OFFICE OF INSPECTOR GENERAL SEMIANNUAL REPORT TO CONGRESS FOR THE PERIOD ENDING SEPTEMBER 30, 2015 PUBLIC AND INDIAN HOUSING COMMUNIT Y PLANNING AND DEVELOPMENT MULTIFAMILY SINGLE FAMILY SERVING THE PUBLIC U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT OUR MISSION As the Office of Inspector General (OIG) for the U.S. Department of Housing and Urban Development (HUD), we remain an independent and objective organization, conducting and supervising audits, evaluations, and investigations relating to the Department’s programs and operations. • We promote economy, efficiency, and effectiveness in these programs and operations as we also prevent and detect fraud, abuse, and mismanagement. • We are committed to keeping the HUD Secretary, Congress, and our stakeholders fully and currently informed about problems and deficiencies and the necessity for and progress of corrective action. OUR VALUES 1 Collaboration: The commitment to work jointly with HUD, Congress, and our stakeholders for the benefit of all citizens. 2 Accountability: The obligation and willingness to accept responsibility and account for our actions. 3 Integrity: The firm adherence to high moral and professional standards, honesty, and fairness in all that we do. Acting with integrity is a core job responsibility for every employee. 4 Stewardship: The careful and responsible management of that which has been entrusted to our care. 5 Diversity: The promotion of high standards of equal employment opportunity for employees and job applicants at all levels so that our workforce is reflective of our country’s citizens. OUR VISION 1 To promote fiscal responsibility and financial accountability in HUD programs and operations. 2 To improve the execution of and accountability for grant funds. 3 To strengthen the soundness of public and Indian housing programs. 4 To protect the integrity of housing insurance and guarantee programs. 5 To assist HUD in determining whether it is successful in achieving its goals. 6 To look ahead for emerging trends or weaknesses that create risk and program inefficiencies. 7 To produce innovative work products that are timely and of high quality. 8 To benchmark best practices as a means to guide HUD. 9 To have a significant impact on improving the way HUD does business. DIVERSITY AND EQUAL OPPORTUNITY The promotion of high standards and equal employment opportunity for employees and job applicants at all levels. HUD OIG reaffirms its commitment to nondiscrimination in the workplace and the recruitment of qualified employees without prejudice regarding their gender, race, religion, color, national origin, sexual orientation, disability, or other classification protected by law. HUD OIG is committed and proactive in the prevention of discrimination and ensuring freedom from retaliation for participating in the equal employment opportunity process in accordance with departmental policies and procedures. PROFILE OF PERFORMANCE For the period April 1 to September 30, 2015 AUDIT RESULTS1 THIS REPORTING PERIOD FISCAL YEAR 2015 Recommendations that funds be put to better use $783,126,186 $1,978,524,145 Recommended questioned costs $375,546,339 $2,104,912,657 Collections from audits $19,396,709 $476,546,692 Administrative sanctions 1 3 Civil actions 3 9 Subpoenas 60 72 Personnel action 0 1 INVESTIGATION RESULTS1 THIS REPORTING PERIOD FISCAL YEAR 2015 Total restitution and judgments2 $259,491,265 $436,460,945 Total recoveries and receivables to HUD programs $194,658,354 $233,154,990 Arrests 126 232 Indictments and informations 175 308 Convictions, pleas, and pretrial diversions 156 335 Civil actions 23 43 Total administrative sanctions 185 440 Suspensions 36 110 Debarments 99 191 Limited denial of participation 0 0 Removal from program participation 13 71 Evictions 10 16 Other2 27 52 Systemic implication reports 1 6 Search warrants 24 61 Subpoenas 389 691 JOINT CIVIL FRAUD RESULTS1 THIS REPORTING PERIOD FISCAL YEAR 2015 Recoveries and receivables to HUD programs or HUD pro- $161,722,168 $558,657,646 gram participants Recoveries and receivables for other entities $86,959,989 $268,245,5113 Civil actions 7 12 Administrative sanctions 1 2 1 The Offices of Audit and Investigation and the Joint Civil Fraud Division periodically combine efforts and conduct joint civil fraud initiatives. Outcomes from these initiatives are shown in the Joint Civil Fraud Results profile and not duplicated in the Audit Results or Investigation Results. These results include civil settlements of $212.5 million from First Tennessee Bank, $29.6 from Reverse Mortgage Solutions, Inc., and $1.8 million from three other settlements. Results are further detailed in chapter 7. 2 Includes reprimands, suspensions, demotions, or terminations of the employees of Federal, State, or local governments or of Federal contractors and grantees as the result of OIG activities. 3 This amount represents funds that relate to HUD programs but were paid to other entities rather than to HUD for its benefit, such as funds paid to the U.S. Treasury for general government purposes. DURING THIS REPORTING PERIOD, WE HAD MORE THAN $783 MILLION IN FUNDS PUT TO BETTER USE, QUESTIONED COSTS OF MORE THAN $537 MILLION, AND NEARLY $79 MILLION IN COLLECTIONS, RESULTING FROM 110 AUDITS, AND OBTAINED MORE THAN $260 MILLION IN RECOVERIES AND RECEIVABLES DUE TO OUR INVESTIGATIVE EFFORTS; OF THIS AMOUNT, $195 MILLION WAS RETURNED TO HUD PROGRAMS, WITH THE REMAINDER GOING TO VICTIMS OF FRAUD AND ABUSE. A M E S S AG E F R O M I N S P E C T O R G E N E R A L D AV I D A . M O N T OYA It is my pleasure to submit the U.S. which potentially increased the risk to the health and safety of the Department of Housing and Urban public or failed to prevent damage to the environment. Development (HUD), Office of Inspector During the second half of fiscal year 2015, the Office General’s (OIG) Semiannual Report to of Investigation completed 263 investigations to improve Congress for the second half of fiscal departmental operations and address program abuses, year 2015. This report describes the recovering $260 million. Of this amount, $195 million was extraordinary accomplishments of the returned to HUD programs, with the remainder going to talented public servants of HUD OIG. victims of fraud and abuse. We continue to focus on HUD’s By promoting better stewardship and performance and accountability in single-family and public and accountability, HUD OIG staff continues to have an enduring Indian housing, both significant concerns for the Department impact on the Department and our communities for the benefit and taxpayers. of the American people. In one single-family loan case, the owner of a Florida Our mission is simple. We conduct and supervise audits, evaluations, and investigations of HUD programs and mortgage company was sentenced to serve 135 months in operations to ensure their efficiency and effectiveness while prison for orchestrating a multi-million-dollar mortgage fraud always looking for instances of waste, fraud, and abuse. This scheme. He was also ordered to pay more than $64.5 million in is done primarily through the Office of Audit, the Office of restitution and forfeit $8 million received through illicit profits. Evaluation, and the Office of Investigation within HUD OIG. In addition, three real estate developers; a straw buyer recruiter; These offices are supported by the Office of Legal Counsel and and 20 loan officers, loan processors, and underwriters at the the Office of Management and Technology. Together, working mortgage company were convicted of participating in the as a collaborative team, the dedicated individuals of these scheme, which resulted in jail terms and fines, restitutions, and offices combine their skills and abilities to accomplish the goals forfeitures of more than $31 million. and mission of HUD OIG. These criminal conspirators solicited and approved During the second reporting period of fiscal year 2015, the unqualified customers to submit fraudulent Federal Housing Office of Audit issued 110 reports. These reports resulted in the Administration (FHA) mortgage loan applications, which following: resulted in loans that were sold to financial institutions. When • Identifying more than $783 million in funds that could to be the loans defaulted, the financial institutions and FHA suffered put to better use in HUD programs to more appropriately millions of dollars in losses. serve its mission, In another case regarding HUD’s Home Equity Conversion • Questioned costs of more than $537 million in situations Mortgage (HECM) program, which is also known as the reverse in which it was not clear that these expenditures were for mortgage program, the Office of Investigation and the Joint legitimate reasons, and • Nearly $79 million in collections for reimbursement to HUD Civil Fraud Division, working with the U.S. Department of programs or the U.S. Department of the Treasury in situations Justice (DOJ), Civil Fraud Unit, investigated a HECM originator in which fraud and abuse were proven. and servicer that operated in several States. In this case, Of these, two audits performed by the Office of Audit this the servicer fraudulently received payments for interest and reporting period were especially noteworthy. These were: commissions equaling millions of dollars. On April 27, 2015, the • Overincome Families Resided in Public Housing Units and servicer and DOJ agreed to a settlement of nearly $30 million. • HUD Did Not Adequately Implement or Provide Adequate In closing, I would like to express my continued gratitude Oversight To Ensure Compliance With Environmental to Congress and the Department for their sustained Requirements. commitment to improving HUD’s programs. I also want to The overincome audit received significant news coverage reiterate my sincere appreciation of the people of HUD OIG over several days and resulted in HUD, which originally for their dedication to the critically important work that they disagreed with the report, publically announcing that it would do. Through their collective effort, HUD OIG has achieved revisit its position. In this audit, our auditors discovered that its annual goals and fulfilled its mission and responsibilities. 25,226 families had annual incomes that exceeded HUD’s As a result, their hard work has had a positive impact on the eligibility limits yet were living in HUD-subsidized public Department, our communities, and the citizens of our Nation. housing. Also discovered was that almost 70 percent of these The members of the OIG staff have my deepest respect, and I overincome tenants had been doing so for more than 1 year. am proud to be their Inspector General. The environmental audit reviewed five HUD field offices and discovered that none of them adequately followed environmental compliance requirements and either were not trained or did not consider compliance a priority. As a result, more than $405 million in activities had no or inadequate review, David A. Montoya | Inspector General TRENDING WHISTLEBLOWER OMBUDSMAN PROGRAM The U.S. Department of Housing and Urban Development, Office of Inspector General (HUD OIG), continues to stress the importance of a strong Whistleblower Protection Program and recognizes that whistleblowers are a crucial source of information about waste, fraud, and abuse. HUD OIG strives to create an environment in which allegations of waste, fraud, and abuse can be freely reported without fear of reprisal. Key to HUD OIG’s Whistleblower Protection Program is educating HUD and HUD OIG employees on prohibitions against retaliating against Federal whistleblowers and ensuring that employees understand their specific rights and remedies. In the last 6 months, the HUD OIG Whistleblower Ombudsman Program has continued to focus on outreach and training. All HUD employees were directed to attend mandatory whistleblower training in October of 2015. Two live training sessions were given, and the presentation was posted on our Whistleblower Web page. Secretary Castro, consistent with his emphasis on this program, introduced the training and stressed its importance. The training was also given to all HUD OIG personnel, with Mr. Montoya providing introductory remarks stressing his view on the importance of the program. A separate training session was provided at our OIG managers meeting. Our Whistleblower Ombudsman discussed investigating whistleblower complaints with our Office of Investigation staff. Whistleblower training is incorporated into HUD’s new employee training and is also included in HUD’s supervisor training series. Training is also retained on HUD OIG Whistleblower and Ethics Web sites. The Whistleblower Ombudsman Program continues to work to find opportunities to highlight how whistleblower disclosures have the potential to save billions of taxpayer dollars. Whistleblowers play a critical role in keeping our Government honest, efficient, and accountable. Number of complaints received 70 Number of complainants asserting whistleblower status4 70 (48 to hotline) Employee5 complaints referred for investigation to the HUD OIG Office of 17 Investigation (OI) Employee complaint investigations opened by OI 3 Complaints declined by OI 1 Complaints currently under review by OI 8 Employee complaint investigations closed by OI 5 4 Many complainants raise questions regarding treatment by housing authorities following alleging wrongdoing by the same housing authority. They define themselves as whistleblowers. These complaints are referred to our hotline for appropriate referral and disposition. 5 Employee complaints are those complaints received from employees, potential employees, and former employees of HUD as well as employees of contractors, subcontractors, and grantees. INTEGRITY AND COMPLIANCE PROGRAM In September 2015, HUD OIG launched its new Integrity and Compliance Program (ICP) with a goal to incorporate a values-based ethics culture. ICP is the first of its kind in a Federal OIG and will go beyond the requirements of a typical government ethics endeavor. HUD OIG seeks to foster a higher level of integrity in every decision our staff makes and will change the way we look at the ethical challenges we face every day. The purpose of ICP is to demonstrate our commitment to the American public to always maintain a high standard of accountability and integrity and live the values we judge others by. We believe that most people are fair and honest and approach their duties with integrity. They want to do the right thing. However, sometimes they fall short or stray from their personal values. Unfortunately, there have been far too many instances recently in which Federal workers have lost their way and engaged in unethical behavior. HUD OIG’s ICP looks to change that. As the components of ICP are developed over the next few months, the program will be carefully shaped into a sustainable platform using resources within HUD OIG. First among these are HUD OIG’s core values, which will form the nucleus of a program to properly make the difficult ethical decisions that are a part of our daily work life. There is no shortage of rules and rule books in the Federal Government, yet almost every day, someone comes upon a circumstance no one had encountered before. ICP is designed to help guide the way to an ethical solution when these unanticipated situations occur. We know this is an ambitious endeavor, and we will need innovative thinking and new approaches to be successful. Most of all, we know we also have to take a collaborative approach that involves everyone at HUD OIG. This approach includes a thorough examination of our culture, our challenges, and the resources available to us. On this foundation, we will build a values-based program to transform our existing system into an enduring blueprint for the highest levels of ethical behavior and standards of conduct. This is an exciting program, and we also hope our success will encourage other Federal agencies to follow our lead, but more importantly, we hope to become a model for our own Department to emulate. Combined with our existing whistleblower, ombudsman, and hotline programs, we are confident that ICP will lead us to become an even stronger organization with impeccable integrity and unimpeachable ethics. That is what we believe is expected of us by our fellow citizens. We can do nothing less. TABLE OF CONTENTS Chapter 1 – Single-Family Programs.............................................................................................................. 14 Audit...........................................................................................................................................................................................14 Investigation.............................................................................................................................................................................18 Chapter 2 – Public and Indian Housing Programs........................................................................................ 21 Audit........................................................................................................................................................................................... 21 Investigation.............................................................................................................................................................................25 Chapter 3 – Multifamily Housing Programs.................................................................................................. 26 Audit.......................................................................................................................................................................................... 26 Investigation............................................................................................................................................................................ 29 Chapter 4 – Community Planning and Development Programs................................................................. 30 Audit.......................................................................................................................................................................................... 30 Investigation............................................................................................................................................................................ 34 Chapter 5 – Disaster Relief Programs............................................................................................................. 35 Audit...........................................................................................................................................................................................35 Investigation............................................................................................................................................................................ 39 Chapter 6 – Other Significant Audits and Investigations............................................................................ 40 Audit.......................................................................................................................................................................................... 40 Chapter 7 – Joint Civil Fraud Initiatives........................................................................................................ 44 Chapter 8 – Evaluation Initiatives.................................................................................................................. 47 Chapter 9 – Legislation, Regulation, and Other Directives......................................................................... 50 Chapter 10 – Audit Resolution........................................................................................................................ 53 Appendix 1 – Peer Review Reporting............................................................................................................. 69 Appendix 2 – Audit Reports Issued..................................................................................................................71 Appendix 3 – Tables.......................................................................................................................................... 81 OIG Telephone Directory............................................................................................................................... 102 Acronyms List.................................................................................................................................................. 105 Reporting Requirements................................................................................................................................ 107 SEMIANNUAL REPORT TO CONGRESS ONE SINGLE-FAMILY PROGRAMS AUDIT The Federal Housing Administration (FHA) single-family programs provide mortgage insurance to mortgage lenders that, in turn, provide financing to enable individuals and families to purchase, rehabilitate, or construct homes. Some of the highlights from this semiannual period are noted below: STRATEGIC INITIATIVE 1: CONTRIBUTE TO THE REDUCTION OF FRAUD IN SINGLE-FAMILY INSURANCE PROGRAMS Key program results Questioned costs Funds put to better use Audit 15 audits $25,239,740 $258,526,170 REVIEW OF HUD’S FHA HOME AFFORDABLE MODIFICATION PROGRAM The U.S. Department of Housing and Urban Development, Office of Inspector General (HUD OIG), audited the HUD FHA Home Affordable Modification Program (HAMP) partial claim option to determine whether HUD had adequate controls over its postclaim reviews and adequate policies in place to ensure that servicers properly understood the FHA-HAMP partial claim option. HUD did not have an effective postclaim review function and did not have clear program guidance in place for the FHA-HAMP partial claim option. As a result, HUD overpaid more than $177 million in partial claim notes due to servicer miscalculations, which affected more than 21,200 loans. HUD’s policies allowed servicers to determine partial claim amounts in different ways, which resulted in some claims that were higher than necessary. OIG recommended that HUD (1) assign the necessary administrative resources and oversight to reduce potential losses of $88.5 million per year for ineligible FHA-HAMP claim amounts that may go undetected, (2) require servicers to repay HUD nearly $415,000 in ineligible partial claim amounts, (3) require servicers to support or repay more than $94,000 in partial claim amounts, (4) provide training to HUD staff and its contractor on all loss mitigation programs, (5) review a sample of postclaim reviews submitted by the contractor to ensure that the contractor adequately identifies ineligible claims, and (6) update FHA-HAMP policies to ensure that all servicers apply policies consistently. (Audit Report: 2015-LA-0003) 14 CHAPTER ONE SINGLE-FAMILY PROGRAMS HUD OIG audited the FHA-HAMP partial claim option to determine whether HUD had adequate controls over FHA-HAMP partial claim payments. HUD’s claim payment controls for the FHA-HAMP partial claim option were not adequate. Specifically, HUD’s claim system allowed payment of (1) more than one claim with a modification or FHA-HAMP option in a 24-month period, (2) duplicate claims, (3) partial claims exceeding 30 percent of the unpaid principal balance at initial default, and (4) non-HAMP partial claims after HUD discontinued this claim type. As a result, HUD paid more than $22 million in unsupported claims and nearly $104,000 in ineligible claims that did not meet HUD requirements. OIG recommended that HUD (1) develop and implement controls to detect and prevent payment of claims that violate HUD requirements, (2) support the eligibility or require the repayment of the claims that did not meet HUD requirements, and (3) require the repayment of the ineligible claims. (Audit Report: 2015-LA-0001) REVIEW OF FHA-INSURED LOANS WITH DOWNPAYMENT ASSISTANCE HUD OIG audited loanDepot in Foothill Ranch, CA to determine whether it originated FHA loans containing downpayment assistance gift funds and secondary financing in accordance with HUD FHA requirements. The loanDepot FHA-insured loans with downpayment assistance gift funds and secondary financing did not always comply with HUD requirements, putting FHA’s Mutual Mortgage Insurance Fund at unnecessary risk, including potential losses of $4.7 million for 53 loans with ineligible assistance and $29.9 million for a projected 339 loans that likely contained ineligible assistance. Also, loanDepot inappropriately charged borrowers nearly $26,000 in fees that were not customary or reasonable and nearly $47,000 in discount fees that did not represent the purpose of the fee. The ineligible loans put borrowers at a disadvantage due to higher monthly mortgage payments resulting from a premium interest rate. OIG recommended that HUD determine legal sufficiency to pursue civil and administrative remedies against loanDepot for incorrectly certifying that mortgages were eligible for FHA mortgage insurance. OIG also recommended that HUD require loanDepot to (1) stop originating FHA loans with the ineligible assistance; (2) indemnify HUD for the loans with ineligible assistance; (3) indemnify HUD for loans that likely contain ineligible assistance; (4) reimburse borrowers for fees that were not customary or reasonable and discount fees that did not represent the purpose of the fee; (5) reduce the interest rate for borrowers who received ineligible assistance; (6) reimburse borrowers for overpaid interest as a result of the premium interest rate; and (7) update all internal control checklists to include specific HUD requirements on gifts, secondary financing, premium rates, and allowable fees. (Audit Report: 2015-LA-1009) HUD OIG audited loanDepot, LLC, to determine whether it originated FHA loans containing Golden State Finance Authority downpayment assistance grants in accordance with HUD FHA requirements. The loanDepot FHA-insured loans with Golden State downpayment assistance gifts did not always comply with HUD requirements, putting FHA’s Mutual Mortgage Insurance Fund at unnecessary risk, including potential losses of $5.5 million for 62 loans with ineligible gifts and $16.1 million for 178 loans that likely contained ineligible gifts. Also, loanDepot inappropriately charged borrowers nearly $14,000 in fees that were not customary or reasonable. The ineligible loans put borrowers at a disadvantage due to higher monthly mortgage payments, including the burden of funding the downpayment assistance program through premium interest rates. 