUD for
amounts higher than allowed; and (2) violated HUD's conflict of interest requirements. The
Director of the organization said he was unaware of HUD's requirements. As a result, low and
moderate income persons paid more for the properties than HUD's program intended and Second
Chapel Hill made unallowed profits of $80,488.
HUD Regulation 24 CFR 291 and HUD Notice H94-74
HUD's Requirements
allow nonprofit organizations to purchase HUD acquired
properties at a 30 percent discount of the properties'
appraised values provided the nonprofit organizations
comply with HUD's requirements.
HUD Notice H94-74 and the Model Land Use Restriction
Addendum signed by the applicable nonprofit organizations
and HUD say, unless an exception is granted in writing by
HUD, the initial purchaser (nonprofit organization) of a
property at a 30 percent discount shall not resell the
property for an amount that exceeds the net development
cost plus ten percent of the net development cost. Net
development cost is the total cost of the project. It includes
such items as acquisition cost, architectural fees, permits
and survey expenses, insurance, and taxes, but excludes
overhead and any developer's fees.
HUD Regulation 24 CFR 291.435 (b) says each purchaser
of property must comply with conflicts of interest
requirements. These requirements say no person who is an
employee, agent, consultant, officer, or elected or appointed
official of the lessee or purchaser of property may obtain a
personal or financial interest or benefit from the lease or
purchase of the property.
Between April and August 1995, Second Chapel Hill, a
Homes Were Sold For
nonprofit organization, purchased ten homes from HUD at
Excessive Amounts
a cost of 30 percent less than the HUD appraised value.
The organization sold five of the ten homes and identified
the costs and revenues for each home in its property
Page 3 96-CH-229-1009
Finding 1
records. The records showed it sold four of the five homes
for amounts that exceeded HUD's program requirements.
Although Second Chapel Hill's records showed the fifth
home was not sold at an excess amount, we determined it
was. For all five houses, Chapel Hill did not have invoices
to support all reported rehabilitation work. Costs charged
to four of the five homes included advances to an investor
that were not allowable costs. As a result, the organization
sold all five homes for amounts that exceeded HUD's
program requirements. The excess amounts ranged from
$9,344 to $24,286 per house. The organization made
unallowed profits totalling $80,488 for the five homes.
8486 9560 13597 14559 8083
Brace Plainview Westwoo Vaugha Prest
d n
Net Cost $22,209 $24,233 $13,534 $33,841 $18,831
10 Percent
Fee 2,221 2,423 1,353 3,384 1,883
Total Cost
and Fee 24,430 26,656 14,887 37,225 20,714
Less Sales
Price 34,900 36,000 33,000 55,500 45,000
Unallowed
Profit $10,470 $ 9,344 $18,113 $18,275 $24,286
Second Chapel Hill sold all of its properties based on the
property's market appraised value after rehabilitation rather
than based on Chapel Hill's net development costs plus the
10 percent fee. Our computation of the 10 percent fee in
the above table does not include the following ineligible
and unsupported rehabilitation costs that Chapel Hill
claimed:
Ineligible Unsupported
8486 Brace $1,500 $ 8,487
9560 Plainview 0 10,530
13597 Westwood 4,500 10,512
14559 Vaughan 1,500 9,542
96-CH-229-1009 Page 4
Finding 1
8083 Prest 1,500 17,983
Total $9,000 $57,054
If Second Chapel Hill could provide documentation to
support all of the unsupported costs, its excess profits
would be reduced to $23,434 ($80,488 - $57,054).
The Director of Second Chapel Hill said he was unaware of
the program requirements. However, the Director signed an
addendum, with the purchase of each home, that stated the
nonprofit organization could not resell the property for an
amount in excess of the net development cost plus ten
percent of the net development cost.
Second Chapel Hill contracted with an investor, Bralen, Inc.
Conflict of Interest
to finance the purchase, rehabilitation and marketing of the
Requirements Were
HUD homes. Bralen provided all the financing and Gannon
Violated
Real Estate, owned by Bralen acted as a broker to sell the
homes. The president of Bralen is Second Chapel Hill's
Treasurer. Therefore the Treasurer had a conflict of interest
as defined in HUD's Regulation 24 CFR 291.435.