15 SEMIANNUAL REPORT TO CONGRESS OIG recommended that HUD determine legal sufficiency to pursue civil and administrative remedies against loanDepot for incorrectly certifying that mortgages were eligible for FHA mortgage insurance. OIG also recommended that HUD require loanDepot to (1) stop originating FHA insured loans with the ineligible gifts; (2) indemnify HUD for the loans with ineligible gifts; (3) indemnify HUD for loans that likely contain ineligible gifts; (4) reimburse borrowers for fees that were not customary or reasonable; (5) reduce the interest rate for borrowers who received ineligible gifts; (6) reimburse borrowers for overpaid interest as a result of the premium interest rate; and (7) update all internal controls to include specific HUD requirements on gifts, premium rates, and allowable fees. (Audit Report: 2015-LA-1010) HUD OIG audited NOVA Financial & Investment Corporation in Tucson, AZ, to determine whether NOVA originated loans with downpayment assistance in accordance with HUD FHA rules and regulations. NOVA’s FHA-insured loans with downpayment assistance gift funds did not always comply with HUD FHA rules and regulations, putting FHA’s Mutual Mortgage Insurance Fund at unnecessary risk, including potential losses of $48.5 million for 709 loans. NOVA also inappropriately charged borrowers more than $376,000 in misrepresented discount fees and more than $7,000 in fees that were not customary or reasonable. The premium rate attached to the ineligible loans put borrowers at a disadvantage due to higher monthly mortgage payments. OIG recommended that HUD determine legal sufficiency to pursue civil and administrative remedies against NOVA for incorrectly certifying that mortgages were eligible for FHA mortgage insurance. OIG also recommended that HUD require NOVA to (1) stop originating FHA-insured loans with ineligible gifts; (2) indemnify HUD for 709 FHA loans that were originated with ineligible downpayment assistance gifts; (3) reimburse borrowers for the misrepresented discount fees and fees that were not customary or reasonable; (4) reduce the interest rate for borrowers who received downpayment assistance; (5) reimburse borrowers for overpaid interest as a result of the premium interest rate; and (6) update all internal control checklists to include specific HUD rules and regulations governing downpayment assistance, premium interest rates, and allowable fees. (Audit Report: 2015-LA-1005) REVIEW OF HUD’S HOME EQUITY CONVERSION MORTGAGE PROGRAM HUD OIG audited HUD’s oversight of its Home Equity Conversion Mortgage (HECM) program to determine whether HUD had effective controls to ensure that HECM loan borrowers complied with residency requirements while also receiving rental assistance from its multifamily programs. HUD policies did not always ensure that HECM borrowers complied with residency requirements. The borrowers of 67 of 68 loans reviewed did not live in the properties associated with their loans because they received rental assistance from HUD’s multifamily programs at a different address at the same time. Of the 67 loans, 18 were independently terminated by the servicing lenders during the audit. The remaining 49 insured loans had current balances totaling more than $7.1 million and maximum claim amounts totaling more than $8.4 million. As a result, 49 insured loans should be declared in default and due and payable to reduce the risk of loss to HUD’s insurance fund of up to $1.3 million. Further, the borrowers of an additional 642 insured loans also may have violated the residency requirements. If HUD cannot confirm that these borrowers are compliant with the residency requirements, these loans should also be declared in default and due and payable to reduce the risk of loss to HUD’s insurance fund of up to $14.4 million. OIG recommended that HUD direct the applicable servicing lenders to verify borrowers’ compliance 16 CHAPTER ONE SINGLE-FAMILY PROGRAMS with the residency requirements or for each noncompliant borrower, declare the loan in default and due and payable, thereby putting up to $15.7 million to better use. Further, OIG recommended that HUD implement controls to prevent or reduce instances of borrowers violating residency requirements by participating in multifamily programs at the same time. (Audit Report: 2015-PH-0004) REVIEW OF HUD’S LOSS MITIGATION PROGRAM HUD OIG audited First Niagara Bank in Lockport, NY, regarding its servicing of FHA-insured mortgages and its implementation of HUD’s Loss Mitigation program to determine whether First Niagara Bank properly serviced FHA-insured mortgages; specifically, whether it (1) properly implemented HUD’s Loss Mitigation program, (2) provided the proper reporting for the FHA-insured mortgages it serviced, and (3) established and implemented an effective quality control program. First Niagara Bank did not always properly implement applicable procedures and requirements in servicing FHA-insured mortgages. Specifically, it did not (1) properly implement HUD’s Loss Mitigation program, (2) accurately report its servicing of FHA-insured mortgages, and (3) implement an effective quality control program. The lack of adequate loss mitigation efforts could affect the borrower’s ability to retain home ownership and have a negative impact on FHA’s Mutual Mortgage Insurance Fund. OIG recommended that HUD instruct First Niagara Bank to provide support showing that the lender’s servicing practices for identified loans were acceptable for mortgages insured by HUD. For any loan for which HUD determines that the servicing practices were inadequate, HUD should take the appropriate administrative actions, including indemnifying inadequately serviced loans. OIG also recommended that HUD instruct First Niagara Bank to provide evidence that 80 loans were either paid in full or closed and remove the loans from HUD’s FHA-insured portfolio. This measure will result in a more than $4.2 million reduction in obligations to the Mutual Mortgage Insurance Fund and reinstate 15 loans totaling nearly $952,000 that were incorrectly terminated from HUD’s FHA-insured portfolio. (Audit Report: 2015-NY-1006) REVIEW OF HUD’S SECTION 203(K) REHABILITATION LOAN MORTGAGE INSURANCE PROGRAM HUD OIG audited HUD’s Section 203(k) Rehabilitation Loan Mortgage Insurance program to determine whether HUD had adequate oversight of the program. HUD needs to improve its monitoring of lenders for compliance with Section 203(k) program requirements because lenders did not always ensure that (1) borrowers or contractors obtained required building permits to rehabilitate properties and (2) contractors were licensed or certified to perform rehabilitation work. In addition, lenders did not always ensure that contractors’ cost estimates contained clear descriptions of the proposed repairs to determine eligibility for the Streamlined (k) program. As a result, HUD lacked assurance of the soundness of the repairs, thus potentially impacting the safety of the borrowers and increasing the risk to FHA’s Mutual Mortgage Insurance Fund. Further, HUD did not always ensure that (1) loan-to-value ratios were correctly calculated when determining borrowers’ monthly mortgage insurance premiums and (2) lenders properly entered borrowers’ loan information into FHA Connection. As a result, HUD lacked assurance that it (1) properly managed the risk to FHA’s Mutual Mortgage Insurance Fund and (2) protected the interests of borrowers due to the overpayment of mortgage insurance. 17 SEMIANNUAL REPORT TO CONGRESS OIG recommended that HUD require lenders to (1) support or indemnify HUD for any future losses on 40 loans with estimated losses totaling more than $1.2 million and (2) support or reimburse HUD for the actual losses incurred on 2 loans totaling more than $83,000. OIG also recommended that HUD (1) strengthen its controls over Section 203(k) program requirements, (2) adjust its formula for calculating the loan-to-value ratio, (3) determine the overpaid mortgage insurance premiums for loans with incorrect loan-to-value ratios, and (4) credit the accounts of active borrowers who overpaid their mortgage insurance premiums and refund overpaid premiums to borrowers for terminated loans. (Audit Report: 2015-CH-0001) REVIEW OF FILING OF CLAIMS ON FORECLOSED-UPON PROPERTIES HUD OIG audited LoanCare, LLC, in Virginia Beach, VA, regarding its postforeclosure activities as a single- family master subservicer for the Government National Mortgage Association (Ginnie Mae) to determine whether LoanCare conveyed foreclosed-upon properties held on behalf of Ginnie Mae, filed claims with FHA, and remitted the funds to Ginnie Mae on time. LoanCare did not always (1) convey foreclosed-upon properties to FHA within 30 days of acquiring possession and title, (2) file the part B portion of its conveyance claim within 45 days of the date the deed was filed for record or within 15 days of the title approval letter date, and (3) remit FHA claim funds to Ginnie Mae within 2 business days. OIG recommended that Ginnie Mae require LoanCare to repay any additional costs associated with the violations noted. (Audit Report: 2015-KC-1012) INVESTIGATION PROGRAM RESULTS Administrative-civil actions 16 Convictions-pleas-pretrial diversions 155 Financial recoveries $164,695,040 MULTIPLE SUBJECTS CONVICTED IN MORTGAGE INSURANCE FRAUD CONSPIRACY Three recruiters, two loan officers, a seller, and an attorney assistant pled guilty to wire fraud, mail fraud, obstruction of justice, and aggravated identity theft for their roles in a multiloan mortgage insurance fraud scheme involving both FHA and conventional loans. From August 2004 through October 2012, the conspirators participated in a scheme to defraud lenders by providing false information on loan documents to qualify borrowers. The investigation identified 52 fraudulent loans in the scheme, including five having FHA mortgage insurance. Losses to FHA are approximately $1.6 million. This investigation was conducted by HUD OIG and the Federal Bureau of Investigation (FBI). (Chicago, IL) 18 CHAPTER ONE SINGLE-FAMILY PROGRAMS CLOSING ATTORNEY SENTENCED FOR MORTGAGE FRAUD A closing attorney was sentenced in U.S. District Court to 1 year and 1 day incarceration and 3 years supervised release and ordered to pay $2 million in restitution, with $625,220 payable to FHA, following his conviction of conspiracy to commit wire fraud and money laundering. From March 2011 through December 2012, the attorney and other conspirators recruited straw buyers and submitted falsified loan applications and supporting documents to lenders to obtain mortgage loans for properties located in northern New Jersey. The closing attorney used his position to facilitate some of these transactions. Several of the loans involved in this scheme have defaulted, exposing lenders and FHA to more than $2 million in potential losses. This investigation was conducted by HUD OIG, the FBI, the U.S. Postal Inspection Service, and the Federal Housing Finance Agency (FHFA) OIG. (Newark, NJ) MORTGAGE BROKER SENTENCED IN LOAN MODIFICATION SCHEME A former mortgage broker and owner of a mortgage company was sentenced in U.S. District Court to 24 months incarceration and ordered to pay $997,712 in restitution related to his conviction of making false statements. From January 2010 through April 2015, the mortgage broker assisted distressed homeowners with obtaining extensions and renewals of their mortgage loans while charging illegal fees for his loan modification services. The mortgage broker also received mortgage payments from the borrowers but did not forward the payments to the lenders. This investigation was conducted by HUD OIG and FHFA OIG. (Sherman, TX) OWNER OF MORTGAGE COMPANY SENTENCED TO 11 YEARS INCARCERATION The owner and operator of a former FHA mortgage lender in Miami, FL, was sentenced in U.S. District Court to 135 months incarceration and 60 months supervised release and agreed to forfeit $8 million following his conviction of conspiracy to commit wire fraud affecting a financial institution. From at least 2006 through September 2008, the owner and other conspirators specialized in approving FHA loans primarily for buyers of condominiums at complexes where he had an ownership interest. As part of the scheme, the conspirators provided false information on loan documents to qualify borrowers and in some cases, also paid inducements to borrowers to purchase the condominium units. Many of the loans defaulted, causing losses to FHA and financial institutions. To date, 25 individuals have been charged in this investigation, including the owner, 3 partner developers, and 20 former employees of the mortgage lender. Of those charged, 14 individuals have pled guilty, and 1 has signed a plea agreement. Losses to FHA exceeded $64 million. This investigation was conducted by HUD OIG. (Miami, FL) ATTORNEY SENTENCED FOR MAKING FALSE STATEMENTS TO THE MORTGAGEE REVIEW BOARD The attorney for a HUD direct endorsement-approved mortgage company was sentenced to 60 months probation and ordered to pay $1.3 million in restitution to HUD following his conviction of making a false statement to HUD. The attorney created and submitted an affidavit to the Mortgagee Review Board falsely representing that the owner of the mortgage company did not have an interest in a construction entity that received direct payments at the closings of FHA-insured purchases originated by the mortgage company. The affidavit was submitted in response to a notice of violation, issued to the mortgage company by the Mortgagee Review Board. The investigation further determined that the owner was also the full shareholder, director, president, chief executive officer, and secretary of the construction entity, who received more than $12 million in payments during FHA-insured closings originated by the lender. This investigation was conducted by HUD OIG. (Fort Worth, TX) 19 SEMIANNUAL REPORT TO CONGRESS WOMAN SENTENCED FOR REVERSE MORTGAGE FRAUD The daughter and former power of attorney of a HECM borrower was sentenced in Arizona Superior Court to 3 years probation and ordered to pay $100,573 in restitution to FHA following her conviction of residential mortgage fraud. The daughter submitted a false residency certification in the HECM loan application, which stated that her father lived in the subject property, when he was in hospice care in another State at the time the HECM loan was completed. The father died 5 days after the HECM loan closed. The investigation further determined that after the loan closed, the daughter quit-claimed the subject property into the name of a trust for which she was the sole trustee and had a $30,596 one-time HECM payment wired to a bank account in the trust name. The HECM loan was later foreclosed upon, resulting in a loss to FHA of $100,573. This investigation was conducted by HUD OIG. (Phoenix, AZ) 20 CHAPTER TWO PUBLIC AND INDIAN HOUSING PROGRAMS TWO PUBLIC AND INDIAN HOUSING PROGRAMS AUDIT The U.S. Department of Housing and Urban Development (HUD) provides grants and subsidies to more than 3,100 public housing agencies (PHA) nationwide. Many PHAs administer both public housing and Section 8 programs. HUD also provides assistance directly to PHAs’ resident organizations to encourage increased resident management entities and resident skills programs. Programs administered by PHAs are designed to enable low-income families, the elderly, and persons with disabilities to obtain and reside in housing that is safe, decent, sanitary, and in good repair. Some of the highlights from this semiannual period are noted below. STRATEGIC INITIATIVE 2: CONTRIBUTE TO THE REDUCTION OF ERRONEOUS PAYMENTS IN RENTAL ASSISTANCE Key program results Questioned costs Funds put to better use Audit 34 audits $12,274,297 $188,055,413 SECTION 8 HOUSING CHOICE VOUCHER PROGRAM HUD’s Office of Inspector General (OIG) audited HUD’s oversight of enhanced vouchers provided under its Housing Choice Voucher program to determine whether HUD had adequate oversight related to enhanced vouchers administered by three New York PHAs. HUD did not adequately oversee enhanced vouchers administered by three New York PHAs responsible for administering most of the funds associated with the vouchers. The PHAs could not fully justify program subsidies provided to voucher recipients. Of 28 cases reviewed, HUD overpaid subsidies for 15 units (54 percent) that were larger than allowed. For another 264 families, HUD potentially overpaid subsidies for units that were larger than allowed. One of the PHAs did not perform rent reasonableness determinations as required for 544 units at 2 of its properties; therefore, the rent charged for the units may not have been reasonable. As a result, more than $1.1 million in program subsidies used for housing assistance payments was unsupported. In addition, HUD could save more than $1.2 million over a 1-year period by ensuring that PHAs implement policies and procedures to prevent deficiencies. 21 SEMIANNUAL REPORT TO CONGRESS OIG recommended that HUD require the three PHAs to (1) justify the more than $1.1 million in program subsidies spent on housing assistance payments and (2) implement policies and procedures to ensure that they make housing assistance payments related to enhanced vouchers in accordance with all applicable requirements and detect and prevent future deficiencies. OIG also recommended that HUD develop policies to implement periodic targeted monitoring and related followup procedures for PHAs responsible for administering the most funds associated with enhanced vouchers to help prevent the potential waste of program funds. (Audit Report: 2015-PH-0003) HUD OIG audited the Jefferson Metropolitan Housing Authority in Steubenville, OH, regarding its Section 8 Housing Choice Voucher program housing quality standards to determine whether the Authority conducted thorough housing quality standards inspections of its program units in accordance with HUD’s and its own requirements. The Authority did not adequately enforce HUD’s housing quality standards and its own requirements. Specifically, it failed to ensure that 44 program units, including 38 that materially failed, complied with HUD’s housing quality standards and its program administrative plan. As a result, the Authority’s households were subjected to health- and safety-related violations, and the Authority did not properly use its program funds. OIG recommended that HUD require the Authority to (1) certify that the applicable housing quality standards violations have been corrected for the units cited, (2) reimburse its program more than $38,000 from non-Federal funds for the units that materially failed to meet HUD’s and its own requirements, and (3) implement adequate procedures and controls to ensure that all units meet HUD’s housing quality standards and its own requirements to prevent more than $1.9 million in program funds from being spent on units that do not comply with HUD’s requirements over the next year. (Audit Report: 2015-CH-1007) HUD OIG audited the Housing Authority of the City of South Bend, IN’s Section 8 Housing Choice Voucher program to determine whether the Authority (1) correctly calculated and paid housing assistance and utility allowances, (2) obtained and maintained eligibility documentation required to support the admission and continued occupancy of its program households, and (3) appropriately managed its Family Self-Sufficiency program. The Authority did not always comply with HUD’s requirements and its own administrative plan regarding its program household files. Specifically, it did not (1) correctly calculate and process housing assistance payments and (2) obtain and maintain required eligibility documentation. As a result, HUD lacked assurance that the Authority used its program funds appropriately. If the Authority does not correct its certification process, it could overpay nearly $754,000 and underpay more than $67,000 in housing assistance over the next year. The Authority also failed to appropriately manage its Family Self-Sufficiency program. Specifically, it did not ensure that (1) participants were connected to needed supportive services, (2) services included in the participants’ contracts of participation were provided, and (3) participants’ escrow accounts were properly maintained. As a result, the Authority inappropriately received Family Self-Sufficiency program coordinator grant funds. OIG recommended that HUD require the Authority to (1) reimburse its program nearly $80,000 from non- Federal funds for the ineligible housing assistance and utility allowance payments, (2) support or reimburse its program more than $411,000 from non-Federal funds for the unsupported payments, (3) reimburse HUD more than $24,000 for the unearned Family Self- Sufficiency grant funds, and (4) implement adequate controls to address the findings cited. (Audit Report: 2015-CH-1008) 22 CHAPTER TWO PUBLIC AND INDIAN HOUSING PROGRAMS PUBLIC HOUSING HUD OIG audited HUD’s public housing program to determine the extent to which HUD-subsidized public housing units were occupied by overincome families and evaluate the impact of HUD policies. PHAs provided public housing assistance to as many as 25,226 families with income exceeding HUD’s 2014 eligibility income limits, and 17,761 of those families had exceeded HUD’s limits for more than a year. HUD regulations require families to meet eligibility income limits only when they are admitted to the public housing program. The regulations do not limit the length of time families may reside in public housing. However, HUD’s December 2004 public housing final rule gave PHAs discretion to establish and implement policies that would require families with incomes above the eligibility income limits to find housing in the unassisted market. The 15 PHAs contacted allowed overincome families to reside in public housing, and HUD did not encourage them to require these families to find housing in the unassisted market. As a result, HUD did not assist as many low-income families in need of housing as it could have. OIG recommended that HUD direct PHAs to establish policies to reduce the number of overincome families in public housing, thereby putting as much as $104.4 million to better use by providing those funds to eligible low-income families in need of housing assistance. (Audit Report: 2015-PH-0002) HUD OIG audited the Richmond Redevelopment and Housing Authority in Richmond, VA, regarding its public housing program to determine whether the Authority complied with HUD procurement requirements. The Authority did not procure services associated with its public housing program in accordance with HUD procurement requirements. Specifically, it did not (1) prepare an independent cost estimate and cost analysis before awarding contracts, (2) maintain documentation to demonstrate that services were procured competitively, and (3) ensure that option years were awarded competitively. As a result, HUD and the Authority had no assurance that public housing operating funds totaling more than $6.5 million, which were paid under the contracts, were fair and reasonable. OIG recommended that HUD direct the Authority to (1) provide documentation to support that payments for services totaling more than $6.5 million were fair and reasonable or reimburse its program from non- Federal funds for any amount that it cannot support, (2) not exercise remaining option years for the contracts identified, and (3) implement controls in its procurement process to ensure that HUD requirements are followed. OIG also recommended that HUD provide technical assistance to the Authority to ensure that responsible personnel receive necessary procurement training. (Audit Report: 2015-PH-1008) SECTION 184 INDIAN HOME LOAN GUARANTEE PROGRAM HUD OIG audited HUD’s Section 184 Indian Home Loan Guarantee program to determine whether HUD had adequate controls in place to provide oversight of the program. HUD did not provide adequate oversight of the Section 184 program, resulting in an increased overall risk to the program, including guaranteeing 3,845 loans totaling more than $705 million that were not underwritten in accordance with program guidelines. Specifically, HUD did not adequately monitor, track, and evaluate participating lenders to ensure that loans were underwritten in accordance with the Section 184 processing guidelines. This lack of oversight and high incidence of poorly underwritten loans could negatively impact the financial standing of Native American communities. 