Second Chapel Hill had a contract with Bralen, Inc. that
provided for Bralen to supply all acquisition and repair
funds. The contract called for Gannon to market the
properties, and Bralen and Second Chapel Hill to share all
surplus funds equally.
Gannon Real Estate received a total of $23,000 for
marketing and broker's fees for the sale of the five homes.
The fees were not based on a percentage of the sale price as
is the standard industry practice in the Detroit area. The
broker received a flat fee; $6,000 for three homes and
$2,500 for two homes. Gannon's fees for the five properties
exceeded the seven percent local industry standard by
$8,692. For example, Gannon received a flat broker's fee
of $6,000 for the sale of the property at 8486 Brace. By
local practice, the 7 percent broker's fee on a sales price of
$34,900 would have been $2,443. Gannon received $3,557
in excess of the industry standard.
Page 5 96-CH-229-1009
Finding 1
Auditee Comments The Executive Director said Second Chapel Hill would not
provide written comments to the audit.
Recommendations The Director, Office of Housing, Michigan State Office
should:
1A. Require Second Chapel Hill to provide invoices to
support the unsupported expenditures of $57,054 or
prepay on the applicable mortgages the amount that
cannot be supported.
1B. Require Second Chapel Hill to prepay the applicable
mortgages a total of $23,434 for ineligible expenses
claimed and excess profits taken.
1C. Require Second Chapel Hill to prepay the applicable
mortgages a total of $8,692 for the excessive
broker's fees charged.
1D. Require Second Chapel Hill to immediately
eliminate the conflict of interest.
1E. If the above recommendations are not satisfactorily
resolved, remove Second Chapel Hill from
participation in the program and initiate
administrative penalties.
96-CH-229-1009 Page 6
Finding 2
The 40/40 Institute Did Not Follow HUD's
Requirements
The 40/40 Institute, a nonprofit organization, sold two HUD homes purchased at a 30 percent
discount for amounts higher than allowed by HUD's requirements. The 40/40 Institute did not
have an adequate accounting system to capture property related costs and revenues. The
Institute's president said he was unaware of HUD's requirements. As a result, low and moderate
income persons may have paid more for properties than HUD's program intended and the 40/40
Institute may have realized unallowed profits of $3,291.
HUD Regulation 24 CFR 291 and HUD Notice H94-74
HUD's Requirements
allow nonprofit organizations to purchase HUD acquired
properties at a 30 percent discount of the properties'
appraised values provided the nonprofit organizations
comply with HUD's requirements.
HUD Regulation 24 CFR 291.405(2)(i) requires a private
nonprofit organization to have a functional accounting
system that operates according to generally accepted
accounting principles. A functional accounting system
should be able to track property costs and revenues.
HUD Notice H94-74 and the Model Land Use Restriction
Addendum signed by applicable nonprofit organizations
and HUD say, unless an exception is granted in writing by
HUD, the initial purchaser (nonprofit organization) of a
property at a 30 percent discount shall not resell the
property for an amount that exceeds the net development
cost plus ten percent of the net development cost. Net
development cost is the total cost of the project. It includes
such items as acquisition cost, architectural fees, permits
and survey expenses, insurance, and taxes, but excludes
overhead and any developer's fees.
The 40/40 Institute sold two HUD homes acquired at a 30
Homes Were Sold At
percent discount for $3,291 more than the net development
Amounts That Exceeded
cost plus ten percent fee of the net development cost. The
HUD's Guidelines
Institute received excessive payments of $2,016 for the
home at 15779 Heyden and $1,275 for the home at 19480
Beaverland.
Page 7 96-CH-229-1009
Finding 2
The Institute did not have an adequate accounting system to
track property related costs and revenues. The individual
property files contained support for the acquisition costs;
however, they did not contain any records to support the
costs for claimed repairs, holding costs, and management
fees.