23 SEMIANNUAL REPORT TO CONGRESS OIG recommended that HUD develop and implement policies and procedures (1) for monitoring, tracking, underwriting, and evaluating the Section 184 program, resulting in $77 million in funds to be put to better use; (2) for standardized monthly delinquency reports; (3) to deny payments to lenders for claims on loans that have material underwriting deficiencies; and (4) to ensure that it uses enforcement actions available under 12 U.S.C. (United States Code) 1715z-13a(g). HUD should also (1) request indemnification for the loans that had material underwriting deficiencies, resulting in $2.5 million in funds to be put to better use; (2) request statutory authority to indemnify poorly underwritten loans; (3) obtain support for one loan, which lacked documentation required for loan approval; and (4) ensure that only HUD-approved underwriters underwrite Section 184 loans. (Audit Report: 2015-LA-0002) MOVING TO WORK PROGRAM HUD OIG reviewed HUD’s oversight of the Moving to Work program of the Chicago Housing Authority in Chicago, IL, to determine whether HUD provided adequate oversight of the Authority’s Moving to Work exception payment standards. HUD could improve its oversight of the Authority’s Moving to Work exception payment standards to ensure that expenditures for related activities in the Authority’s annual Moving to Work plans and reports are reasonable and cost effective. OIG recommended that HUD implement adequate policies and procedures to ensure that the activities included in Authority’s plans are (1) allowable under the Moving to Work statutory purposes, (2) described in sufficient detail to convey anticipated impacts (including financial impact), and (3) in accordance with the terms and authorizations in the Moving to Work agreements. This recommendation should apply to all PHAs under Moving to Work agreements to ensure consistency within the program. (Audit Memorandum: 2015-CH-0802) RENTAL ASSISTANCE DEMONSTRATION PROGRAM HUD OIG audited HUD’s Rental Assistance Demonstration program to determine whether HUD had adequate controls over the program, to include (1) completing a risk assessment that adequately evaluated (a) the need for additional administrative funding, (b) determining how funding level and program funds were established, (c) site conditions and residents’ ability to return after conversion, and (d) participants’ management and information systems capacity and (2) a plan to reduce these risks to an acceptable level. HUD did not sufficiently identify the risks that could disrupt an effective implementation of the program in its front-end risk assessment, document a plan to reduce these risks to an acceptable level, or conduct the risk assessment in a timely manner. Additionally, HUD did not clearly identify specific risks associated with some program units. OIG recommended that HUD (1) reexamine and modify the risk assessment completed for the program, (2) clearly identify specific risks for its program units, and (3) ensure that a plan for reducing the risks to an acceptable level is in place to promote an effective and successful implementation of the program. (Audit Report: 2015-AT-0003) 24 CHAPTER TWO PUBLIC AND INDIAN HOUSING PROGRAMS INVESTIGATION Administrative-civil actions 24 Convictions-pleas-pretrial diversions 69 Financial recoveries $3,956,144 COMPANY PRESIDENT SENTENCED FOR WIRE FRAUD The president of a company was sentenced in U.S. District Court to 12 months and 1 day incarceration and ordered to pay $1.25 million in restitution to HUD related to his conviction of wire fraud. From January 2008 to June 2009, the president diverted $1.25 million in funds from a HUD Special Purpose Grant, earmarked for the Mesa Grande Band of Mission Indians to purchase equipment for the construction of a panelized home factory, for his personal use by repaying personal debts and the purchase of a timeshare for a private jet, exotic furniture, and a personal limousine service. This case was investigated by HUD OIG and the Federal Bureau of Investigation (FBI). (San Diego, CA) FORMER EXECUTIVE DIRECTOR SENTENCED FOR EMBEZZLEMENT The former executive director of the Bradenton Housing Authority was sentenced in U.S. District Court to 12 months and 1 day incarceration and 3 years supervised release and ordered to pay $276,300 in restitution to HUD following his conviction of theft of government funds. From September 2010 through September 2013, the executive director and a coworker engaged in a romantic relationship and stole government time while employed by the Authority. Specifically, they were frequently absent from the Authority during work hours while not engaged in Authority business and failed on many occasions to take annual or sick leave for their absences. This investigation was conducted by HUD OIG, the FBI, the Florida Department of Law Enforcement, and the Bradenton Police Department. (Tampa, FL) PROGRAM MANAGER SENTENCED IN EMBEZZLEMENT SCHEME The former program manager for the Parma Public Housing Agency was sentenced in U.S. District Court to 16 months incarceration and ordered to pay $232,407 in restitution to the Agency following her conviction of theft of public funds. From January 2008 through September 2014, the program manager issued checks to herself from the Agency. Although the Agency required two signatures on the checks, the program manager was able to coendorse the checks, using a stamp of the executive director’s signature to which she had access. The program manager was able to conceal her activities by creating false invoices from legitimate Agency vendors, which she deposited into her personal account, and then falsified the Agency check registers to make it appear that the vendor was paid for work that had not been ordered or completed. The program manager deposited 138 Agency checks into her personal bank account. This investigation was conducted by HUD OIG and the Parma Police Department. (Cleveland, OH) 25 SEMIANNUAL REPORT TO CONGRESS THREE MULTIFAMILY HOUSING PROGRAMS In addition to multifamily housing developments and healthcare programs with U.S. Department of Housing and Urban Development (HUD)-held or HUD-insured mortgages, HUD subsidizes rents for low-income households, finances the construction or rehabilitation of rental housing, and provides support services for the elderly and handicapped. Some of the highlights from this semiannual period are shown below. AUDIT STRATEGIC INITIATIVE 2: CONTRIBUTE TO THE REDUCTION OF ERRONEOUS PAYMENTS IN RENTAL ASSISTANCE Key program results Questioned costs Funds put to better use Audit 14 audits $59,036,512 $22,669,593 REVIEW OF MULTIFAMILY MANAGEMENT AGENTS HUD’s Office of Inspector General (OIG) audited HUD’s resident home-ownership program grant for Carmen- Marine Apartments in Chicago, IL, to determine whether the Carmen-Marine Cooperative and management agent operated the project in accordance with HUD requirements and the grant agreement. The Cooperative and management agent did not ensure that (1) the Cooperative always maintained a proper waiting list for rental units and appropriately selected households for initial membership sales, (2) sufficient documentation was maintained to support that the Cooperative’s payments to HUD for initial membership sales were accurate, (3) sufficient documentation was maintained to support whether the City of Chicago should have received proceeds from subsequent membership sales, (4) housing was affordable for all members, (5) members maintained their units as their principal residence, (6) the Cooperative could support that it notified the Chicago Housing Authority that it received excessive Section 8 Housing Choice Voucher program housing assistance payments for units, and (7) the Cooperative submitted required reports to HUD. As a result, HUD and the Cooperative lacked assurance that the project was operated in accordance with HUD’s requirements and the grant agreement, and the Cooperative is at risk of having to reimburse HUD nearly $22.7 million in program funds. 26 CHAPTER THREE MULTIFAMILY HOUSING PROGRAMS OIG recommended that HUD (1) require the Cooperative to resolve the issues and implement adequate procedures and controls to address the weaknesses cited and (2) determine whether the Cooperative is in default of its grant agreement. (Audit Report: 2015-CH-1010) HUD OIG audited HUD’s Office of Multifamily Asset Management and Portfolio Oversight to determine whether HUD adequately monitored its management agents to ensure that front line costs and direct costs were not excessive across their portfolios. HUD did not adequately monitor its management agents. HUD’s monitoring did not always include detailed reviews of management agents’ front line costs and direct costs across their portfolios to ensure that costs were not excessive. As a result, funds may not have been available to maintain property conditions, and Section 8 reserves may have been reduced if project funds were used to pay improper front line and direct costs. OIG recommended that HUD’s Office of Multifamily Asset Management and Portfolio Oversight comply with its handbook requirements, which state that HUD must perform management reviews of the management agent’s central office activities as well as regular onsite reviews of functions carried out at the projects. These reviews should be performed at least every 18 months. (Audit Report: 2015-AT-0002) REVIEW OF UNDERWRITING PROCESS HUD OIG audited Prudential Huntoon Paige Associates, LTD’s underwriting of a $22.8 million mortgage loan to refinance Lafayette Towers Apartments, a 584-unit highrise multifamily project in Detroit, MI, to determine whether Prudential underwrote and processed the loan for Lafayette Towers according to HUD’s requirements. Prudential exposed the FHA insurance fund to unnecessary risk and a loss of more than $15 million because it did not underwrite and process the loan for Lafayette in accordance with HUD’s guidelines and regulations. Specifically, Prudential did not ensure that the project capital needs assessment was complete and accurate, adequately assess the borrower’s eligibility, adequately assess the property’s financial capacity, and ensure that the appraisal report was supported. OIG recommended that HUD refer Prudential to the Mortgagee Review Board to take appropriate action for violations that caused the loss to the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance Fund or other administrative action as appropriate. OIG also recommended that HUD pursue civil remedies, if legally sufficient, against responsible parties and administrative actions, as appropriate, against the responsible party for the material underwriting deficiencies cited. (Audit Report: 2015-AT-1007) HUD OIG audited Berkadia Commercial Mortgage, LLC’s underwriting of a loan to fund the renovation of the Temtor project in St. Louis, MO, to determine whether Berkadia properly underwrote the items that established the maximum mortgage amount for the Temtor project. Berkadia did not properly determine the maximum mortgage amount for the Temtor loan, resulting in an $11.3 million loss to HUD. Ineligible and unsupported items increased the HUD-insured mortgage by more than $6 million. Berkadia included projected commercial rents without establishing the market rate and tax increment financing payments that were not guaranteed. The project’s income was insufficient to pay the larger mortgage. The owners defaulted on the loan, and a claim was submitted to HUD. 27 SEMIANNUAL REPORT TO CONGRESS OIG recommended that HUD refer Berkadia to the Mortgagee Review Board for the violations that caused the loss to FHA’s Mutual Mortgage Insurance Fund. OIG also recommended that Berkadia modify its policies and procedures to ensure that future loans represent an acceptable risk to HUD. (Audit Report: 2015-KC-1005) HUD OIG audited Prudential Huntoon Paige Associates, LTD’s underwriting of a $19.9 million mortgage loan to develop Amaranth at 544, a senior multifamily project located in Lewisville, TX, to determine whether Prudential underwrote and processed the loan according to HUD requirements. Prudential exposed FHA’s Mutual Mortgage Insurance Fund to unnecessary risk and a loss of more than $10 million because it did not underwrite and process the loan for Amaranth in accordance with HUD’s guidelines and regulations. Specifically, it did not ensure that adequate cash reserves were provided at loan closing, the appraisal report was supported, the market analysis included support to reflect the present economic conditions, and the project revenue was not overstated. In addition, Prudential failed to obtain support for the borrower’s financial capacity. OIG recommended that HUD refer Prudential to the Mortgagee Review Board to take appropriate action for the violations that caused the loss to FHA’s Mutual Mortgage Insurance Fund or other administrative action as appropriate. Additionally, OIG recommended that HUD pursue administrative actions, as appropriate, against the responsible party for the material underwriting deficiencies cited. (Audit Report: 2015-AT-1003) REVIEW OF OFFICE OF HEALTHCARE PROGRAMS HUD OIG audited St. Francis Hospital, Inc., in Columbus, GA, to determine whether the hospital complied with its executed regulatory agreement and HUD requirements for its Section 242 program. The hospital did not comply with its regulatory agreement and Federal regulations. Specifically, it submitted inaccurate financial information, improperly disbursed mortgage proceeds, incurred an unauthorized liability, and subjected mortgage funds to bank sweeps. Additionally, members of the hospital’s board of trustees, including its chairman, had potential conflicts of interest through employment with and serving on the board of a bank from which the hospital obtained a line of credit. As a result, $21.4 million in proceeds from the HUD-insured mortgage and HUD’s collateralized properties was not disbursed properly, and the multifamily insurance portfolio was subjected to increased risk. Also, HUD depended on inaccurate financial information to approve a $29.8 million mortgage increase. OIG recommended that HUD require the hospital to (1) repay the improperly disbursed mortgage funds, (2) resolve the apparent conflicts of interest between its board of trustees members and the bank, and (3) improve its internal controls and implement policies and procedures to provide accurate and complete reporting of financial information to ensure compliance with Federal regulations and HUD requirements. OIG also recommended that HUD pursue administrative actions, as appropriate, against the responsible parties for the regulatory violations cited and civil remedies, if legally sufficient, against responsible parties. (Audit Report: 2015-AT-1009) 28 CHAPTER THREE MULTIFAMILY HOUSING PROGRAMS INVESTIGATION Administrative-civil actions 15 Convictions-pleas-pretrial diversions 3 Financial recoveries $1,033,771 OWNER OF ASSISTED LIVING FACILITY SETTLES LAWSUIT WITH HUD The owner of an assisted living facility entered into an agreement with HUD to pay $500,000 in civil money penalties, related to a March 2015 complaint filed by HUD against Williams seeking $12.9 million in monetary recoveries. The complaint alleged that Williams used operating funds for his personal gain by purchasing golf club memberships, private school tuition for his children, and health care coverage for himself and his family as well as paying his home mortgage. The owner refinanced the facility’s mortgage with an FHA-insured mortgage and in conjunction with the refinance, entered into a regulatory agreement with HUD, which precluded him from paying out any project funds except for reasonable operating expenses without the prior written approval of HUD. This settlement was as the result of a joint investigation between the HUD OIG, Office of Investigation and Office of Audit. (Denver, CO) 29 SEMIANNUAL REPORT TO CONGRESS FOUR COMMUNIT Y PL ANNING AND DEVELOPMENT PROGRAMS The Office of Community Planning and Development (CPD) seeks to develop viable communities by promoting integrated approaches that provide decent housing, suitable living environments, and expanded economic opportunities for low- and moderate-income persons. The primary means toward this end is the development of partnerships among all levels of government and the private sector. Some of the highlights from this semiannual period are shown below. AUDIT STRATEGIC INITIATIVE 3: CONTRIBUTE TO THE STRENGTHENING OF COMMUNITIES Key program results Questioned costs Funds put to better use Audit 30 audits6 $276,185,846 $313,793,822 The U.S. Department of Housing and Urban Development, Office of Inspector General (HUD OIG), audited the HOME Investment Partnerships Program (HOME), Community Development Block Grant (CDBG), Shelter Plus Care Program, and Supportive Housing Program (SHP). HOME INVESTMENT PARTNERSHIPS PROGRAM HUD OIG audited the City of Paterson, NJ’s HOME program to determine whether City officials had established and implemented adequate controls to ensure that the City’s HOME program was administered in compliance with program requirements and Federal regulations. The City’s HOME program was not always administered in compliance with program requirements. Specifically, HOME funds were (1) not committed in accordance with program requirements, (2) spent on ineligible and unsupported costs, (3) reserved and disbursed to ineligible community housing development organizations (CHDO), (4) drawn down in excess of need and not reimbursed for terminated activities, and (5) used to assist ineligible and unsupported home buyers and homeowners. As a result, $1.8 million was unavailable for eligible activities, more than $561,000 was disbursed for unsupported costs, more than $2.2 million in CHDO reserve was ineligible, the CHDO reserve was underfunded by more than $1.1 million, and HUD’s interest in more than $1.37 million was not properly recorded. 6 The total CPD audits, questioned costs, and funds put to better use amounts include any disaster recovery (13 audits) type audits conducted in the CPD area. The writeups for these audits may be shown separately in chapter 5 of this semiannual report. 30 CHAPTER FOUR COMMUNITY PLANNING AND DEVELOPMENT PROGRAMS OIG recommended that HUD recapture nearly $845,000 in ineligible committed funds and instruct City officials to (1) reimburse more than $948,000 spent for ineligible costs, (2) provide documentation to support the HUD funds spent on unsupported costs and activities, (3) remove the ineligible CHDO reserve funds, (4) provide documentation for the unsupported CHDO reserve funds, and (5) properly record deed restrictions and affordability requirements so that HUD’s interest is protected. (Audit Report: 2015-NY-1005) HUD OIG audited the City of Colorado Springs, CO, to determine whether the City properly committed its HOME program funds and monitored its subrecipients’ use of tenant-based rental assistance administrative funds. The City committed HOME grant funds without having properly executed contracts or environmental reviews. Specifically, it (1) committed funds for 5 affordable housing projects that lacked contracts or environmental reviews at the time of the commitment, (2) committed funds for 6 affordable housing and 26 residential rehabilitation projects that had a complete contract or environmental review but did not have the required signatures or dates, and (3) increased the original commitment amounts for 15 residential rehabilitation projects without having an amendment to the contract or a change order. Additionally, the City did not monitor how its subrecipient spent tenant-based rental assistance administration funds. OIG recommended that HUD (1) recapture more than $1.9 million of the City’s HOME grant, (2) require the City to provide support for $2.1 million in HOME grant expenses, (3) require the City to provide support for more than $36,000 in increased commitments, (4) require the City to develop and implement detailed policies and procedures to ensure better managerial oversight, (5) monitor its subrecipient’s use of the tenant-based rental assistance funds allocated to it from 2009 to 2014 to ensure that they were used for eligible administration costs, and (6) require the City to develop and implement detailed policies and procedures for monitoring its subrecipients to ensure that all HUD funds are spent for eligible program activities. (Audit Report: 2015-DE-1003) HUD OIG reviewed the City of Richmond, CA’s Filbert Phase 1 and Filbert Phase 2 activities in response to HUD’s concerns regarding the City’s administration of its HOME program, CDBG, and CDBG Recovery (CDBG-R) funding of Filbert Phase 1 and Filbert Phase 2 activities. The City did not use its HUD funds for Filbert Phase 1 and Filbert Phase 2 activities in accordance with HUD requirements. It constructed three HOME-funded townhomes and disbursed more than $2 million in HOME, CDBG, and CDBG-R funding for both projects. In addition, it (1) removed restrictions requiring a low-income family to occupy HOME-funded units for a minimum of 15 years (Filbert Phase 1), (2) entered inaccurate information that misrepresented the status of its project in HUD’s Integrated Disbursement and Information System (IDIS), and (3) withdrew funds without an agreement in place (Filbert Phase 2). As a result, the long-term affordability of HOME-assisted units was not maintained, and HUD lacked assurance regarding how funding was used for the projects. OIG recommended that HUD require the City to (1) repay from non-Federal funds nearly $1.3 million for funds spent on Filbert Phase 1 for units that did not meet affordability requirements and (2) repay more than $1 million in ineligible costs for Filbert Phase 2, which was misrepresented in IDIS, was drawn before a legally binding agreement was in place, and did not produce a project. OIG also recommended that HUD require the City to implement policies and procedures to require HOME, CDBG, and CDBG-R program expenditures to be adequately supported, ensure proper oversight of IDIS administration and maintenance of support for grant expenditures, and ensure the long-term affordability of HOME projects and activities. (Audit Memorandum: 2015-LA-1803) 31 SEMIANNUAL REPORT TO CONGRESS HUD OIG audited CPD’s administration of the HOME matching requirements to determine whether CPD effectively reviewed participating jurisdictions’ match logs and the support for their match contributions and whether it applied the correct match reductions in fiscal year 2013. CPD did not always enforce the HOME requirement that participating jurisdictions maintain sufficient and supported match logs, and it applied incorrect match reductions for 63 participating jurisdictions in fiscal year 2013. OIG recommended that CPD (1) issue guidance to help participating jurisdictions accurately report the amount of match contributed and consumed; (2) include monitoring of HOME match during its performance reviews to ensure that match contributions exist, are eligible, and are supported; (3) require the 10 jurisdictions that overstated their excess match balances to remove the overstated amounts from their reported HOME match carry-forward balances; (4) create and implement policies and procedures specifying the process for assigning match reductions; (5) begin using the poverty rate instead of the family poverty rate for determining eligible fiscal match reductions; (6) use the national average for per capita income reported by the U.S. Census Bureau for determining eligible fiscal match reductions; and (7) review the reductions assigned in HUD’s systems by comparing a report of all match liabilities to the calculated reductions. (Audit Report: 2015-KC-0002) COMMUNITY DEVELOPMENT BLOCK GRANT HUD OIG audited the City of Colorado Springs, CO, to determine whether the City used its grant funds for eligible project costs and performed environmental reviews of its projects. The City used grant funds for unsupported salary and project costs. It could not support its CDBG salaries from 2009 to 2013 totaling more than $3.8 million and could not support any expenditures for a 2011 capital improvement project totaling more than $67,000. Additionally, the City did not properly complete environmental reviews of its projects. It did not document the exempt status for its human service projects and did not complete a full environmental review of 22 of its non-human-service projects totaling more than $3.1 million. OIG recommended that HUD require the City to (1) provide support for the unsupported salary costs or reimburse HUD from non-Federal funds any amount that it cannot support; (2) provide support for the unsupported project costs or reimburse HUD from non-Federal funds any amount that it cannot support; (3) develop and implement a detailed payroll tracking system to ensure that only costs incurred in administering the CDBG program are charged to the CDBG grants; (4) develop and implement a system to track its project files; (5) develop and implement detailed policies and procedures to ensure that it complies with HUD environmental review requirements; and (6) provide support for the 22 non-human-service CDBG projects, showing that each project was either exempt or complied with environmental requirements, and for any amount not supported, reimburse HUD from non-Federal funds. (Audit Report: 2015-DE-1002) 32 CHAPTER FOUR COMMUNITY PLANNING AND DEVELOPMENT PROGRAMS SHELTER PLUS CARE PROGRAM HUD OIG audited the Shelter Plus Care program of the Housing Authority of the County of San Bernardino in San Bernardino, CA, to determine whether the Authority administered its program funds in accordance with HUD rules and requirements, specifically related to participants’ eligibility. The Authority did not always ensure that its participants were eligible for the program. Of 75 participants reviewed, 50 were ineligible for the program. The eligibility of eight participants could not be validated because of missing documents. The Authority spent more than $3.2 million in program funds on ineligible participants and participants whose eligibility was not supported with documentation. If the Authority does not improve its controls, it could pay more than $873,000 in program funds for ineligible participants in the next year. Further, the Authority’s practices reduced its ability to accomplish HUD’s goal of ending homelessness for individuals with disabilities and their families. OIG recommended that HUD require the Authority to (1) repay HUD from non-Federal funds for program funds spent on ineligible participants, (2) provide supporting documentation for program funds used for participants for whom eligibility could not be determined, and (3) develop and implement written policies and procedures to ensure that participants are eligible for the program and comply with HUD rules and requirements so that program funds can be put to better use and not paid for ineligible participants. (Report Number: 2015-LA-1004) SUPPORTIVE HOUSING PROGRAM HUD OIG audited the Supportive Housing Program of Veterans First in Santa Ana, CA, to determine whether expenditures Veterans First charged to its SHP grants and program fees it charged to its SHP clients were eligible and supported. Veterans First charged its SHP grants nearly $531,000 in unsupported payroll and other costs and had more than $3,000 in ineligible costs. In addition, Veterans First’s accounting system data were unreliable and unauditable. Further, Veterans First continued charging clients a 19 percent program fee after a change in regulations disallowed the practice and did not adequately maintain documentation in its client files. OIG recommended that HUD require Veterans First to provide adequate supporting documentation for the unsupported costs or repay its program from non-Federal funds and repay its program for the ineligible costs. Additionally, OIG recommended that Veterans First implement accounting system procedures and controls and that HUD suspend its funding until such controls are in place. OIG also recommended that Veterans First repay the applicable clients the overcharged program fees, which totaled more than $15,000, and implement additional policies and procedures for reviewing and maintaining client income documentation and rent determinations. (Audit Report: 2015-LA-1002) 33 SEMIANNUAL REPORT TO CONGRESS INVESTIGATION Administrative-civil actions 8 Convictions-pleas-pretrial diversions 17 Financial recoveries $1,716,482 BOOK KEEPER INVOLVED IN $1.3 MILLION EMBEZZLEMENT The former book keeper-fiscal manager for several nonprofit organizations was sentenced in U.S. District Court to 3 years incarceration followed by 3 years of supervised release and ordered to pay $1.3 million related to her earlier guilty plea to theft of government funds. From January 2008 through March 2011, the book keeper diverted business checks for her personal use from four nonprofit organizations that received Federal funding to provide services for disadvantaged children and homeless families in Baltimore, MD. The Shelter Plus Care Housing and SHP grants are administered by Baltimore City, with Federal funds provided by HUD. The HUD funding received by the nonprofits included more than $800,000. This investigation was conducted by HUD OIG, the Federal Bureau of Investigation (FBI) and the Baltimore City OIG. (Baltimore, MD) GRANTEE SENTENCED FOR RACKETEERING AND THEFT OF GOVERNMENT FUNDS The former chairman of the board of trustees at South Carolina State University and HUD American Recovery and Reinvestment Act grant recipient for a property development company was sentenced in U.S. District Court to 60 months incarceration and 5 years supervised release and ordered to pay $337,000 in restitution, $234,000 of which is payable to HUD, following his conviction, which included charges of Racketeer Influenced and Corrupt Organizations Act violatons, theft of government funds, money laundering, wire fraud, and false statements. The developer submitted false statements on HUD construction draw request forms, committed wire fraud and money laundering, and embezzled funds earmarked for construction for his personal use. The developer has also been suspended by the HUD, Office of General Counsel, Departmental Enforcement Center. This investigation was conducted by HUD OIG, the FBI, the Internal Revenue Service – Criminal Investigations, and the South Carolina Law Enforcement Division. (Columbia, SC) 34 CHAPTER FIVE DISASTER RELIEF PROGRAMS FIVE DISASTER RELIEF PROGRAMS In response to disasters, Congress may appropriate additional funding as Disaster Recovery grants to rebuild the affected areas and provide crucial seed money to start the recovery process. Since fiscal year 1993, Congress has appropriated $47 billion to the U.S. Department of Housing and Urban Development (HUD), from which HUD provides flexible grants to help cities, counties, and States recover from presidentially declared disasters. To date, approximately $3 billion of the $47 billion in disaster grants has been closed out, and $44.2 billion remains active. Of the $44.2 billion in active disaster grants, the funds have been allocated nationwide, with nearly $35.1 billion obligated and $30.6 billion disbursed as of September 30, 2015. Funds Funds Funds Percentage of Disaster allocated obligated disbursed funds used Hurricane Sandy $14.2 billion $5.6 billion $4.0 billion 28 Hurricanes Katrina, $19.6 billion $19.5 billion $18.6 billion 95 Rita & Wilma Hurricanes Ike, $6.1 billion $6.0 billion $4.4 billion 72 Gustav & Dolly 9-11 $3.5 billion $3.4 billion $3.1 billion 89 Other $0.8 billion $0.6 billion $0.47 billion 59 35 SEMIANNUAL REPORT TO CONGRESS Keeping up with communities in the recovery process can be a challenging position for HUD. HUD’s Office of Inspector General (OIG) continues to take steps to ensure that HUD remains diligent in assisting communities with their recovery efforts. STRATEGIC INITIATIVE 3: CONTRIBUTE TO THE STRENGTHENING OF COMMUNITIES AUDIT Key Program results Questioned costs Funds put to better use Audit 13 audits7 $250,534,950 $311,040,127 HUD OIG audited the New York State Community Development Block Grant Disaster Recovery (CDBG- DR)-funded New York Rising Housing Recovery Program to determine whether State officials established and maintained adequate controls to ensure that CDBG-DR funds were disbursed for eligible activities and allowable costs and properly reported in compliance with regulations. State officials did not always ensure that CDBG-DR funds were disbursed for eligible costs, ineligible awards could be recovered, procurement activity was executed or reported as required, and disbursements were properly reported. Specifically, (1) funds were disbursed for ineligible and unsupported costs, (2) disbursements were made before recipients executed grant agreements, (3) procedures were not implemented to recapture funds disbursed for ineligible costs, (4) procurement of construction management and environmental review services did not comply with Federal and State requirements, (5) national objectives were inadequately classified and reported, and (6) assistance payments were made without receipts. OIG recommended that HUD direct State officials to (1) repay the program more than $2.2 million in CDBG-DR funds disbursed for ineligible costs, (2) provide documentation supporting more than $119,000 in unsupported disbursements and the reasonableness of the cost figure used to disburse more than $55.6 million for reconstruction costs, (3) strengthen controls to ensure that grant agreements are signed before checks are disbursed to recipients, (4) implement procedures to recapture ineligible CDBG-DR funds disbursed, (5) provide documentation showing that the $127.2 million contract for construction management and environmental review services was fair and reasonable, (6) strengthen controls to ensure that national objectives are adequately classified and reported, and (7) require receipts for completed work to ensure that more than $241.2 million will be put to its intended use. (Audit Report: 2015-NY-1011) HUD OIG audited the State of New Jersey’s CDBG-DR-funded Sandy Integrated Recovery Operations and Management System to determine whether the State procured services and products for its system in accordance with Federal procurement and cost principle requirements. The State did not procure services and products for its system in accordance with Federal procurement and cost principle requirements. Specifically, it did not prepare an independent cost estimate and analysis before awarding the system contract to the only responsive bidder. Further, it did not ensure that option years were awarded competitively and included provisions in its request for quotation that restricted competition. It also did not ensure that software was purchased competitively and that the winning contractor had adequate documentation to support labor costs charged by its employees. The State’s process was not equivalent to Federal procurement standards; therefore, its certification to HUD was inaccurate. As a result, the State did 7 The total disaster-related audits consist of community planning and development audits. The questioned costs and funds put to better use amounts relate only to disaster-related costs. 36 CHAPTER FIVE DISASTER RELIEF PROGRAMS not show that the overall contract price of $38.5 million and option years totaling another $21.7 million were fair and reasonable and that the $1.5 million it disbursed was adequately supported. The State began taking corrective actions during the audit and began providing some documentation to resolve these deficiencies. OIG recommended that HUD determine whether corrective actions and documentation the State provided are adequate to show that the $38.5 million contract price for the initial 2-year period was fair and reasonable and that $1.5 million disbursed for software and labor costs was allowable and supported or direct the State to repay HUD from non-Federal funds. Further, HUD should determine whether the documentation provided is adequate to show that the contract price for the 3 additional option years was fair and reasonable or direct the State to rebid for the additional option years, thereby putting $9.1 million to better use. (Audit Report: 2015-PH-1003) HUD OIG audited the New York Rising Home Enhanced Buyout Program to determine whether New York State officials established adequate controls to ensure that funds were used for eligible activities and reasonable expenses and procurement actions complied with Federal regulations. State officials did not always (1) administer the program in accordance with program procedures and their partial action plan, (2) ensure that property eligibility and the purchase price were adequately supported, (3) maintain documentation to support that procurement actions complied with Federal and State requirements, and (4) post required information to a Web site. As a result, officials disbursed $6.6 million for properties that did not conform to published requirements, $672,000 for ineligible incentives, and more than $598,000 for purchase prices in excess of authorized limits. Documentation was also inadequate to support that $1.7 million was disbursed for eligible purchases and that $8.7 million spent for contracts complied with Federal or State requirements. State officials had taken corrective actions to ensure that an additional $16.5 million would be put to its intended use. OIG recommended that HUD require State officials to (1) support that 19 properties complied with the State’s partial action plan and the intent of its board resolution authorizing the buyout program, (2) repay ineligible incentives and purchase prices, (3) provide support for unsupported expenditures and that contracts were procured in accordance with requirements, and (4) ensure that contracts and subrecipient agreements are executed in accordance with Federal and State regulations. (Audit Report: 2015-NY-1010) HUD OIG audited the City of New Orleans, LA’s CDBG-DR funds awarded to the City as a result of damages caused by Hurricane Isaac to determine whether the City maintained adequate procurement controls and financial management systems and administered its CDBG-DR funds in accordance with Federal guidelines, HUD regulations, and other requirements. The City did not always maintain adequate procurement controls and financial management systems or administer its CDBG-DR funds in accordance with Federal guidelines, HUD regulations, and other requirements. Specifically, it did not always (1) prepare independent cost estimates or cost analyses, (2) have documentation to support expenditures, (3) submit timely projections to HUD, or (4) maintain a complete public Web site. As a result, it could not show that costs were reasonable, adequately support its contract costs, or ensure that it received the greatest overall benefit from HUD funds paid to its contractors. Further, the City could not provide reasonable assurance to HUD that it had adequate procurement and financial controls for the proper administration and expenditure of its CDBG-DR funds. Thus, its remaining CDBG-DR grant funds were at risk of mismanagement. 37 SEMIANNUAL REPORT TO CONGRESS OIG recommended that HUD require the City to (1) support or repay more than $2.5 million and develop and implement a HUD-approved written plan and checklists to correct and prevent the procurement and financial deficiencies identified to better ensure that it spends its remaining $4.5 million in CDBG-DR funds in accordance with requirements, (2) amend its contracts to clarify the type of documentation needed to support invoices, (3) maintain complete CDBG-DR procurement and expenditure files, (4) obtain training concerning procurement and CDBG-DR requirements, and (5) maintain a required log of its Web site updates and submit the log to HUD periodically for review to ensure that it completes the updates in a timely manner and in accordance with requirements. (Audit Report: 2015-FW-1002) HUD OIG audited the State of Illinois’ CDBG-DR program to determine whether the State’s Department of Commerce and Economic Opportunity ensured that program funds used for three projects met Federal requirements. The Department did not ensure that program funds used for the three projects met Federal requirements. It could not provide sufficient documentation to support that two of the three projects met a national objective and the use of program funds for one project. Further, program funds loaned for one project were not repaid as required by the Department’s grant agreement with the subrecipient, and the Department could not ensure that two of the subrecipients appropriately procured services for three contracts associated with two of the projects. As a result, HUD and the Department lacked assurance that more than $1.7 million in program funds was used and more than $4.3 million in program funds would be used in accordance with Federal requirements. In addition, the Department did not have $250,000 in program funds available for eligible program-funded projects. OIG recommended that HUD require the State to (1) support or reimburse its program from non-Federal funds for the three projects that lacked evidence of compliance with Federal requirements, (2) support that one project met a national objective or deobligate the program funds, (3) reimburse its program from non- Federal funds for the program funds not repaid, and (4) implement adequate controls to address the findings cited. (Audit Report: 2015-CH-1009) HUD OIG audited the State of Florida’s CDBG-DR program to determine whether the State administered its program in accordance with applicable HUD requirements; specifically, whether the State used funds to assist eligible properties and beneficiaries. The State did not adequately administer its CDBG-DR program in accordance with HUD requirements because it did not demonstrate whether (1) 93 assisted units with expenditures of more than $2 million were impacted by the 2008 declared disasters, (2) a property acquired for more than $63,000 was in a high-risk area, (3) a property met the low- and moderate-income housing national objective, and (4) 9 beneficiaries with expenditures of nearly $221,000 were income eligible to receive assistance. OIG recommended that HUD require the State to support the eligibility of funds used or reimburse HUD from non-Federal funds. The State should also develop policies and procedures to ensure that sufficient eligibility documentation is maintained. (Audit Report: 2015-AT-1006) 38 CHAPTER FIVE DISASTER RELIEF PROGRAMS HUD OIG audited the State of Maryland’s CDBG-DR-funded Housing Recovery program to determine whether the State (1) assisted eligible applicants, (2) avoided duplicating assistance, (3) incurred eligible expenses that were properly supported, (4) procured services and products properly, and (5) constructed homes properly in accordance with applicable HUD and Federal requirements. The State could not show that replacement homes were designed and constructed to increase energy efficiency and minimize their environmental footprint as required. Specifically, the State’s subgrantee could not show that it constructed replacement homes that complied with the Green Building Standard. As a result, HUD had no assurance that $1.9 million in program funds paid to the subgrantee were spent and $293,000 in program funds not yet paid to the subgrantee would be spent to design and construct 13 replacement homes in a manner that increased energy efficiency and minimized their environmental footprint. The subgrantee (1) assisted eligible applicants, (2) avoided duplicating assistance, (3) incurred eligible expenses that were properly supported, and (4) procured services and products properly. OIG recommended that HUD require the State to (1) provide documentation showing that the 13 homes, with related program costs totaling $1.9 million, meet the Green Building Standard or repay HUD for any amount that it cannot support and (2) continue to develop and implement procedures to ensure that future replacement homes comply with the Standard, thereby ensuring that $293,000 in program funds not yet paid to the subgrantee will be put to better use. (Audit Report: 2015-PH-1005) INVESTIGATION PROGRAM RESULTS* Administrative-civil actions 8 Convictions-pleas-pretrial diversions 1 Financial recoveries $0 *Figures included in public and Indian housing and community planning and development statistics LOUISIANA ROAD HOME GRANT RECIPIENT CONVICTED OF FRAUD A Louisiana Road Home Program grant recipient pled guilty in U.S. District Court to making false statements related to a CDBG-DR grant. In June 2007, the grantee received $97,969 from the Program after signing a covenant agreement to reoccupy the property within 3 years of the grant closing. However, the recipient did not repair or reoccupy the property. To avoid having her grant recaptured, the grantee submitted a falsified utility bill to the Program in an effort to prove occupancy. This investigation was conducted by HUD OIG and the Federal Bureau of Investigation. (New Orleans, LA) 39 SEMIANNUAL REPORT TO CONGRESS SIX OTHER SIGNIFICANT AUDITS AND INVESTIGATIONS AUDIT STRATEGIC INITIATIVE 4: CONTRIBUTE TO IMPROVING HUD’S EXECUTION OF AND ACCOUNTABILITY FOR FISCAL RESPONSIBILITIES AS A RELEVANT AND PROBLEM- SOLVING ADVISOR TO THE DEPARTMENT Key program results Questioned costs Funds put to better use Audit 9 audits $1,179,830 $2,500 The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General’s (OIG) more significant audits are discussed below. REVIEW OF HUD’S COMPLIANCE WITH IMPROPER PAYMENTS INFORMATION ACT HUD OIG audited HUD’s fiscal year 2014 compliance with the Improper Payments Elimination and Recovery Act of 2010 (IPERA) to determine (1) HUD’s compliance with IPERA reporting and improper payments reduction requirements; (2) whether HUD’s reporting of improper payments data, including the agency’s performance in reducing and recapturing improper payments, was complete and accurate; and (3) whether HUD’s assessment of the level of risk associated with high-priority programs and the quality of the improper payments estimates and methodology were reasonable. HUD did not comply with IPERA for fiscal year 2014. It did not adequately report on its supplemental measures because it lacked documented procedures, and its improper payments risk assessment was deficient because all relevant OIG audit reports were not considered. Additionally, HUD’s estimate of improper payments for the billing error component was based on out-of-date information, and its methodology for developing the estimate did not include an evaluation of all types of errors that could lead to significant improper payments. Finally, OIG noted 18 unimplemented recommendations from its prior-year report. As a result, (1) HUD officials and other users, including Congress and the Office of Management and Budget (OMB), did not have a complete and accurate picture for making decisions regarding HUD’s internal controls over improper payments and efforts to recover improper payments, (2) HUD’s risk assessments may have underestimated the risk of significant improper payments, and (3) its estimate of improper payments may have been misstated. 40 CHAPTER SIX OTHER SIGNIFICANT AUDITS AND INVESTIGATIONS OIG recommended that HUD (1) implement procedures to ensure that all required improper payments reporting elements are included in its annual financial report and all relevant OIG and U.S. Government Accountability Office (GAO) audit reports are considered in its risk assessments, (2) consider the dollar amounts related to OIG and GAO audit reports and HUD’s program monitoring findings in its risk assessment, and (3) reevaluate the types of errors previously identified to determine whether there are new causes of significant improper payments that would require reporting. (Audit Report: 2015-FO-0005) REVIEW OF NEW CORE PROJECT HUD OIG audited release 3 of phase 1 of HUD’s New Core Project as part of the internal control assessments required for the fiscal year 2015 financial statement audit under the Chief Financial Officer’s Act of 1990. OIG’s objective was to assess the status of the project and determine whether the New Core Project team complied with Federal regulations and departmental project management processes. Weaknesses in the New Core Project had not been adequately addressed. HUD did not follow its own agency policies and procedures, the policies established for New Core, or best practices. If HUD is not successful in this implementation, it could reflect negatively on OMB’s mandate to use Federal shared service providers. The weaknesses identified relate to requirements and schedule and risk management. These areas are significant to the project plan, and the effectiveness with which HUD manages them is critical to the project’s success. OIG recommended that HUD (1) ensure that requirements for the functional areas that were not part of the shared service provider’s standard configuration are completed and approved before beginning design and development, (2) reevaluate the October 1, 2015, start date for release 3 of phase 1 of the project, (3) modify the project schedule and dashboard to identify the critical path, (4) establish a contingency plan, (5) ensure that all risks are fully mitigated before closing, and (6) address the remaining weaknesses identified. (Audit Report: 2015-DP-0006) HUD OIG audited HUD’s New Core Interface Solution (NCIS) for release 1 of phase 1 as part of the internal control assessments required for the fiscal year 2015 financial statement audit under the Chief Financial Officer’s Act of 1990. The objective was to determine whether adequate internal controls were in place for NCIS and relate the results of the review to the upcoming release 3 implementation. HUD’s implementation of release 1 of the New Core Project was not completely successful. A review of NCIS processing for release 1 travel and relocation transactions found that missed requirements and ineffective controls and procedures resulted in inaccurate financial data in HUD’s general ledger and Oracle Financials. As a result, NCIS processed for more than 6 months with unresolved errors, leaving HUD’s general ledger and Oracle Financials with inaccurate financial data and discrepancies in the balances between HUD’s general ledger and the U.S. Department of the Treasury’s Government Wide Accounting System. The implementation of release 1 confirmed the concerns cited when OIG reviewed release 3. Although HUD had taken action in its plans for release 3 to mitigate some of the problems that occurred with release 1, OIG is concerned that HUD could be moving too fast with its implementation plans and may repeat these weaknesses. OIG recommended that HUD correct the deficiencies cited to ensure that financial data are recorded accurately in HUD’s general ledger and Oracle Financials. Additionally, HUD should implement controls in current and future releases that will prevent similar errors from occurring. (Audit Report: 2015-DP-0007) 41 SEMIANNUAL REPORT TO CONGRESS POTENTIAL ANTIDEFICIENCY ACT VIOLATION IN HOME INVESTMENT PARTNERSHIPS PROGRAM HUD OIG conducted further analysis of its fiscal years 2013 and 2014 findings that HUD’s formula grant accounting did not comply with generally accepted accounting principles, resulting in misstatements on its financial statements, and that HUD did not comply with the HOME Investment Partnership Act (also known as the HOME Statute). The additional analysis was performed due to concerns about a potential Antideficiency Act violation regarding HOME Investment Partnerships Program funds based on HUD’s implementation of the cumulative method to meet commitment deadlines; specifically, its use of the first-in, first-out (FIFO) method to commit and disburse funds for this program. The objective of the audit was to determine whether grant funds were obligated and spent in accordance with statutory requirements. HUD’s use of the cumulative method to determine compliance with the HOME Statute’s 24-month commitment deadline incorrectly permitted some jurisdictions to retain and commit HOME funds beyond the statutory commitment deadline. If funds are retained by grantees beyond the deadline, HUD may incur an Antideficiency Act violation because funds remain available for obligation or expenditure by the grantee. The