As of December 1995, the Institute had sold four of 22
homes that it purchased from HUD between April 1994 and
December 1995. Five of the remaining 18 homes were
occupied by potential buyers, one had suffered a casualty
loss, and the others were vacant. The Institute could not
provide cost reports, cancelled checks, or signed contracts
to show how much had been spent to repair and market its
unsold properties. It also did not have rental/leasing records
for the occupied properties. As a result, two properties
were sold at amounts that may exceed HUD's guidelines,
and records are not available to support future sales.
For example, the Institute purchased the home at 15779
Heyden for $22,066 and sold it for $29,102. The Institute
claimed that its net development cost was $33,459: $22,066
for the acquisition cost; $6,910 for repairs, $2,758 for
interest, $1,100 for holding costs, and $625 for
management fees. The purchase was funded by a private
mortgage in the amount of $22,066. We estimated the
interest cost on the mortgage to be $2,558. The Institute did
not have sufficient documentation to support the repair
costs, holding costs or management fees. Since there is no
evidence to verify these costs, we calculated the net
development cost as $24,624 ($22,066 acquisition cost plus
$2,558 for interest). As a result, the Institute received
excess funds of $2,016 on the sale.
Net Development Cost per Institute $33,459
Net Development Cost per Audit 24,624
10 percent Allowable Fee 2,462
Total Cost and Fee per Audit 27,086
Sales Price 29,102
Profit $ 2,016
96-CH-229-1009 Page 8
Finding 2
The President of the Institute said he had recently acquired
competent accounting help to set up a proper accounting
system. Additionally, he said he was unaware of HUD's
program requirements. However, with the purchase of each
home, he signed an addendum that stated the nonprofit
organization could not resell the property for an amount in
excess of the net development cost plus ten percent of the
net development cost.
Auditee Comments Written comments for the 40\40 institute were prepared by
the accountant the Institute retained to implement an
accounting system. The accountant said:
We were retained by the 40\40 Institute several weeks ago
to implement an accounting system pursuant to Generally
Accepted Accounting Principles. To that end, we have set
the Institute up on its computer with software that, if used
properly, would accomplish our objectives. Thus far, we
have gone through all of its records through 1994.
Presently, we are working on the data for 1995. We
anticipate having the records up-to-date by mid-June of this
year.
The inventory of houses except for two or possibly three
will be carried under the HUD Notice H94-74 and the
Model Land Use restriction addendum. When we are done,
the Institute will be able to track its inventory according to
HUD guidelines and/or programs under which the inventory
was purchased.
After discussing this matter with the Institute's President,
we feel confident that the new system with the attendant
procedures will serve the Institute well.
OIG Evaluation of Although the Institute said it is in the process of
Auditee Comments establishing an adequate accounting system, the response
by the Institute's accountant did not address the unsupported
expenditures that our recommendation said should be
prepaid on the applicable mortgages.
Page 9 96-CH-229-1009
Finding 2
Recommendations The Director, Office of Housing, Michigan State Office
should:
2A. Require the 40/40 Institute to provide
documentation that supports $3,291 in expenditures
claimed or prepay on the applicable mortgages the
amount that cannot be supported.
2B. Verify that the Institute has established an
accounting system that will properly capture costs or
remove the Institute from the program.
96-CH-229-1009 Page 10
Finding 3
Detroit Non-Profit Housing Did Not Adhere to
HUD's Requirements
The Detroit Non-Profit Housing Corporation sold two HUD purchased homes for amounts higher
than allowed by HUD. The Corporation did not have a source for funds needed for program
participation. The program administrator said she was not aware of the HUD requirement
regarding sale price restrictions. Consequently, low and moderate income persons paid more for
the properties than HUD's program intended and the corporation received excess funds of $1,612
from the sales.
HUD Regulation 24 CFR 291 and HUD Notice H94-74
HUD's Requirements
allow nonprofit organizations to purchase HUD acquired
properties at a 30 percent discount of the properties'
appraised values provided the nonprofit organizations
comply with HUD's requirements.