Antideficiency Act prohibits Federal agencies from making or authorizing an expenditure or obligation exceeding an amount available in an appropriation or fund for the expenditure or obligation. In fiscal year 2014, HUD continued to use the cumulative and FIFO methods for commitments and disbursements. Therefore, the conditions remained, and the potential for an Antideficiency Act violation continued to exist. OIG recommended that HUD (1) open an investigation and determine the impact of FIFO and the cumulative method for commitments for the HOME program on HUD’s risk of an Antideficiency Act violation; (2) as part of the investigation, obtain a legal opinion from GAO and OMB to determine whether maintaining the cumulative method for determining compliance with the HOME Statute results in noncompliance with the Statute and potential Antideficiency Act violations; and (3) if HUD incurred an Antideficiency Act violation, comply with the reporting requirements at 31 U.S.C. (United States Code) 1351 and 1517(b) and OMB Circular No. A-11, Preparation, Submission, and Execution of the Budget, section 145 (June 21, 2005). (Audit Memorandum: 2015-FO-0801) REVIEW OF HUD’S ADMINISTRATION OF ITS PURCHASE CARD PROGRAM HUD OIG audited HUD’s administration of its purchase card program in accordance with the Charge Card Abuse Prevention Act of 2012 to determine whether HUD evaluated and reported improper and potentially illegal uses of government purchase cards. Purchase card transactions were generally supported. However, HUD did not evaluate a potential violation to determine whether it constituted a significant weakness and could have provided better transparency by reporting the potential purchase card violation in its reports to OMB. Specifically, HUD did not evaluate or report a violation in which an employee made fraudulent purchases totaling nearly $12,000 from August through October 2013. OIG recommended that HUD revise its procedures to include evaluating the impact of identified violations on HUD’s purchase card program controls and how violations will be reported. (Audit Report: 2015-FO-0006) 42 CHAPTER SIX OTHER SIGNIFICANT AUDITS AND INVESTIGATIONS REVIEW OF ENVIRONMENTAL REQUIREMENTS HUD OIG audited HUD’s implementation and oversight of compliance with environmental requirements to determine whether HUD ensured that it adequately implemented environmental requirements and provided adequate oversight to ensure compliance with these requirements. HUD did not adequately implement environmental requirements or provide adequate oversight to ensure compliance with these requirements. For example, it did not adequately monitor or provide training to its staff, grantees, or responsible entities on how to comply with environmental requirements. Also, HUD did not have an adequate reporting process to ensure that the appropriate headquarters programs were informed of field offices’ environmental concerns. Further, OIG’s review of five field offices found that none of them adequately followed environmental compliance requirements. As a result, HUD may have increased the risk to the health and safety of the public and failed to prevent or eliminate damage to the environment, and five field offices allowed public housing agencies to spend almost $405 million for activities that either did not have required environmental reviews or had reviews that were not adequately supported. OIG recommended that HUD (1) comply with and provide adequate oversight to ensure compliance with environmental requirements, (2) either establish an independent program office with overall departmental responsibility for developing and enforcing compliance with environmental policies by all program offices and grantees or establish an agreement that clearly outlines all program offices’ environmental oversight responsibilities, and (3) clarify the delegation of authority in Federal Register notices related to its responsibility for the implementation of and compliance with environmental requirements. (Audit Report: 2015-FW-0001) REVIEW OF LEAD-BASED PAINT HAZARDS CONTROL HUD OIG audited the City of High Point, NC’s lead-based paint procurement and eligibility operations to determine whether the City administered its lead-based paint hazard control grants in accordance with HUD’s regulations and grant requirements for procurement of contracted services and expense eligibility. The City did not properly manage its procurement activities in accordance with HUD’s requirements. Specifically, it used an expired contract to pay for environmental services from November 1, 2009, to July 15, 2013. Also, it did not consistently select the lowest bidder, retain required documentation, and perform cost analyses on change orders. As a result of this noncompliance, HUD funds were used to pay more than $1 million for ineligible and unsupported procurement costs. In addition, the City improperly used its grant for ineligible lead-based paint abatement expenses. As a result, HUD funds were used to pay more than $9,000 for ineligible costs, which the City was not able to use for other projects. OIG recommended that HUD require the City to (1) reimburse more than $207,000 in ineligible costs from non-Federal funds, (2) support or reimburse more than $874,000 in unsupported costs from non-Federal funds, and (3) implement internal controls to ensure that regulations and procedures are followed. OIG also recommended that HUD continue the zero threshold process by reviewing the eligibility of the projects for approval under the 2011 grant until the grant is completed. (Audit Report: 2015-AT-1005) 43 SEMIANNUAL REPORT TO CONGRESS SEVEN JOINT CIVIL FRAUD INITIATIVES In recent years, the U.S. Department of Housing and Urban Development, Office of Inspector General (HUD OIG), has enhanced its efforts to identify and investigate civil fraud and pursue civil actions and administrative sanctions, frequently combining efforts from its multiple disciplines to create teams of auditors, special agents, attorneys, and data analysts to conduct civil investigations. The central hub of these efforts is HUD OIG’s Joint Civil Fraud Division, a distinct team of forensic auditors and special agents dedicated to investigating fraud and pursuing civil and administrative remedies. HUD OIG’s joint civil fraud teams work closely with the U.S. Department of Justice, U.S. Attorney’s Offices, HUD’s Office of General Counsel, and local prosecutors to pursue civil remedies under a variety of statutes and regulations, including the False Claims Act; Program Fraud Civil Remedies Act; and Financial Institutions Reform, Recovery, and Enforcement Act. HUD OIG also works with HUD’s Departmental Enforcement Center to pursue debarments, suspensions, and limited denials of participation when appropriate. HUD OIG’s internal joint efforts, in conjunction with partnerships with other enforcement groups, result in civil outcomes that are meant to help HUD recover from unwarranted damages sustained due to fraud. Some of the highlights from this semiannual period, resulting from these joint civil fraud efforts, are noted below. STRATEGIC INITIATIVE 1: CONTRIBUTE TO THE REDUCTION OF FRAUD IN SINGLE- FAMILY INSURANCE PROGRAMS PROGRAM RESULTS Recoveries and receivables to HUD programs or HUD program participants $161,722,168 Recoveries and receivables for other entities $86,959,989 Civil actions 7 Administrative sanctions 1 44 CHAPTER SEVEN JOINT CIVIL FRAUD INITIATIVES SINGLE FAMILY HUD OIG assisted the U.S. Department of Justice, Washington, DC, and the U.S. Attorney’s Office, Northern District of Georgia, in conducting a review of First Tennessee Bank. First Tennessee has its principal place of business in Memphis, TN, and is a wholly owned subsidiary of First Horizon Financial Corporation. First Tennessee became a Federal Housing Administration (FHA)-approved direct endorsement lender in 1984. As a direct endorsement lender, First Tennessee was authorized by HUD to originate and underwrite mortgage loans on HUD’s behalf, including determining a borrower’s creditworthiness and whether the proposed loan met all applicable requirements. When a borrower defaults on an FHA-insured loan underwritten and endorsed by a direct endorsement lender, the lender (or its representative) has the option of submitting a claim to HUD to compensate it for any loss sustained as a result of the default. Therefore, once a mortgage loan is endorsed for FHA insurance, HUD insures the risk of the borrower’s defaulting on that mortgage, which is realized if an insurance claim is submitted. On June 1, 2015, First Tennessee entered into a settlement agreement with the Federal Government to pay $212.5 million to avoid the delay, uncertainty, inconvenience, and expense of lengthy litigation of certain civil claims the Government contended that it had against First Tennessee. The settlement agreement was neither an admission of liability by First Tennessee nor a concession by the United States that its claims were not well founded. As part of the settlement, First Tennessee agreed that it engaged in certain conduct in connection with its origination, underwriting, and quality control of certain single-family residential mortgage loans insured by FHA. As a result of First Tennessee’s conduct, HUD insured hundreds of loans approved by First Tennessee that were not eligible for FHA mortgage insurance under the direct endorsement program and that HUD would not otherwise have insured. HUD incurred substantial losses when it paid insurance claims on the loans covered by the settlement agreement. Of the total settlement, FHA received $142 million in July 2015, and other Federal entities were to receive the remaining $70.5 million. (Memorandum: 2015-AT-1801; Office of Audit Region 4 and Joint Civil Fraud Division, with assistance from various Office of Investigation regions) HUD OIG assisted in an investigation into alleged violations by Reverse Mortgage Solutions, Inc., of FHA regulations related to its Home Equity Conversion Mortgage (HECM) program. The investigation began due to a qui tam action filed under the False Claims Act, 31 U.S.C. (United States Code) 3729, in the U.S. District Court for the Middle District of Florida. The False Claims Act allows private persons to file suit for violations of the False Claims Act on behalf of the Government. A suit filed by an individual on behalf of the Government is known as a qui tam action, and the person bringing the action is referred to as a relator. Reverse Mortgage Solutions is a mortgage company authorized to originate and service FHA-insured HECM loans (commonly known as reverse mortgages). Reverse Mortgage Solutions is a wholly owned subsidiary of Walter Investment Management Corporation, with its operations based in Spring, TX. Reverse Mortgage Solutions conducts loan servicing activities for reverse mortgages. HUD’s HECM program enables qualified homeowners to withdraw a portion of the home’s equity, thus creating a reverse mortgage. On July 1, 2013, the relator filed a qui tam action alleging that Walter Investment Management Corporation, Reverse Mortgage Solutions, and other entities engaged in a scheme to defraud HUD by failing to disclose in FHA insurance claims that certain required servicing actions on reverse mortgages were not completed according to HUD regulations within the required timeframes. The relator also alleged that Reverse Mortgage Solutions used a straw corporation to keep commissions on the sale of properties it liquidated. 45 SEMIANNUAL REPORT TO CONGRESS On March 27, 2015, the United States joined in the relator’s civil action regarding certain allegations made by the relator. In joining the civil action, the United States contended that it had certain civil claims against Reverse Mortgage Solutions and the other defendants for violating program rules and that as a result, HUD paid more in claims on the loans than loan owners were entitled to receive on certain claims. On September 3, 2015, the United States, the relator, Walter Investment Management Corporation, and the other defendants entered into a settlement agreement to avoid the delay, uncertainty, inconvenience, and expense of litigation. To settle the matter, Walter Investment Management Corporation, the parent corporation of Reverse Mortgage Solutions, agreed to pay $29.63 million to the United States, covering certain claims. The settlement agreement was neither an admission of liability by the defendants nor a concession by the United States that its claims were not well founded. FHA’s Mutual Mortgage Insurance Fund is to receive more than $13.69 million of the $29.63 million, with the remaining funds being remitted to the relator and other Federal entities. (Memorandum: 2015-CF-1808; Office of Investigation Region 4 and Joint Civil Fraud Division) HUD OIG, in coordination with the U.S. Attorney’s Office for the Eastern District of Michigan, conducted a review of GTL Investments, Inc., doing business as John Adams Mortgage Company, regarding its originations, underwriting, quality control, and endorsement of FHA loans. GTL Investments is based in Southfield, MI. The U.S. Government contended that it had certain civil claims against GTL Investments due to the origination, underwriting, quality control, and endorsement of 29 FHA-insured loans made from January 2008 through April 2012 that went to claim. Further, GTL Investments’ material deficiencies in the underwriting of the 29 loans resulted in losses to FHA’s Mutual Mortgage Insurance Fund. The Government also contended that it had actual and potential administrative claims against GTL Investments for two additional FHA-insured loans that remained in GTL Investments’ loan portfolio. To avoid the delay, uncertainty, inconvenience, and expense of lengthy ligation in regard to the Government’s claim and in consideration of mutual promises and obligations, on December 23, 2014, GTL Investments entered into a settlement agreement to pay $4.2 million to FHA’s Mutual Mortgage Insurance Fund. GTL Investments also agreed to refrain from making any claim for FHA insurance benefits or indemnify FHA for losses incurred, if any, on the two loans that remained in its loan portfolio. The settlement agreement was neither an admission of liability by GTL Investments nor a concession by the Government that its allegations were not well founded. (Memorandum: 2015-CH-1801; Office of Audit Region 5, Office of Investigation Region 5, and Joint Civil Fraud Division) 46 CHAPTER EIGHT EVALUATION INITIATIVES EIGHT EVALUATION INITIATIVES Program evaluation affords the Office of Inspector General (OIG) a flexible and effective mechanism for oversight and review of U.S. Department of Housing and Urban Development (HUD) programs by using a multidisciplinary, collaborative approach and multiple methods for gathering and analyzing data. The program evaluation team performs information technology (IT) and program evaluations, provides data analytics services to OIG components, and performs management assistance reviews to ensure that OIG operates in accordance with its policy. During this 6-month period, OIG issued one report and had seven evaluations underway. In addition, it provided a wide range of statistical and analytical support to OIG headquarters and field components and completed two management assistance reviews within OIG. EVALUATIONS COMPLETED PROJECT: HUD IT MODERNIZATION REPORT (2015-OE-0002) OIG completed an IT modernization evaluation and issued a report with 13 recommendations to the HUD Office of the Chief Information Officer. The evaluation reviewed the implementation and maturity of HUD’s capital planning and investment control process and enterprise architecture program, focusing on how they support HUD’s strategic plan and IT modernization roadmap. NEW PROJECT: EVALUATION OF HUD RECOMMENDATION TRACKING EFFECTIVENESS The purpose of this evaluation is to determine whether HUD would benefit from an enterprise risk management (ERM) approach to identifying, assessing, and managing departmentwide risks using a single enterprise-level recommendation tracking system. The recently revised Office of Management and Budget (OMB) Circular No. A-123, Management’s Responsibility for Risk Management and Internal Control, encourages Federal agencies to adopt an ERM framework for the application of risk management principles at every level of an organization that is integrated in day-to-day operations, providing more effective risk management and internal control in the Federal Government. 47 SEMIANNUAL REPORT TO CONGRESS ONGOING PROJECTS: DEPARTMENTAL ENFORCEMENT CENTER EFFECTIVENESS OIG is awaiting HUD’s response to a draft report on the effectiveness of the Departmental Enforcement Center. This project was designed to determine whether enforcement efforts were successful in improving the physical and financial condition of multifamily properties and whether implementing a risk-based approach to enforcement could improve accomplishments in other programs. PUBLIC HOUSING AGENCIES’ FLOOD INSURANCE OIG is awaiting HUD’s response to a draft report explaining why three public housing agencies (PHA) did not have adequate flood insurance before Hurricane Sandy. In 2014, HUD acknowledged the need to determine the best way to ensure that PHAs have adequate coverage. This project was designed to inform HUD decision makers about flood insurance coverage. HUD ACQUISITION PROCESS IMPROVEMENTS An OIG contractor is completing fieldwork on a project to determine how HUD initiatives to improve the acquisition process are progressing and to identify practices that could improve the quality and timeliness of acquisitions. HUD has been working to address acquisition issues since 2001, when the U.S. Government Accountability Office identified acquisition management as a significant management challenge at HUD. HUD SECURITY POLICIES AND PROCESSES FOR CONTRACTOR PERSONNEL An OIG contractor is completing fieldwork on a review of HUD’s security policies and practices for contractor personnel. Contractors pose a potential vulnerability to HUD because they comprise around half of HUD’s workforce and the Office of the Chief Human Capital Officer has been under pressure to bring contractors on board quickly. ENERGY STAR BUILDING STANDARD ALTERNATIVES OIG is completing a research project requested by the HUD Office of Community Planning and Development (CPD). For its Home Investment Partnerships Program, CPD tracks new and significantly remodeled units that meet the HUD priority goal of certification under the Energy Star building standard. CPD asked OIG to research State low-income housing building standards to see whether States used other standards, equivalent to Energy Star, that CPD could count toward achieving the HUD priority goal. FEDERAL INFORMATION SECURITY MODERNIZATION ACT OIG is completing the fiscal year 2015 Federal Information Security Modernization Act (FISMA) review of HUD. According to OMB’s FISMA guidance, inspectors general are required to conduct an independent review of agency IT security programs based on U.S. Department of Homeland Security (DHS) annual metrics. These metrics consist of 10 topic areas that measure the agency’s IT security posture. The review is due to OMB by mid-November. OIG will provide written submissions for the DHS metrics, along with a written report. 48 CHAPTER EIGHT EVALUATION INITIATIVES COUNCIL OF THE INSPECTORS GENERAL FOR INTEGRITY AND EFFICIENCY IT PROJECT OIG participated in a Council of the Inspectors General for Integrity and Efficiency IT subcommittee project group that developed an Information Security Continuous Monitoring maturity model. This maturity model and methodology were approved by OMB and DHS for use in annual FISMA reviews as it strengthens the assessment and oversight of agencies’ information security under FISMA. DATA ANALYTICS OIG analyzed HUD internal and housing-related external data to identify program mismanagement patterns, internal control weaknesses, and potential fraud to improve long-term OIG workload planning and strategic decision making. During the 6-month reporting period, OIG • Completed 110 data and statistical analyses assistance requests. • Quantified more than $1.5 billion in statistically estimated monetary benefits associated with work performed for the Office of Audit. • Contributed to the $212.5 million civil settlement negotiated as part of an OIG-U.S. Department of Justice-Federal Housing Administration (FHA) national home mortgage underwriting initiative. • Developed HUD program assessment systems designed to identify high-risk multifamily nursing home operations and poorly performing FHA loan servicing institutions. • Enhanced its predictive analyses infrastructure by adding data visualization and linkage capabilities and consolidating key HUD single-family and FHA data. MANAGEMENT ASSISTANCE OIG management assistance reviews provide the quality assurance mechanism, which ensures that OIG’s audit, investigative, and administrative operations follow established standards, policies, and procedures. Management assistance review reports are issued to top OIG management to recommend improvement in management and operations. During this 6-month period, OIG • Performed a special assessment of IT and • Reviewed the Region 4, Atlanta, GA, audit and investigation activities. 49 SEMIANNUAL REPORT TO CONGRESS NINE LEGISL ATION, REGUL ATION, AND OTHER DIRECTIVES Reviewing and making recommendations on legislation, regulations, and policy issues is a critical part of the Office of Inspector General’s (OIG) responsibilities under the Inspector General Act. During this 6-month reporting period, OIG has committed approximately 915 hours to reviewing 134 issuances. The draft directives consisted of 65 notices, 12 mortgagee letters, and 57 other directives. OIG provided comments on 37 (or 28 percent) of the issuances and provided 9 nonconcurrences and was able to resolve 2. A summary of selected reviews for this 6-month period is provided below. NOTICES, POLICY ISSUANCES, AND FINAL RULES SINGLE FAMILY HOUSING Single Family Lender Handbook – OIG reviewed various sections of the Federal Housing Administration’s (FHA) updated and consolidated Single Family Housing Policy Handbook 4000.1. This update is part of an FHA initiative to provide borrowers with greater access to credit and to make working with FHA more efficient and effective for lenders. This handbook reconciled more than 900 mortgagee letters and other policy guid- ance into a single, authoritative document to serve as the definitive guide on all aspects of FHA’s single-family programs. Major sections of this handbook became effective September 14, 2015. During this period, we reviewed handbook sections “Doing Business with FHA,” “Origination through Post Closing and Endorsement,” “Servicing and Loss Mitigation,” and “Quality Control, Oversight and Compliance.” OIG provided comments and nonconcurring comments on several issues. Based on OIG’s internal audit of the 203(k) program, the work writeups or cost estimates did not have adequate details to identify the specific rehabilitation work required. In many cases, due to the vague language, OIG could not determine whether the repairs and improvements involved structural changes. OIG commented that the language regarding these requirements could be strengthened. It also commented that the handbook did not adequately address lead-based paint renovation, repairs, and remodeling safety practices for homes built before 1978. Further, HUD only requires a prospective 203(k) consultant to have 3 years’ experience as a remodeling contractor or general contractor. OIG is concerned that this requirement is not sufficient to determine whether a contractor would have the necessary skills to provide architectural exhibits and drawings and, if required, perform substantial rehabilitation work. 50 CHAPTER NINE LEGISLATION, REGULATION, AND OTHER DIRECTIVES OIG also provided a number of comments related to servicing and loss mitigation based on weaknesses identified in audit work on loss mitigation. Current mortgagee letters state that a stand-alone partial claim may be used if certain criteria are met. However, the mortgagee letters do not specifically prohibit the use of a loan modification when a stand-alone partial claim is allowed. FHA pays the servicer an administrative fee under the Home Affordable Modification Program (HAMP). This practice may encourage lenders to include the HAMP loan modification with the partial claim even when it results in a nearly identical or higher interest rate that may not benefit the borrower. OIG recommends that HUD consider clarifying its policy to ensure that lenders use the loan modification with a stand-alone partial claim only if it would benefit the borrower. HUD/VA [U.S. Department of Veterans Affairs] Addendum Uniform Residential Loan Application (form HUD-92900-A) – On May 15, 2015, HUD published a notice requesting public comment on its proposed revisions to the addendum. The purpose of the proposed revisions was to (1) show the differences between the initial and final Uniform Residential Loan Application, (2) revise lender certification on debarment and suspension to be loan-level specific, (3) remove references to handbooks no longer in use by the Office of Single Family Housing, (4) update language regarding acceptable sources of funds, (5) provide current nondiscrimination language, and (6) update terminology to reflect the new Single Family Housing Handbook 4000.1. HUD also removed the lender certification related to convictions, civil judgments, indictments, and terminations of public transactions for cause or default from loan level certifications to FHA’s lender certifications for initial approval and annual renewal to assess at the lender level. When these changes were official noticed HUD OIG non-concurred. Methodology for assessing loan quality – On June 18, 2015, FHA published its single-family loan quality assessment methodology in its drafting table. This methodology, also known as the defect taxonomy, explains how FHA intends to categorize loan defects identified in FHA-insured loans. The methodology centers on three main concepts: (1) identifying a defect, (2) capturing the sources and causes of a defect, and (3) assessing the severity of a defect. OIG informed HUD that this document meets the criteria of a change in guidance and should go through the formal clearance review process required for all directives. In addition, OIG continues to have concerns with the contents of the methodology that it would like to formally comment on before HUD’s implementation. OIG is concerned that the general references to “qualitative issues of eligibility” do not clearly identify significant issues affecting eligibility of the loan. OIG is also concerned that HUD does not identify the remedy related to each specific defect based on the assessment. OIG recommended creating a matrix of remedies to outcomes. PUBLIC AND INDIAN HOUSING Rental Assistance Demonstration – On June 15, 2015, HUD revised its Office of Public and Indian Housing (PIH) notice PIH-2012-32 (HA) regarding final implementation of the program. OIG strongly recommended that PIH work with HUD’s Office of General Counsel (OGC) to ensure that it complies with the delegation of authority since the Office of Housing and PIH both administer this program. OIG also recommended that OGC opine on whether the existing method for computing the financial assistance was in accordance with the congressional intent. Lastly, OIG expressed concern that HUD may have assumed an unacceptable level of risk without compensating controls for the implementation and oversight of the demonstration program. Program staff may want to consider allocating technical assistance funds to public housing agencies when it identifies capacity issues. 51 SEMIANNUAL REPORT TO CONGRESS Standards for Internal Controls – On September 10, 2014, the U.S. Government Accountability Office (GAO) issued its revision of Standards for Internal Control in the Federal Government (Green Book). The revision superseded the standards issued in November 1999. The Federal Managers’ Financial Integrity Act (FMFIA) requires that Federal agency executives periodically review and annually report on the agency’s internal control systems. FMFIA requires the Comptroller General to prescribe internal control standards for both program and financial management. The standards may also be adopted by State, local, and quasi-governmental entities, as well as public housing agencies, as a framework for their internal control system. GAO’s 2014 revision will be effective for fiscal year 2016 and the FMFIA reports covering that year. Management, at its discretion, may elect early adoption. OIG has suggested, however, that HUD has not agreed that PIH should issue a policy statement directing the use of the new internal control process to improve the effectiveness of implementing the programs and as a means to safeguard limited resources. OFFICE OF MULTIFAMILY HOUSING Underwriter approval delegation – On August 12, 2015, HUD issued a notice describing the realignment of its underwriter approval process. Eligible multifamily accelerated processing (MAP) and Section 232 lenders will designate a chief underwriter. The chief underwriter will designate and approve its MAP and Section 232 underwriters. HUD will no longer review and approve MAP and Section 232 underwriters, except as otherwise stated in the notice, and will instead rely on certifications from the MAP and Section 232 lender and chief underwriter that individual underwriters meet MAP Guide or Section 232 Handbook 4232.1 requirements. COMMUNITY PLANNING AND DEVELOPMENT The Disaster Relief Appropriations Act required grantees to spend Community Development Block Grant Disaster Recovery (CDBG-DR) funding within 24 months after HUD obligates the funds to the grantee. Section 904(c) of the Appropriations Act authorized the Office of Management and Budget (OMB) to grant waivers of the deadline. OMB authorized HUD to provide CDBG-DR grantees with expenditure deadline extensions for activities that are inherently long term and when it would not be practical to spend funds within the 24-month period and still achieve program missions. On May 11, 2015, HUD published guidance and instructions for requesting an extension. OIG reviewed two Federal Register notices related to the waivers for grantees receiving CDGB-DR funding. The first notice, published in the Federal Register on April 7, 2015, allowed the State of New Jersey to use up to $32 million for rental assistance, utility payments, and if necessary, rental costs (for example, security deposits and utility deposits). The State may provide the assistance on behalf of beneficiaries for up to 2 years. The second notice was published on August 25, 2015, and modified the requirements for infrastructure projects funded by Hurricane Sandy funding. It also allowed alternative requirements for the State of New Jersey’s Energy Resilience Bank and LMI Homeowner Rebuilding Program and for New York City’s infrastruc- ture projects at the Breezy Point Flood Mitigation System. FAIR HOUSING AND EQUAL OPPORTUNITY On July 3, 2014, HUD published a notice of funding availability announcing approximately $38.3 million to be used for the Fair Housing Initiatives Program (FHIP). On April 24, 2015, HUD published the names and addresses of the recipients selected for FHIP funding. FHIP assists projects and activities designed to enhance compliance with the Fair Housing Act and substantially equivalent State and local fair housing laws. 52 CHAPTER TEN AUDIT RESOLUTION TEN AUDIT RESOLUTION In the audit resolution process, Office of Inspector General (OIG) and U.S. Department of Housing and Urban Development (HUD) management agree upon needed actions and timeframes for resolving audit recommendations. Through this process, OIG strives to achieve measurable improvements in HUD programs and operations. The overall responsibility for ensuring that the agreed-upon changes are implemented rests with HUD managers. This chapter describes significant management decisions with which OIG disagrees. It also contains a status report on HUD’s implementation of the Federal Financial Management Improvement Act of 1996 (FFMIA). In addition to this chapter on audit resolution, see appendix 3, table B, “Significant Audit Reports for Which Final Action Had Not Been Completed Within 12 Months After the Date of the Inspector General’s Report.” AUDIT REPORTS ISSUED BEFORE START OF PERIOD WITH NO MANAGEMENT DECISION AS OF SEPTEMBER 30, 2015 ADDITIONAL DETAILS TO SUPPLEMENT OUR REPORT ON HUD’S FISCAL YEARS 2013 AND 2012 (RESTATED) FINANCIAL STATEMENTS, ISSUE DATE: DECEMBER 16, 2013 HUD OIG audited the Office of Public and Indian Housing’s (PIH) implementation of U.S. Treasury cash management regulations as part of the annual audit of HUD’s consolidated financial statements for fiscal years 2013 and 2012. The OIG report found that HUD’s implementation of the new cash management process for the Housing Choice Voucher program departed from Treasury cash management requirements and Federal generally accepted accounting principles. HUD OIG also reported that there were not sufficient internal controls over the process in place to ensure accurate and reliable financial reporting. The weaknesses in the process failed to ensure that material financial transactions were included in HUD’s consolidated financial statements and allowed public housing agencies (PHA) to continue to hold funds in excess of their immediate disbursing needs, which is in violation of Treasury cash management regulations. The OIG report included a recommendation that HUD PIH implement a cost-effective method for automating the cash management process, to include an electronic interface of transactions to the standard general ledger. Since the report’s issuance, HUD issued three proposals on how to address recommendation 2C on March 31, 2014, April 17, 2014, and May 28, 2014. However, OIG rejected all three proposals because they were too vague and did not include a high-level plan showing the actions PIH will take until the final action date to implement corrective action. Further, the proposals included several contingencies; therefore, OIG has no reasonable way to determine PIH’s progress in addressing the recommendation. 53 SEMIANNUAL REPORT TO CONGRESS This issue was referred to the Assistant Secretary on June 19, 2014, and September 30, 2014; however, a new proposal had not been made as of March 31, 2015. Therefore, this issue was referred to the Deputy Secretary on March 31, 2015. A meeting was held to brief the Deputy Secretary’s staff on the subject on April 20, 2015; however, a new proposal had not been made as of September 30, 2015. (Audit Report: 2014-FO-0003) U.S DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, WASHINGTON, DC, IMPROPER PAYMENTS ELIMINATION AND RECOVERY ACT OF 2015, ISSUE DATE: APRIL 15, 2014 HUD OIG audited HUD’s fiscal year 2013 compliance with the Improper Payments Information Act of 2002 as amended by the Improper Payments Elimination and Recovery Act of 2010 (IPERA). The OIG report found that HUD did not comply with IPERA reporting requirements because it did not sufficiently and accurately report its (1) billing and program component improper payment rates; (2) actions to recover improper payments; (3) accountability; or (4) corrective actions, internal controls, human capital, and information systems as required by IPERA. In addition, HUD’s supplemental measures and associated corrective actions did not sufficiently target the root causes of its improper payments because they did not track and monitor processing entities to ensure prevention, detection, and recovery of improper payments due to rent component and billing errors, which are root causes identified by HUD’s contractor studies. The OIG report included several recommendations that required the Office of Chief Financial Officer (OCFO) to work with PIH and the Office of Multifamily Housing Programs to ensure sufficient and accurate IPERA reporting in its agency financial report. The report also recommended that OCFO conduct a current billing study and if not performed annually in future years, report the reason in the agency financial report and update the previous study to reflect program and inflationary changes. Similarly, the report recommended a study to assess improper payments arising from the Housing Choice Voucher program. Finally, the report recommended that OCFO report on multifamily, public housing, and Section 8 program improper payment rates separately in the agency financial reports. Initially, OCFO disagreed with several of OIG’s recommendations, citing (1) funding issues in conducting current billing studies, which it believes do not produce tangible results; (2) disagreement for the need to determine whether improper payments exist due to changes in the funding of the Housing Choice Voucher program; and (3) management’s position that formal policies and procedures for the IPERA reporting process are not necessary. OIG generally disagrees with OCFO’s management decisions because they disregard IPERA reporting requirements and Office of Management and Budget (OMB) guidance and the management decisions do not reflect OCFO’s responsibility as the lead official for directing and overseeing HUD’s actions to address improper payments. OIG sent a referral memorandum to the Acting Chief Financial Officer on September 23, 2014, regarding its disagreement, along with an untimely referral memorandum for two recommendations that had not had management decisions entered. Following OIG’s memorandum, OCFO entered management decisions for seven of its nine recommendations, of which OIG agreed with only one. The remaining six recommendations, along with two recommendations for which management had not yet entered a management decision, were referred to the Deputy Secretary on March 31, 2015. A meeting was held to brief the Deputy Secretary’s staff on the subject on April 20, 2015, and in August 2015, meetings were held with OCFO to discuss what was needed for agreement. As of September 30, 2015, management decisions had been agreed upon for all but two recommendations. (Audit Report: 2014-FO-0004) 54 CHAPTER TEN AUDIT RESOLUTION HUD COULD NOT SUPPORT THE REASONABLENESS OF THE OPERATING AND CAPITAL FUND PROGRAMS’ FEES AND DID NOT ADEQUATELY MONITOR CENTRAL OFFICE COST CENTERS, ISSUE DATE: JUNE 30, 2014 HUD OIG audited HUD’s Public Housing Operating and Capital Fund program asset management safe harbor fees and HUD’s monitoring of central office cost centers. The OIG report found that HUD could not adequately support the reasonableness of the Operating Fund management, book-keeping, and asset management fees and Capital Fund management fee limits. Since HUD determined that the fee income earned by PHAs was not Federal funds, around $353 million in public housing operating funds was defederalized annually. HUD also lacked adequate justification for allowing PHAs to charge an asset management fee, resulting in more than $81 million of the above amount being unnecessary. Finally, HUD did not adequately monitor PHAs’ central office cost center fee charges. Among other things, the OIG report included recommendations that PIH revise its asset management fee policy to refederalize the Operating Fund program’s management and book-keeping fees and the Capital Fund program’s management fees (recommendation 1A), eliminate the asset management fee (recommendation 1B), and implement written procedures to ensure that fees and central office cost center expenses are used to support HUD’s mission (recommendation 1H). Since the report’s issuance, management has issued two responses to address the three recommendations, with the latest issued on February 13, 2015. OIG rejected the latest management decisions proposed by PIH to address the recommendations on March 23, 2015. Although the proposed management decisions appeared to agree with some aspects of the OIG’s recommendations, they did not fully and clearly explain how PIH will address the recommendations. OIG referred the recommendations to the Deputy Secretary on February 12, 2015, and a decision is pending. After the referral, OIG and HUD held further discussions on the matter but were unable to reach agreement. On April 27, 2015, PIH sent a letter to OMB requesting input and guidance on the issues, and OIG sent a separate letter on May 11, 2015, to OMB to provide additional input. OIG has not received a response; however, PIH stated that it had held several discussions with OMB but that no final determination had been made. On August 3, 2015, Senator Grassley sent a letter to OMB to urge OMB to reject HUD’s request to exempt the PHA fees from the OMB guidance and repeated the need to have the funds refederalized. (Audit Report: 2014-LA-0004) THE DATA IN CAIVRS DID NOT AGREE WITH THE DATA IN FHA’S DEFAULT AND CLAIMS SYSTEMS, ISSUE DATE: JULY 2, 2014 HUD OIG audited the Credit Alert Verification Reporting System (CAIVRS) to determine whether the default and claims data in CAIVRS agreed with the data in the Federal Housing Administration’s (FHA) default and claim systems. OIG determined that CAIVRS did not contain information on all borrowers’ default, foreclosure, and claim activity. It would incorrectly return accept codes for more than 260,000 borrowers who had been in default, foreclosure, or claim within the past 3 years. In addition, CAIVRS did not contain information for FHA borrowers with claims older than 3 years. Therefore, HUD did not provide other Federal agencies with sufficient information on FHA borrowers with delinquent Federal debt to meet the requirements of the Debt Collection Improvement Act of 1996 (DCIA). Among other things, OIG recommended that HUD notify the users of CAIVRS that the system may have incomplete information for FHA delinquent debtors. In its October 17, 2014, management decision, HUD disagreed in part with this recommendation; however, it agreed to consult with the users of CAIVRS to determine their need for information on individuals with defaults or claims on FHA loans that do not result in delinquent Federal debt. On February 2, 2015, HUD submitted another management decision, stating that 55 SEMIANNUAL REPORT TO CONGRESS CAIVRS was being updated to ensure that it reports all delinquent Federal debt resulting from FHA insurance claims until such debt is resolved as provided for in DCIA. In connection with this revision to the system, the Office of Single Family Program Development agreed that it should consult with the users of CAIVRS, including the U.S. Department of the Treasury, to ensure that they were aware that CAIVRS was being updated and would no longer report credit worthiness information – the existence of defaults and claims on FHA-insured loans – in addition to any actual delinquent Federal debt that has resulted from such defaults and claims. HUD will revise FHA’s computer matching agreements with relevant agency users of CAIVRS to ensure that these agreements accurately reflect the delinquent Federal debt being reported by FHA and the revised period for such reports. OIG also recommended that HUD obtain a determination from the Secretary of the Treasury of whether defaulted FHA-insured loans meet the definition of delinquent Federal debt that should be reported in CAIVRS. In its October 17, 2014, management decision, HUD disagreed with this recommendation. After discussions with OIG, HUD submitted another management decision on February 2, 2015, stating that HUD believes DCIA and pertinent regulations provide for the Secretary of HUD to determine the existence of any debt owed to the agency. HUD believes it is clear that it is not left to the Secretary of the Treasury to make this determination. HUD believes it has significant discretion in determining whether money owed to HUD is a debt, whether the debt is delinquent, and whether the debt must be repaid. OIG rejected these management decisions because they do not resolve the recommendations. Since HUD has not indicated that it will identify all past claims that constitute unresolved delinquent Federal debt and update the system accordingly, certain Federal delinquent debts may be omitted based on HUD’s prior policy. Therefore, OIG continues to recommend that HUD notify the users of CAIVRS that the system may have incomplete information for FHA delinquent Federal debtors so that these users do not unknowingly violate DCIA. For the second recommendation, OIG disagrees with HUD’s position and continues to recommend that HUD seek a determination from the Secretary of the Treasury of whether FHA-insured loans meet the definition of delinquent Federal debt for the purposes of including or excluding them from CAIVRS. On March 23, 2015, OIG referred the recommendations to the Deputy Secretary because OIG could not resolve them with the Office of Housing. OIG has not received the final management decision. (Audit Report: 2014-KC-0002) THE NIAGARA FALLS HOUSING AUTHORITY DID NOT ALWAYS ADMINISTER ITS HOPE VI GRANT PROGRAM AND ACTIVITIES IN ACCORDANCE WITH HUD REQUIREMENTS, ISSUE DATE: JULY 10, 2014 HUD OIG audited the Niagara Falls Housing Authority’s HOPE VI grant program based on an OIG risk analysis and the amount of funding the Authority received. The objectives of the audit were to determine whether the Authority administered its HOPE VI grant program and activities in accordance with HUD and HOPE VI grant program requirements. The Authority did not always administer its HOPE VI grant program and activities in accordance with requirements. Specifically, contrary to Federal regulations and the HOPE VI grant agreement, Authority officials drew more HOPE VI funds from HUD’s Line of Credit Control System than were needed to cover project expenditures. OIG recommended that HUD instruct Authority officials to (1) reimburse the U.S. Treasury for approximately $1.5 million in HOPE VI funds drawn in excess of need to cover project expenditures and (2) establish procedures to ensure that program funds are drawn in accordance with the grant agreement and regulations. The Office of Public Housing Investments (OPHI) disagreed with recommendations 1A, 1B, and 1C and believed the funds questioned by OIG were non-Federal cost savings, which could be better used for HOPE VI-eligible activities in the Center Court neighborhood. OPHI believed that there was no authority to require non-Federal cost savings to be returned to the U.S. Treasury. OIG disagrees with the proposed management 56 CHAPTER TEN AUDIT RESOLUTION decisions for recommendations 1A, 1B, and 1C and believes that all of the questioned funds should be returned to the U.S. Treasury absent a suitable legal opinion. As a result of November 25, 2014, discussions with OIG, OPHI agreed to obtain a legal determination from HUD’s Office of General Counsel (OGC) regarding the proposed management decisions. On March 26, 2015, OIG referred the disagreement to the Acting Assistant Secretary for Public and Indian Housing as a legal determination had not been provided. On April 28, 2015, the Associate General Counsel, Office of Assisted Housing and Community Development, provided an opinion on the proposed management decisions and the related OIG concerns. This opinion concluded that approximately $1.5 million in questioned costs was program income under the definition of excess income and did not have to be repaid to the U.S. Treasury. The Counsel to the Inspector General reviewed the OGC opinion and agreed that the OIG recommendations should be retained, the questioned costs were not program income, and the interest earned on these funds was also not program income. Also, exhibit H of the annual contributions contract amendment would have required program income to have been spent before HOPE VI funds were drawn down. Because unspent HOPE VI grant funds are no longer available for expenditure, funds returned to HUD must be returned to the U.S. Treasury. On August 13, 2015, the Inspector General referred the disagreement on the management decisions to the Deputy Secretary for a decision as the departmental audit resolution official. (Audit Report: 2014-NY-1007) HUD DID NOT ALWAYS RECOVER FHA SINGLE-FAMILY INDEMNIFICATION LOSSES AND ENSURE THAT INDEMNIFICATION AGREEMENTS WERE EXTENDED, ISSUE DATE: AUGUST 8, 2014 HUD OIG audited HUD’s controls over its FHA loan indemnification recovery process to determine whether HUD had adequate controls in place to monitor indemnification agreements and recover losses on FHA single-family loans. HUD did not always bill lenders for FHA single-family loans that had an indemnification agreement and a loss to HUD. Specifically, it did not bill lenders for any loans that were part of the Accelerated Claims Disposition (ACD) program or the Claims Without Conveyance of Title (CWCOT) program or loans that went into default before the indemnification agreement expired but were not in default on the expiration date. There were a total of 486 loans from January 2004 to February 2014 that had enforceable indemnification agreements and losses to HUD but were not billed. This condition occurred because HUD’s Financial Operations Center was not able to determine loss amounts for loans that were part of the ACD program, was not aware of the CWCOT program, and considered the final default date for billing only. As a result, HUD did not attempt to recover a loss of $37.1 million for 486 loans that had enforceable indemnification agreements. In addition, HUD did not ensure that indemnification agreements were extended to 64 of 2,078 loans that were streamline refinanced. As a result, HUD incurred losses of $373,228 for 5 loans, and 16 loans had a potential loss to HUD of approximately $1 million. The remaining 43 loans were either terminated or did not go into delinquency before the indemnification agreement expired, or the agreement did not state that it would extend to loans that were streamline refinanced. OIG rejected three management decisions proposed by the Offices of Single Family Housing and Finance and Budget because they did not follow the plain language explicitly stated in signed indemnification agreements. The Offices of Single Family Housing and Finance and Budget disagree with OIG’s determination that HUD should have billed lenders for FHA loans that either were in default or went into default during the indemnification agreement period. 