HUD Notice H94-74 and the Model Land Use Restriction
Addendum signed by applicable nonprofit organizations
and HUD say, unless an exception is granted in writing by
HUD, the initial purchaser (nonprofit organization) of a
property at a 30 percent discount shall not resell the
property for an amount that exceeds the net development
cost plus ten percent of the net development cost. Net
development cost is the total cost of the project. It includes
items such as acquisition cost, architectural fees, permits
and survey expenses, insurance, and taxes, but excludes
overhead and any developer's fees.
HUD Notice H94-74 requires nonprofit agencies to have
financial resources to handle property related costs. HUD
Regulation 24 CFR 291.410 (c)(5)(iii) requires nonprofit
agencies to provide evidence of financial and other
resources to meet the obligations of the property related
costs.
The Detroit Non-Profit Housing Corporation sold two HUD
Homes Were Sold For
homes it purchased at a 30 percent discount for amounts
Excessive Amounts
that exceeded the acceptable HUD guidelines. The funds
were paid directly by the home buyers since the corporation
did not have funds or credit available to purchase the homes
Page 11 96-CH-229-1009
Finding 3
itself. According to program requirements, the Corporation
should have had its own source of funds. On the same day
that each property was purchased from HUD, the nonprofit
corporation immediately sold the property to the home
buyer. The corporation sold the homes at HUD's list price
rather than its purchase price plus the HUD allowable 10
percent development fee. As a result, the corporation
received excessive funds of $1,612 as follows:
7145 Tuxedo 22430 Barbara
Net Development Cost $3,396 $11,956
10 Percent Fee 340 1,196
Total Cost and Fee 3,735 13,151
Sales Price 4,500 14,000
Excess Funds Realized $ 764 $ 848
The Corporation's program administrator said she was not
aware of any written program requirements regarding
HUD's restrictions on the sale price. However, with the
purchase of each home, the president signed an addendum
that stated the nonprofit organization could not resell the
property for an amount in excess of the net development
cost plus ten percent of the net development cost.
The intent of selling a nonprofit agency property at a 30
percent discount is to allow the nonprofit to make
improvements to bring the properties to acceptable
standards for sale to low and moderate income persons.
The nonprofit agencies are allowed to recover their
development costs, plus a 10 percent fee to cover the
administrative expenses incurred during the process. We
believe buying and selling properties on the same day with
no improvements being made, is a violation of the intent of
the program and normally would not justify the 10 percent
fee for administrative costs.
Auditee Comments The Executive Director for the Detroit Non-Profit Housing
Corporation provided the following comments:
96-CH-229-1009 Page 12
Finding 3
Detroit Non-Profit Housing Corporation has been operating
under a previous program and was not aware of the changes
that were referred to under regulation 24 CFR 290, HUD
Notice H94-74 and HUD Regulation 24 CFR 291.410
(c)(5)(iii). We were not notified of any meeting being
conducted by HUD nor did we receive any literature of the
above mentioned program changes.
Detroit Non-Profit Housing Corporation is acting in good
faith. We feel it would be unjust to be removed from the
program or to reimburse HUD, since all of our actions were
based on a prior program.
Detroit Non-Profit Housing Corporation recently received
the above mentioned HUD Regulations and HUD Notices.
Henceforth, Detroit Non-Profit Housing Corporation will
adhere to current regulations and notices. We have secured
financing through a lending institution for future purchases.
OIG Evaluation of The Detroit Non-Profit Housing Corporation said it was not
Auditee Comments aware of changes under Regulation 24 CFR 290, HUD
Notice H94-74 and HUD Regulation 24 CFR 291.410
(c)(5)(iii). Regulation 291.410 has not changed and was
also applicable to the previous program referred to by the
Housing Corporation. HUD Notice H94-74 is a new notice
applicable for the 30 percent discount program. Regulation
24 CFR 290 is not applicable to the 30 percent discount
program. Under the previous program mentioned by the
auditee, the same requirement existed for financial
resources. Additionally, with the purchase of each home,
the Housing Corporation signed an addendum that stated
the terms under which the nonprofit could sell the home.