57 SEMIANNUAL REPORT TO CONGRESS OIG referred the matter to the Assistant Secretary for Housing – Federal Housing Commissioner on January 8, 2015. OIG met with OGC and the HUD Offices of Housing, Single Family Housing, and Finance and Budget on January 30, 2015. The meeting ended in disagreement; however, OGC and the OIG Office of Legal Counsel continued discussions. The Office of Single Family Housing received two legal opinions from OGC, dated January 26, 2015, and February 24, 2015, respectively. Combined, the legal opinions support the Offices of Single Family Housing’s and Finance and Budget’s position that they have collected in a manner consistent with longstanding policy that emphasized the definition of the “date of default.” The Office of Single Family Housing maintains that its collection practice is consistent with FHA’s regulatory definition of “date of default” found in 24 CFR (Code of Federal Regulations) 203.331, which refers to the first “uncorrected” failure and the first failure to pay that is not satisfied by later payments. OIG disagrees and believes that the Offices of Single Family Housing and Finance and Budget have adopted a collection practice not supported by the plain language of the indemnification agreements or required by HUD regulations. Based on the plain language in signed indemnification agreements, OIG believes that the indemnification agreement should be enforced for any loan that “goes into default” during the indemnification agreement term, regardless of whether the loan emerged from a default status after the agreement expired. In response to HUD’s legal opinions, OIG received its own legal opinion from the OIG Office of Legal Counsel that supports OIG’s position. OIG has had discussions with OGC and the Offices of Single Family Housing and Finance and Budget regarding the recommendations in question, but agreeable management decisions have not been reached. On March 31, 2015, OIG referred the recommendations to the Deputy Secretary for a decision and has not received that decision. (Audit Report: 2014-LA-0005) INTERIM REPORT ON HUD’S INTERNAL CONTROLS OVER FINANCIAL REPORTING, ISSUE DATE: DECEMBER 8, 2014 HUD OIG audited the Office of Community Planning and Development’s (CPD) elimination of the first-in, first-out (FIFO) method for disbursing obligations. OIG reported in prior years that the FIFO method used by the Integrated Disbursement Information System (IDIS) was not designed to comply with Federal financial management system requirements and was not compliant with generally accepted accounting principles. The continued use of the FIFO method allowed HUD’s financial statements to be materially misstated. The OIG report included a recommendation to continue working with the information technology services contractor and OCFO to ensure that all phases of the FIFO elimination plan were completed to bring IDIS into compliance with generally accepted accounting principles and applicable Federal system requirements as scheduled. However, during fiscal year 2015, funding for the elimination plan was withheld, causing delays in the timeframe. HUD issued a proposal to address the recommendation; however, OIG rejected it because it indicated that CPD did not have approved funding for fiscal years 2015 and 2016, thereby causing the elimination project to be halted sometime in the Spring of 2015. The second proposal was submitted by CPD after management approved a substantial amount of the remaining funding required, allowing the project to resume. However, a gap of approximately $150,000 in funding remained. OIG rejected the proposal because it did not include an explanation of whether the expenditure plan covered all of the necessary funds to complete the elimination plan and the new approved expenditure plan was not included as part of the management decision. (Audit Report: 2015-FO-0002) 58 CHAPTER TEN AUDIT RESOLUTION GOVERNMENT NATIONAL MORTGAGE ASSOCIATION FISCAL YEARS 2014 AND 2013 FINANCIAL STATEMENTS AUDIT, ISSUE DATE: FEBRUARY 27, 2015 HUD OIG audited the Government National Mortgage Association’s (Ginnie Mae) fiscal year 2014 stand-alone financial statements. OIG conducted this audit in accordance with the Chief Financial Officers Act of 1990 as amended. OIG found a number of material weaknesses in Ginnie Mae’s financial reporting specifically related to the auditability of several material assets and reserve for loss liability account balances. The audit report contained 20 audit recommendations to (1) correct the financial statement misstatements identified during the audit and (2) take steps to strengthen Ginnie Mae’s financial management operations. Of 20 audit recommendations, OIG did not reach consensus on the necessary corrective actions for 9. OIG disagreed with Ginnie Mae on the application of accounting and the model estimation methodology for the fiscal year 2014 reserve for loss account for six of nine audit recommendations. For the other three audit recommendations, OIG rejected management’s proposed corrective actions because it believes they are insufficient and inadequately responsive to the audit recommendations. OIG’s audit recommendations call for the HUD Chief Financial Officer to provide oversight of Ginnie Mae’s financial management operations. HUD’s plan of action for providing oversight of Ginnie Mae lacked specificity. (Audit Report: 2015-FO-0003) The next section includes five civil actions that have gone through similar issues in attempts to obtain management decisions. In all five cases, the Office of Program Enforcement let the 120-day deadline for the management decisions pass to trigger a referral and, ultimately, a solution for its concerns about audit resolution related to certain recommendations from final civil action memorandums. On July 22, 2015, OIG met with OCFO and the Departmental Audit Liaison Officer to discuss civil outcomes; the reporting and recording process by OIG’s Office of Audit to date; and the responsibility for handling those outcomes, including the audit resolution process. As no firm decisions were made, OIG referred three of the matters to HUD’s Deputy General Counsel for Enforcement in June and July 2015 (and the other two in September 2015). The Office of Program Enforcement contacted OIG on August 5, 2015, and stated that it was willing to work with OIG on resolving the issues but remained concerned about being held responsible for certain payments due HUD from settlements and court-ordered judgments that are to be collected by the U.S. Department of Justice (DOJ) on HUD’s behalf. As of August 26, 2015, OIG had not received management decisions or been contacted by HUD, so OIG informed HUD that in OIG’s opinion, HUD should record the civil outcomes at the time of the settlement or court-ordered judgment, rather than waiting for the first payment to be received. Also, OIG believes that for those outcomes reached by DOJ on HUD’s behalf, HUD should record the outcomes at the gross proceeds amount expected to be received by HUD. If HUD wanted the initial entry to better represent the expected “net” receipts due HUD, it should include an allowance for the potential DOJ retainer fee. This approach would allow a timelier and more accurate recording of civil outcomes in HUD’s accounting records, as well as the Audit Resolution and Corrective Actions Tracking System (ARCATS). OIG further stated that based on this OIG opinion, future civil outcome recommendations would focus on ensuring that the outcomes were recorded in HUD’s records upon settlement or court order, which would affect how the Office of Program Enforcement would respond with proposed management decisions. In addition, OIG explained the expected ARCATS process and coding that would allow this approach and that it would allow recommendations to remain open until collection was completed in full or remaining uncollectible funds were written off via HUD’s formal writeoff process. OIG again contacted the Office of Program Enforcement on August 27, 2015, to try to resolve the matter. The Office of Program Enforcement stated that it would check into the status of the settlement collections and consider whether it could provide proposed management decisions. However, the Office of Program 59 SEMIANNUAL REPORT TO CONGRESS Enforcement reiterated that it was OGC’s opinion that once a settlement agreement is finalized, OIG should record the outcome in ARCATS and close the recommendation, without leaving the recommendation open until collections are completed or remaining amounts due are written off. On August 28, 2015, OIG requested a meeting with HUD’s Deputy General Counsel for Enforcement to discuss the matters and attempt resolution. The Deputy General Counsel replied and asked OIG to elevate the matter to HUD’s General Counsel for resolution. OIG referred the overall matter to HUD’s General Counsel in September 2015. After the matters were referred, OIG followed up with the Office of Program Enforcement and was notified that HUD did not expect to provide management decisions and that OGC expected OIG to elevate the disagreements to the Deputy Secretary. BORROWER SETTLED ALLEGED VIOLATIONS OF HOME EQUITY CONVERSION MORTGAGE PROGRAM, ISSUE DATE: JANUARY 30, 2015 HUD OIG audited HUD’s oversight of its Home Equity Conversion Mortgage (HECM) program and found that contrary to program residency requirements, 37 borrowers were not living in the property associated with the loan and were renting the property to participants in HUD’s Section 8 Housing Choice Voucher program (HUD OIG audit report number 2013-PH-0002, issued December 20, 2012). Renting the properties to Section 8 program participants violated program requirements because HUD requires borrowers to reside in the mortgaged residence as their principal residence. In May 2006, a borrower obtained a HECM loan on a property that he owned in St. Charles, MO. The borrower certified in writing on at least three occasions (October 2010, June 2011, and July 2013) that the home was his principal residence. However, he was renting the property to a participant in HUD’s Housing Choice Voucher program when he made the certifications. His actions violated HUD’s principal residency requirements. We referred the violations to HUD’s Office of Program Enforcement for action under the Program Fraud Civil Remedies Act (PFCRA). After HUD’s Office of Program Enforcement sent the borrower a demand letter, the borrower admitted that he did not reside in the property as his principal residence when he submitted the certifications. After negotiations with HUD, the borrower agreed to pay $3,000, or 12 monthly payments of $250, to settle the matter. The borrower made the first settlement payment on January 6, 2015. OIG recommended that HUD’s Office of Program Enforcement allow OIG to post the settlement of $3,000 in ARCATS as funds put to better use. (Memorandum: 2015-PH-1803) COURT ORDERED A FORMER EXECUTIVE DIRECTOR OF THE PHILADELPHIA HOUSING AUTHORITY TO PAY CIVIL PENALTIES FOR VIOLATING FEDERAL LOBBYING DISCLOSURE REQUIREMENTS AND RESTRICTIONS, ISSUE DATE: FEBRUARY 19, 2015 HUD OIG conducted a review of the Philadelphia Housing Authority’s compliance with Federal lobbying disclosure requirements and restrictions (HUD OIG audit memorandum number 2013-PH-1803, issued April 26, 2013). OIG found that the Authority engaged in the prohibited practice of using Federal funds for lobbying, and a former executive director certified to HUD that it did not do so. In addition, the former executive director falsely certified to HUD that the Authority did not use non-Federal funds for lobbying activities. OIG recommended that HUD’s Office of Program Enforcement pursue remedies under PFCRA against the former executive director for falsely certifying to HUD that the Authority did not participate in lobbying activities. 60 CHAPTER TEN AUDIT RESOLUTION In January 2014, HUD filed a complaint against the former executive director, seeking three civil penalties under the Byrd Amendment and three civil penalties under PFCRA. As a basis for the civil penalties, HUD alleged that the former executive director made or caused to be made three materially false statements to HUD. These alleged false statements were disclosures and certifications submitted to HUD by the Authority. In December 2014, an administrative law judge determined that the former executive director was liable for submitting three false certifications and disclosures, constituting a failure to file the required certifications and disclosures under the Byrd Amendment and violating PFCRA by knowingly making three false statements to HUD. The court ordered the former executive director to pay HUD civil penalties of $75,000. The court determined that the former executive director was liable for a $10,000 civil penalty for the first Byrd Amendment count and two $25,000 civil penalties for the second and third counts under the Byrd Amendment. Additionally, the former executive director was liable for three $5,000 civil penalties under PFCRA. OIG recommended that HUD’s Office of Program Enforcement allow OIG to post the civil penalty of $75,000 in ARCATS as funds put to better use. (Memorandum: 2015-PH-1804) GROUP ONE MORTGAGE, INC., SETTLED ALLEGATIONS OF FAILING TO COMPLY WITH FEDERAL HOUSING ADMINISTRATION UNDERWRITING REQUIREMENTS, ISSUE DATE: MARCH 27, 2015 HUD OIG assisted the U.S. Attorney’s Office, Southern District of Florida, in the civil investigation of Group One Mortgage, Inc. Group One’s principal place of business is located in Jupiter, FL. Group One has participated in the FHA insurance program since 2004 and became a direct endorsement lender in 2005. The direct endorsement program authorizes private-sector mortgage lenders to approve mortgage loans for FHA insurance. Lenders approved for the program must follow FHA requirements and provide annual and per loan certifications that the lender complied with these requirements when underwriting and approving loans for FHA insurance. When a borrower defaults on an FHA-insured loan, HUD pays the insurance claims submitted by or on behalf of the lender. Based on our review of FHA loans underwritten by Group One, the United States contended that it had certain civil claims against the lender arising from false claims that Group One had made to FHA as a direct endorsement lender. The United States alleged that Group One approved four loans for FHA insurance but did not underwrite the loans in accordance with HUD FHA regulations. It further alleged that Group One did not use due diligence to comply with HUD handbook requirements and ensure that the loans it approved on behalf of HUD were eligible for FHA insurance. Group One denied the allegations. On November 19, 2014, Group One entered into a settlement agreement to pay $406,000 to settle allegations that it had submitted false claims to FHA in violation of the False Claims Act, 31 U.S.C. (United States Code) 3729-3733, and common law causes of action. Of the settlement total, FHA’s Mutual Mortgage Insurance Fund was to receive nearly $376,000 and the more than $29,000 remaining was to be paid to other Federal entities. The parties to the settlement agreement entered into the agreement to avoid the delay, uncertainty, inconvenience, and expense of lengthy litigation of the alleged claims. The parties also agreed that the settlement was neither an admission of liability by Group One nor a concession by the United States that its claims were not well founded. OIG recommended that HUD’s Office of Program Enforcement allow OIG to post the settlement of $376,523 to ARCATS as ineligible costs. (Memorandum: 2015-CF-1801) 61 SEMIANNUAL REPORT TO CONGRESS BORROWER SETTLED ALLEGATIONS OF NOT COMPLYING WITH THE PRIMARY RESIDENCE REQUIREMENT OF THE FEDERAL HOUSING ADMINISTRATION PROGRAM, ISSUE DATE: MARCH 27, 2015 HUD OIG conducted a civil investigation of an alleged loan origination fraud scheme involving a cash-out refinance loan that was insured by FHA. FHA provides mortgage insurance on loans made by FHA-approved lenders to creditworthy borrowers. Borrowers must occupy the properties as their primary residence for at least 1 year. Borrowers certify to their intent to occupy the property when signing the uniform residential loan application and an addendum to the loan application. Based on OIG’s investigation, HUD alleged that the borrower falsely certified to HUD in her refinance application documents that she would occupy the subject property as her primary residence. However, she allegedly used the proceeds from her FHA-insured cash-out refinance for a downpayment on another home, which she purchased 1 month after closing the refinance loan and moved into soon thereafter. The borrower defaulted on the loan, and FHA incurred a loss when it paid an insurance claim to the lender and sold the property. HUD further alleged that the borrower was liable for the false claim for FHA mortgage insurance under PFCRA and its implementing regulations at 24 CFR Part 28. The borrower denied that she had violated the Act or HUD regulations. However, on February 11, 2015, she settled with HUD for $15,000 to avoid further expense and administrative proceedings and to reach a satisfactory resolution of the matter. The agreement did not constitute an admission of liability or fault on the part of HUD or the borrower. OIG recommended that HUD’s Office of Program Enforcement allow OIG to record the $15,000 settlement in ARCATS as an ineligible cost. (Memorandum: 2015-CF-1804) CIVIC CONSTRUCTION, LLC, SETTLED ALLEGATIONS OF MAKING FALSE CLAIMS TO THE SEATTLE HOUSING AUTHORITY, ISSUE DATE: MARCH 30, 2015 Based on a referral from HUD’s Seattle Office of Labor Relations, OIG reviewed certain payrolls of the owner of Civic Construction, LLC, of Portland, OR. The payrolls were subject to the Davis-Bacon Act. OIG completed the review and referred alleged violations to HUD’s Office of Program Enforcement for action under PFCRA. On October 7, 2014, HUD’s Office of Program Enforcement issued a complaint to Civic Construction and its owner alleging that they were liable for 17 civil penalties of $7,500 each under PFCRA. To arrive at a mutually satisfactory resolution of the matter without the expense and uncertainty of further litigation, Civic Construction and its owner agreed to pay HUD $34,000. The settlement agreement did not constitute an admission of liability or fault by any party. OIG recommended that HUD’s Office of Program Enforcement allow OIG to record the $34,000 settlement in ARCATS as funds put to better use. (Memorandum: 2015-SE- 1801) SIGNIFICANTLY REVISED MANAGEMENT DECISIONS Section 5(a)(11) of the Inspector General Act, as amended, requires that OIG report information concerning the reasons for any significantly revised management decisions made during the reporting period. During the current reporting period, there were significantly revised management decisions on three audits. HUD Subsidized an Estimated 2,094 to 3,046 Households That Included Lifetime Registered Sex Offenders, Issue Date: August 14, 2009 OIG audited HUD’s requirement prohibiting lifetime registered sex offenders from admission to HUD- 62 CHAPTER TEN AUDIT RESOLUTION subsidized housing to determine the extent to which lifetime registered sex offenders occupied HUD- subsidized housing. OIG determined that HUD subsidized an estimated 2,094 to 3,046 households, which included lifetime registered sex offenders. This number included individuals who were ineligible at the time of admission due to lifetime registration status, individuals who were admitted and convicted before the current law was enacted, and individuals who were eligible at the time of admission but later became lifetime registered sex offenders. Among other things, OIG recommended that HUD seek legislative changes and if legislative changes were passed, (1) require properties to ask households at each recertification whether any member is subject to a lifetime registration requirement, (2) require properties to check the Dru Sjodin National Sex Offender Web site for all household members at each recertification, and (3) develop and implement controls to monitor properties’ use of the required recertification questions and the use of the sex offender Web site. In its original management decision, HUD agreed to publish in the Federal Register a proposed program rule change to require the items OIG recommended and revise its monitoring form accordingly. On June 6, 2015, HUD submitted a revised management decision to close these recommendations without further action because they were predicated on legislative changes, and no legislative changes have occurred. On June 25, 2015, OIG agreed with the revised significant management decisions and closed the recommendations. (Audit Report: 2009-KC-0001) THE MANAGEMENT AND BOARD OF COMMISSIONERS OF THE HARRIS COUNTY HOUSING AUTHORITY MISMANAGED THE AUTHORITY, ISSUE DATE: JUNE 19, 2013 OIG issued an audit report entitled “The Management and Board of Commissioners of the Harris County Housing Authority Mismanaged the Authority.” For recommendation 3F, OIG identified $400,000 in markups of Community Development Block Grant Disaster Recovery (CDBG-DR) funds that the Authority may have spent under a prohibited cost-plus-percentage-of-cost contract. CPD’s Office of Block Grant Assistance proposed requiring detailed documentation from Harris County showing that the funds were not spent under a prohibited cost-plus contract. On November 20, 2013, OIG agreed with this management decision. The Office of Block Grant Assistance determined that the markups were ineligible and should be repaid but concluded that since HUD’s grant agreement was with the State of Texas rather than with Harris County, the State of Texas would be responsible for repayment, after which the State could require the Authority to repay it. However, HUD gave the State an opportunity to review actual invoices to determine the specific amount of CDBG-DR funds that were paid to the contractor through the ineligible cost-plus provision. The State reviewed each voucher that contained ineligible markups and determined that the actual amount of CDBG-DR funds spent through the cost-plus provision was nearly $336,000. HUD reviewed the support and concurred with the amount. HUD revised its management decision to require the State to repay nearly $336,000 from its general revenue to its CDBG-DR fund by September 30, 2015, and HUD would verify receipt by October 9, 2015. OIG agreed with the revised management decision, effective July 1, 2015. (Audit report: 2013-FW-1006) THE JEFFERSON PARISH, LA, DEPARTMENT OF COMMUNITY DEVELOPMENT DID NOT ALWAYS SUPPORT EXPENDITURES, COMPLY WITH PROCUREMENT REQUIREMENTS, OR PROVIDE ADEQUATE OVERSIGHT OF SUBRECIPIENTS, ISSUE DATE: SEPTEMBER 30, 2014 OIG issued an audit report entitled “The Jefferson Parish, LA, Department of Community Development Did Not Always Support Expenditures, Comply with Procurement Requirements, or Provide Adequate Oversight of 63 SEMIANNUAL REPORT TO CONGRESS Subrecipients.” For recommendations 1A, 2A, and 3A, effective January 26, 2015, OIG and HUD concurred on the proposed management decisions to require the Jefferson Parish Department of Community Development to 1A. Support or repay its CDBG [Community Development Block Grant] program $1,039,105 from non-Federal funds for costs that lacked adequate supporting documentation. 2A. Support the cost reasonableness of the 16 contracts or repay $267,497 to its CDBG program with non-Federal funds. 3A. Support the data reported in the CAPER [consolidated annual performance evaluation report] regarding the three projects or repay to its CDBG program $93,975 from non-Federal funds. The final action target date on these recommendations and the remaining recommendations in the report was June 30, 2015. In August of 2015, HUD submitted a revised management decision in which HUD requested that OIG reduce the questioned costs based upon HUD’s review of supporting documentation provided by the Jefferson Parish Department of Community Development. Based upon HUD’s review, it required the Jefferson Parish Department of Community Development to repay unsupported costs totaling more than $144,400 for recommendation 1A and nearly $25 thousand for recommendation 3A. For recommendation 2A, OIG concurred with the revised management decision effective August 31, 2015. (Audit report: 2014-FW-1007) SIGNIFICANT MANAGEMENT DECISION WITH WHICH OIG DISAGREES During the reporting period, there was one report in which the OIG disagreed with the significant management decision. Follow-up of the Inspections and Evaluations Division on Its Inspection of the State of Louisiana’s Incentive Program Homeowner Compliance (IED-09-002, March 2010), Issue Date: March 29, 2013 OIG conducted a followup inspection of the State of Louisiana’s Road Home Elevation Incentive program homeowner compliance that was completed in March 2013. As of August 31, 2012, the State’s documentation showed that a total of 24,042 homeowners either were noncompliant, including those who had not elevated their homes; were nonresponsive; or did not provide sufficient supporting documentation. Therefore, the State did not have conclusive evidence that the $698.5 million in CDBG-DR program funds had been used to elevate homes. For the remaining recommendation regarding the recovery of $3.8 million awarded to 158 noncompliant homeowners, documentation showed that the State had recovered only approximately $200,900 of the award funds. As a result, this recommendation remains open and has been revised based on OIG’s followup review due to the increased noncompliance among homeowners who received elevation grants. To correct these deficiencies, OIG recommended that CPD require the State to enforce program remedies for noncompliance as stated in grant agreements. Specifically, the State should (1) recover $437.3 million in elevation grant funds from the 15,027 homeowners who did not elevate their homes within 3 years of the grant agreement date (recommendation 1A) and (2) determine whether the 8,462 homeowners who did not respond to its monitoring survey used the $245 million in elevation grant funds to elevate their homes and if not, recover these funds from the noncompliant homeowners (recommendation 1B). In addition, the State should (1) obtain documentation to validate whether the 553 homeowners who received $16 million in grant funds elevated their homes or (2) recover these funds from the noncompliant homeowners (recommendation 1C). 