The Housing Corporation said it has secured financing for
future purchases and has received necessary regulations, but
it believes it would be unjust to have to repay the excess
funds realized. The intention of the 30 percent discount
program is to allow homes to be purchased at a discount so
that nonprofit agencies can make improvements before
selling them to low and moderate income persons. We
believe it is unjust for the low and moderate income
families to be paying more for homes than intended by
HUD. The Housing Corporation should prepay on the
Page 13 96-CH-229-1009
Finding 3
applicable mortgages, the amount of excess funds it realized
on the sale of the homes.
Recommendations The Director, Office of Housing, Michigan State Office
should:
3A. Require the Detroit Non-Profit Housing Corporation
to prepay on the applicable mortgages a total of
$1,612 in excess funds received.
3B. Require the Detroit Non-Profit Housing Corporation
to obtain financing for its participation in the
program, make improvements to properties
purchased or remove the Corporation from the
program.
3C. If the above recommendations are not satisfactorily
resolved, initiate administrative penalties against the
Corporation.
96-CH-229-1009 Page 14
Internal Controls
In planning and performing our audit, we considered the internal controls of the management of
the nonprofit organizations in order to determine our auditing procedures and not to provide
assurance on internal controls. Internal controls consist of the plan of organization and methods
and procedures adopted by management to ensure that: resource use is consistent with laws,
regulations, and policies; resources are safeguarded against waste, loss, and misuse; and reliable
data are obtained, maintained, and fairly disclosed in reports.
We determined that the following internal controls were
Relevant Internal
relevant to our audit objectives:
Controls
• Accounting system
We assessed the relevant controls identified above.
It is a significant weakness if internal controls do not give
reasonable assurance that resource use is consistent with
laws, regulations, and policies; that resources are
safeguarded against waste, loss, and misuse; and that
reliable data are obtained, maintained, and fairly disclosed
in reports.
Based on our audit, the following item is a significant
Significant Weaknesses
weaknesses:
Accounting system. One nonprofit organization did not
have an adequate accounting system to capture property
related costs and revenues (see Finding 2).
Page 15 96-CH-229-1009
Internal Controls
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96-CH-229-1009 Page 16
Follow Up On Prior Audits
This was the first OIG audit of the nonprofit organizations. The last independent audit reports
issued on the nonprofit organizations did not contain any findings related to this report.
Page 17 96-CH-229-1009
Follow Up On Prior Audits
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96-CH-229-1009 Page 18
Appendix A
Schedule of Ineligible and
Unsupported Costs
Recommendation Type of Questioned Costs
Number Ineligible 1/ Unsupported 2/
1A $57,054
1B $23,434
1C 8,692
2A 3,291
3A 1,612
Totals $32,126 $61,957
1/ Ineligible costs are 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 insured program or activity
whose eligibility cannot be determined at the time of the audit since such costs were not
supported by adequate documentation or there is a need for a legal or administrative
determination on the eligibility of the costs. The costs require a future decision by HUD
program officials. The decision, besides obtaining supporting documentation, might involve
a legal interpretation or clarification of Departmental policies and procedures.
Page 19 96-CH-229-1009
Schedule of Ineligible and Unsupported Costs
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96-CH-229-1009 Page 20
Appendix B
Distribution
Secretary's Representative, Midwest
Director, Office of Housing, Michigan State Office (2)
State Coordinator, Michigan State Office (2)
Assistant General Counsel, Midwest
Director, Accounting Division, Midwest
Field Comptroller, Midwest
Public Affairs Officer, Midwest
Assistant Deputy Secretary for Field Management, SC (Room 7106)
Acquisitions Librarian, Library, AS (Room 8141)
Chief Financial Officer, F (Room 10166) (2)
Deputy Chief Financial Officer for Operations, FO (Room 10166) (2)
Comptroller/ Audit Liaison Officer, Office of Housing, HF (Room 5132) (3)
Associate General Counsel, Office of Assisted Housing and Community Development, GC
(Room 8162)
Assistant Director in Charge, U.S. General Accounting Office,
820 1st St. NE, Union Plaza, Bldg.2, Suite 150, Washington, DC
Page 21 96-CH-229-1009
Partners for Affordable Home Ownership Prog., Detroit, MI
Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-05-31.
Below is a raw (and likely hideous) rendition of the original report. (PDF)