64 CHAPTER TEN AUDIT RESOLUTION The State should also enforce its grant review and recovery procedures to ensure that homeowners comply with the terms of their elevation grant agreements (recommendation 1D) and reimburse the uncollectible elevation grant funds from non-Federal funds (recommendation 1E). On July 24 2014, CPD’s Acting Deputy Assistant Secretary for Grant Programs submitted CPD’s original revised management decision. OIG concurred with CPD’s management decision on September 29, 2014, with a final action target date of April 30, 2015. OIG received CPD’s supplement to the revised management decision, on May 15, 2015, in which CPD’s Deputy Assistant Secretary for Grant Programs stated that she agreed with all of OIG’s recommendations and presented a plan of action that described CPD’s proposed management decision revisions. CPD’s draft plan consisted of a series of steps that both HUD and the State would take. However, it also stated that CPD had not secured the State’s commitment and expected changes to its plan of action. On May 27, 2015, OIG informed CPD that its proposed corrective actions differed from the originally agreed-to decisions by OIG and CPD. Specifically, CPD was expanding its original management decision to demonstrate compliance with the Road Home Elevation Incentive Program and proposing onsite inspections of each home to determine “eligible rehabilitation costs” using a cost estimation process. Therefore, CPD’s new proposal would require additional revised management decisions. On August 25, 2015, OIG received CPD’s significantly revised management decisions for all of OIG’s original recommendations. Within this decision, CPD proposed a number of actions that differed from OIG’s original recommendations. These actions included (1) allowing the State to establish an alternative method of documenting Road Home compliance; (2) allowing the State to establish the payment of interim housing expenses as an eligible expense; and (3) requiring the State to ensure prioritized funding for the elevation of homes in designated flood hazard areas for low- and moderate-income homeowners, receiving road home grants, who are noncompliant and cannot demonstrate that they used these funds for another eligible activity. On September 28, 2015, OIG informed CPD that it disagreed with its action when it allowed the State to amend its action plan for the CDBG-DR program. OIG is concerned that 2 years have elapsed since it issued its report and CPD has not made a determination regarding homeowners’ compliance, or noncompliance and the amount of ineligible funding that should be returned to HUD. Instead, CPD has nullified the homeowners’ elevation incentive agreements and allowed the State to accept rehabilitation and prior interim housing expenditures as proof of compliance with the Road Home program. OIG remains concerned with HUD’s approval of the State’s action plan amendment 60, which allowed homeowners who received a grant under Road Home to use those funds to either elevate or rehabilitate their home. This is contrary to the elevation incentive agreement, which stated that the funds were intended to assist homeowners to only elevate their home. If the funds were not used for this sole purpose, the funds were to be repaid to the State. OIG believes that CPD has either waived the program requirements or retroactively approved the State’s amended action plan when grantees fail to comply with the agreed-to program requirements. The first example of this was CPD’s approval of the State’s amendment 60, which allowed homeowners who received a grant under Road Home to prove that they used those funds to either elevate or rehabilitate their home, while the grant was specifically intended for elevation only. In a letter to Governor Jindal on July 26, 2013, CPD’s Deputy Assistant Secretary for Special Needs Programs stated, “Without this amendment, homeowners who use Road Home Elevation Incentive Program funds to repair or rebuild their homes would be in violation of the Elevation Incentive Program and would have to repay those funds to the State.” CPD’s August 25, 2015, revised management decision is another example of CPD’s waiving the Road Home program requirements. Specifically, CPD changed its 2013 documentation requirement for rehabilitation expenses to now permit an affidavit by the homeowner and a “valuation inspection” by the State to determine the value of home repairs that were previously performed. This new approach does not consider whether recipients previously received grants or insurance funds for rehabilitation and could result in a duplication 65 SEMIANNUAL REPORT TO CONGRESS of benefits. While Congress provided considerable flexibility in the use of CDBG-DR funds, it specifically required HUD to establish procedures that prevent duplication of benefits. This amendment appears to not meet that requirement. The revised management decision also references a new action plan amendment that retroactively adds interim housing expenses as an eligible expense under amendment 58. Again, recipients may not be required to provide evidence of actual expenditures and may be credited for up to 2 years at the level of area fair market rent for interim housing expenses. According to CPD’s Deputy Assistant Secretary for Programs, the effect of this amendment is to reduce the Road Home noncompliant repayment amount and allow the State to determine whether there is any remaining unmet need for the Road Home noncomplaint homeowners. This credit also increases the unmet need of the homeowners. Additionally, OIG takes exception to CPD’s use of the Homelessness Prevention and Rapid Re-Housing Program interim housing expenses waiver to support this amendment because this program was intended to address specific homeless activities. These homeowners, however, are not homeless, and the use of this program for that purpose is potentially inappropriate. OIG believes that CPD’s proposed alternative methods for documenting compliance 10 years after entering into the grant agreements are contrary to the original intent to elevate homes to mitigate damage from future catastrophic flooding. CPD’s revised management decision includes future elevation activity, policy decisions, and the establishment of a rehabilitation program to use the remaining Road Home program funds on properties affected by Hurricane Katrina. OIG is concerned that both the management decision and the closeout plan of action provide that Road Home homeowners who are noncomplaint and cannot prove that they used Road Home funds for another eligible activity will be eligible for new funding to elevate their homes on a priority basis. Part of this concern is that these funds may include unobligated or unbudgeted CDBG funds, which might not become available. As a result of the multiple instances of waiving program requirements or retroactively approving amended action plans, as well as the amount of time that has passed since Hurricane Katrina and the present state of the properties in the targeted area, OIG is concerned that CPD’s actions weaken HUD’s ability to properly administer grant agreements and reduce the affected homeowners’ trust and confidence that HUD maintains the highest standards of integrity, efficiency, and fairness in its grant award process. Therefore, we continue to disagree with CPD’s revised management decisions. FEDERAL FINANCIAL MANAGEMENT IMPROVEMENT ACT OF 1996 HUD did not substantially comply with FFMIA during fiscal year fiscal year 2015. HUD’s continued noncompliance is largely due to a reliance on its legacy financial systems (including primary or general ledger accounting systems and “mixed” or subsidiary systems) and information security weaknesses. While HUD has continued to work toward financial management system modernization and FFMIA compliance, significant challenges remain. FFMIA requires OIG to report in its Semiannual Reports to Congress instances and reasons when an agency has not met the intermediate target dates established in its remediation plan required by FFMIA. Section 803(A) of FFMIA requires that each agency establish and maintain financial management systems that comply with (1) Federal financial management system requirements, (2) Federal accounting standards, and (3) the United States Standard General Ledger at the transaction level. At the end of 2015, 5 of 40 HUD financial systems were not in substantial compliance with FFMIA. These 66 CHAPTER TEN AUDIT RESOLUTION five systems are the (1) Integrated Disbursement and Information System (IDIS), (2) Facilities Integrated Resources Management System (FIRMS), (3) HUD Procurement System (HPS), (4) Small Purchase System (SPS), and (5) Ginnie Mae Financial and Accounting System (GFAS). Like many other agencies, HUD struggled to modernize its legacy financial systems. HUD’s financial systems, many of which were developed and implemented before the issue date of current standards, were not designed to provide the range of financial and performance data currently required. HUD has been working to modernize its legacy financial management system since fiscal year 2003. The previous project, the HUD Integrated Financial Management Improvement Project (HIFMIP), was based on plans to implement a solution that replaced two of the applications currently used for core processing. In March 2012, work on HIFMIP was stopped, and the project was later canceled. HUD spent more than $35 million on the failed HIFMIP project. In the fall of 2012, HUD started work on the New Core Project to move HUD forward to implement a new core financial system. The project will transition HUD’s financial management function to a shared service provider, the U.S. Department of the Treasury, Bureau of Fiscal Service’s Administrative Resource Center. The project includes three phases. Phase 1 of the project has been separated into four different releases. Each release defines a particular function that will be transferred to Treasury’s shared services platform. Release 1 transferred the travel and relocation functions to Treasury on October 1, 2014. Release 2, covering the time and attendance function, was implemented on February 8, 2015. Release 3 covers migration of the core financial services that are owned by OCFO. This includes the migration of accounting system services associated with budget execution, accounting, finance, data warehouse reporting, and an interface solution. Release 3 was recently implemented, and OIG will perform procedures in fiscal year 2016 to validate the effectiveness of this implementation. Release 4 is scheduled to address HUD’s grant and loan accounting systems; however, details regarding this release have not been finalized, and there is no scheduled date for implementation. Phase 2 of the project will address managerial cost accounting, budget formulation, and a fixed assets system. Phase 3 of the project will address the consolidation of FHA and Ginnie Mae as well as the migration of the functionality of the Line of Credit Control System (LOCCS). LOCCS is a disbursement and cash management system that services more than 100 major HUD program areas, 68,000 grantees, and 100,000 projects and disburses more than $20 billion annually. Details regarding phases 2 and 3 have not been finalized, and there are no scheduled dates for implementation. IDIS does not comply with applicable Federal accounting standards or the United States General Ledger at the transaction level.8 CPD is the system owner of IDIS, and the system is FFMIA noncompliant largely due to the use of the FIFO method to account for grant expenditures. In addition to completely eliminating FIFO, HUD will need to add new data elements to the application and configure new automated controls and accounting logic to remediate this weakness. While CPD has made progress in addressing this issue, updating the application to specifically identify grants initiated during 2015 and going forward, funding constraints delayed further remediation. The FIFO elimination project was put on hold until adequate funding was available, which was substantially approved in August 2015. The halt in work has caused the remediation of this instance of noncompliance to be delayed. The FIRMS application does not comply with Federal financial management systems requirements. While HUD has identified FIRMS as FFMIA noncompliant since 2010, technical issues, including a lapsed maintenance contract, have rendered FIRMS nonfunctional. As a result, HUD did not have a functional, automated property management system during fiscal year 2015. While HUD had initially hoped to remediate the issue by February 2014, resource constraints have resulted in significant delays. The Office 8 The U.S. Department of the Treasury publishes the United States Standard General Ledger supplement to the Treasury Financial Manual, which directs agencies to post transactions to the financial system in accordance with general ledger accounting requirements. 67 SEMIANNUAL REPORT TO CONGRESS of Administration is working with the Office of the Chief Information Officer on a two-phase plan to replace FIRMS and transition to an automated property management application hosted by a Federal shared service provider, the Federal Aviation Administration, during fiscal year 2016. HUD’s legacy procurement applications, HPS and SPS, do not comply with Federal financial management systems requirements. HUD implemented a new procurement system in 2012, the HUD Integrated Acquisition Management System (HIAMS), to replace the noncompliant HPS and SPS. As of 2015, HPS and SPS remain operational in order to modify and close out purchase orders and contracting actions that have not been entered into HIAMS. In fiscal year 2015, the Office of the Chief Procurement Officer was working to migrate the data in HPS and SPS to the HIAMS Enterprise Acquisition Reporting Tool Data Warehouse. HUD will be able to report on historical data with this tool. HUD has deactivated a majority of HPS and SPS users, leaving only those needing continued access to perform contracting closeout functions. To remediate this weakness, HUD expects to deactivate all HPS and SPS users and decommission HPS and SPS in fiscal year 2016. GFAS is not compliant with FFMIA primarily due to four material weaknesses related to Ginnie Mae’s internal controls over financial reporting and its inability to properly account for its loan portfolio. In addition, OIG noted weaknesses related to the budgetary accounting module of the GFAS application implemented in 2014. Specifically, due to system configuration issues, large manual adjustments were needed to reconcile budgetary balances. To remediate its FFMIA noncompliance, Ginnie Mae will need to address the material weaknesses first identified during 2014, which remain outstanding. Ginnie Mae’s plans to address these material weaknesses were in process as of September 30, 2015. In addition to the specific financial system weaknesses identified above, financial process weaknesses will need to be remediated for HUD to achieve FFMIA compliance. For example, current process weaknesses include manual cash management processes implemented by PIH that do not comply with FFMIA requirements. We will continue to assess HUD’s ongoing efforts to modernize its legacy systems and financial processes. 68 APPENDIX 1 PEER REVIEW REPORTING APPENDIX 1 PEER REVIEW REPORTING OFFICE OF AUDIT BACKGROUND The Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law No. 111-203), section 989C, requires inspectors general to report the latest peer review results in their semiannual reports to Congress. The purpose in doing so is to enhance transparency within the government. Both the Office of Audit and Office of Investigation are required to undergo a peer review of their individual organizations every 3 years. The purpose of the review is to ensure that the work completed by the respective organizations meets the applicable requirements and standards. The following is a summary of the status of the latest round of peer reviews for the organization. PEER REVIEW CONDUCTED ON HUD OIG The U.S. Department of Housing and Urban Development, Office of Inspector General (HUD OIG), received a grade of pass (the highest rating) on the peer review report issued by the Treasury Inspector General for Tax Administration on September 30, 2015. There were no recommendations included in the System Review Report. The report stated: In our opinion, the system of quality control for the audit organization of the HUD OIG in effect for the year ended March 31, 2015, has been suitably designed and complied with to provide the HUD OIG with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. Audit organizations can receive a rating of pass, pass with deficiencies, or fail. The HUD OIG has received a peer review rating of pass. PEER REVIEW CONDUCTED BY HUD OIG ON USPS OIG HUD OIG conducted an external peer review of the United States Postal Service (USPS), OIG, Office of Audit, and issued a final report September 22, 2015. USPS OIG received a peer review rating of pass. 69 SEMIANNUAL REPORT TO CONGRESS APPENDIX 1 PEER REVIEW REPORTING (CONCLUDED) OFFICE OF INVESTIGATION PEER REVIEW CONDUCTED BY HUD OIG ON SSA OIG HUD OIG conducted an external peer review of the U.S. Social Security Administration (SSA) OIG, Office of Investigation, and issued a final report on August 12, 2013. HUD OIG determined that SSA OIG complied with applicable quality standards. PEER REVIEW CONDUCTED ON HUD OIG BY DOJ OIG The U.S. Department of Justice (DOJ) OIG conducted a peer review of the HUD OIG, Office of Investigation, and issued a final report on April 28, 2014. DOJ OIG determined that HUD OIG was in compliance with the quality standards established by the Council of the Inspectors General on Integrity and Efficiency and the Attorney General’s guidelines. 70 APPENDIX 2 AUDIT REPORTS ISSUED APPENDIX 2 AUDIT REPORTS ISSUED INTERNAL REPORTS AUDIT REPORTS CHIEF FINANCIAL OFFICER 2015-DP-0006 Weaknesses in the New Core Project Were Not Adequately Addressed, 06/12/2015. 2015-DP-0007 New Core Project: Release 1 of Phase 1 New Core Interface Solution, 09/03/2015. 2015-FO-0005 Compliance With the Improper Payments Elimination and Recovery Act, 05/15/2015. CHIEF PROCUREMENT OFFICER 2015-FO-0006 The Government Purchase Card Program, 07/07/2015. COMMUNITY PLANNING AND DEVELOPMENT The Office of Community Planning and Development’s Reviews of Matching Contributions 2015-KC-0002 Were Ineffective and Its Application of Match Reductions Was Not Always Correct, 08/11/2015. DEPUTY SECRETARY HUD Did Not Adequately Implement or Provide Adequate Oversight To Ensure Compliance With 2015-FW-0001 Environmental Requirements, 06/16/2015. HOUSING HUD’s Office of Multifamily Asset Management and Portfolio Oversight Did Not Comply With Its 2015-AT-0002 Requirements for Monitoring Management Agents' Costs, 08/21/2015. HUD Did Not Always Provide Adequate Oversight of Its Section 203(k) Rehabilitation Loan 2015-CH-0001 Mortgage Insurance Program, 07/31/2015. Questioned: $1,331,245. Unsupported: $1,318,669. Better use: $1,910,000. HUD’s Claim Payment System Did Not Always Identify Ineligible FHA-HAMP Partial Claims, 2015-LA-0001 04/20/2015. Questioned: $22,611,452. Unsupported: $22,507,527. 71 HUD Did Not Have Effective Controls or Clear Guidance in Place for the FHA-HAMP Partial 2015-LA-0003 Claim Loss Mitigation Option, 09/18/2015. Questioned: $508,793. Unsupported: $94,120. Better use: $88,500,000. HUD Policies Did Not Always Ensure That HECM Borrowers Complied With Residency 2015-PH-0004 Requirements, 08/21/2015. Better use: $15,749,277. PUBLIC AND INDIAN HOUSING HUD Did Not Complete an Adequate Front-End Risk Assessment for the Rental Assistance 2015-AT-0003 Demonstration, 09/03/2015. HUD Did Not Provide Adequate Oversight of the Section 184 Indian Home Loan Guarantee 2015-LA-0002 Program, 07/06/2015. Better use: $79,424,436. 2015-PH-0002 Overincome Families Resided in Public Housing Units, 07/21/2015. Better use: $104,417,212. HUD Did Not Adequately Oversee Enhanced Vouchers Administered by New York Agencies, 2015-PH-0003 07/29/2015. Questioned: $1,122,707. Unsupported: $1,122,707. Better use: $1,244,784. AUDIT-RELATED MEMORANDUMS9 CHIEF FINANCIAL OFFICER 2015-FO-0801 Potential Antideficiency Act Violation HOME Investment Partnerships Program, 06/16/2015. COMMUNITY PLANNING AND DEVELOPMENT HUD’s Approval of the City of High Point’s Use of a 15 Percent Margin for Procurement Bids, 2015-AT-0801 08/25/2015. HUD's Office of Affordable Housing Programs Could Improve Its Oversight of Participating 2015-CH-0801 Jurisdictions' HOME Investment Partnerships Program-Funded Rental Housing Projects' Leases, 06/25/2015. PUBLIC AND INDIAN HOUSING HUD’s Office of Public Housing Investments Could Improve Its Oversight of the Chicago 2015-CH-0802 Housing Authority's Exception Payment Standards Under Its Moving to Work Housing Choice Voucher Program, 08/26/2015. Very Small and Small Housing Agencies Reviewed Had Common Violations of Requirements, 2015-FW-0802 09/16/2015. 9 The memorandum format is used to communicate the results of reviews not performed in accordance with generally accepted government auditing standards, to close out assignments with no findings and recommendations, to respond to requests for information, to report on the results of a survey, or to report the results of civil or administrative outcomes from civil fraud efforts. 72 APPENDIX 2 AUDIT REPORTS ISSUED EXTERNAL REPORTS AUDIT REPORTS COMMUNITY PLANNING AND DEVELOPMENT Virgin Islands Community AIDS Resource & Education, Inc., Did Not Administer Its Program in 2015-AT-1004 Accordance With HUD Requirements, 07/02/2015. Questioned: $694,252. Unsupported: $681,805. The State of Florida, Tallahassee, FL, Did Not Properly Support the Eligibility of Some Funds Used 2015-AT-1006 for the Community Development Block Grant Disaster Recovery Program, 07/27/2015. Questioned: $2,324,058. Unsupported: $2,324,058. Broward County, Fort Lauderdale, FL, Did Not Properly Administer One of Its Projects and Did 2015-AT-1008 Not Comply With Some Match Requirements, 08/23/2015. Questioned: $78,231. Better use: $195,975. The Alabama Department of Economic and Community Affairs Administered Its CDBG Disaster 2015-AT-1010 Recovery Funds for Infrastructure in Accordance With HUD Requirements, 09/28/2015. The New Hampshire Housing Finance Authority Administered Its HOME Investment Partnerships 2015-BO-1005 Program in Accordance with HUD Requirements, 09/30/2015. The State of Illinois' Administrator Lacked Adequate Controls Over the State's CDBG Disaster 2015-CH-1009 Recovery Program-Funded Projects, 09/30/2015. Questioned: $1,461,842. Unsupported: $1,211,842. Better use: $4,346,358. The State of Wyoming Did Not Always Administer Its CDBG Program in Accordance With 2015-DE-1001 Applicable Requirements, 05/26/2015. Questioned: $871,586. Unsupported: $766,072. The City Used Grant Funds for Unsupported Salary and Project Costs and Did Not Properly 2015-DE-1002 Complete Environmental Reviews of Its Projects, 06/30/2015. Questioned: $7,075,682. Unsupported: $7,075,682. The City Of Colorado Springs Did Not Always Administer Its HOME Program in Accordance With 2015-DE-1003 Applicable Requirements, 06/30/2015. Questioned: $4,008,239. Unsupported: $2,083,239. The City of New Orleans, LA, Did Not Always Comply With Requirements When Administering 2015-FW-1002 Its 2013 Disaster Relief Grant, 06/26/2015. Questioned: $2,556,409. Unsupported: $2,556,409. Better use: $4,539,286. The City of Moore, OK, Generally Had the Capacity To Expend Its CDBG Disaster Recovery 2015-FW-1003 Funds, 08/07/2015. Veterans First, Santa Ana, CA, Did Not Administer and Spend Its HUD Funding in Accordance 2015-LA-1002 With HUD Requirements, 04/16/2015. Questioned: $549,488. Unsupported: $530,808. 73 SEMIANNUAL REPORT TO CONGRESS The Housing Authority of the County of San Bernardino, San Bernardino, CA, Used Shelter Plus 2015-LA-1004 Care Program Funds for Ineligible and Unsupported Participants, 05/29/2015. Questioned: $3,255,794. Unsupported: $136,346. Better use: $873,428. The City of West Covina, CA, Did Not Administer Its CDBG Program in Accordance With HUD 2015-LA-1006 Rules and Requirements, 08/21/2015. Questioned: $218,324. Unsupported: $218,324. The City of New York, NY, Generally Disbursed CDBG Disaster Recovery Assistance Funds for 2015-NY-1004 Administrative Costs in Accordance With HUD Regulations, 04/23/2015. The City of Paterson, NJ's HOME Investment Partnerships Program Controls Did Not Ensure 2015-NY-1005 Compliance With Regulations, 04/30/2015. Questioned: $5,747,342. Unsupported: $1,724,843. Better use: $1,684,292. The City of New York, NY, Did Not Always Disburse CDBG Disaster Recovery Funds in 2015-NY-1007 Accordance With Federal Regulations, 06/12/2015. Questioned: $241,000. Unsupported: $206,000. The Lower Manhattan Development Corporation, New York, NY, Generally Administered CDBG 2015-NY-1008 Disaster Recovery Assistance Funds in Accordance With HUD Regulations, 06/26/2015. County Officials Did Not Always Administer the County's CDBG Program in Accordance With 2015-NY-1009 Program Requirements, 08/11/2015. Questioned: $362,912. Unsupported: $191,999. New York State Did Not Always Administer Its Rising Home Enhanced Buyout Program in 2015-NY-1010 Accordance With Federal and State Regulations, 09/17/2015. Questioned: $18,289,388. Unsupported: $17,019,088. Better use: $18,763,894. Program Control Weaknesses Lessened Assurance That New York Rising Housing Recovery 2015-NY-1011 Program Funds Were Always Disbursed for Eligible Costs, 09/17/2015. Questioned: $185,221,340. Unsupported: $182,992,106. Better use: $274,035,899. The State of New Jersey Did Not Comply With Federal Procurement and Cost Principle 2015-PH-1003 Requirements in Implementing Its Disaster Management System, 06/04/2015. Questioned: $38,512,267. Unsupported: $38,512,267. Better use: $9,061,780. The State of New Jersey Awarded Disaster Funds to Eligible Businesses for Eligible Expenses in 2015-PH-1004 Accordance With HUD and Federal Requirements, 07/20/2015. The State of Maryland Could Not Show That Replacement Homes Complied With the Green 2015-PH-1005 Building Standard, 09/25/2015. Questioned: $1,928,646. Unsupported: $1,928,646. Better use: $292,910. Snohomish County Generally Administered Its Community Block Grant Entitlement Program in 2015-SE-1002 Accordance With HUD Rules and Regulations, 09/30/2015. 74 APPENDIX 2 AUDIT REPORTS ISSUED GOVERNMENT NATIONAL MORTGAGE ASSOCIATION LoanCare Did Not Always File Claims for Foreclosed-Upon Properties Held on Behalf of Ginnie 2015-KC-1012 Mae and Convey Them to FHA in a Timely Manner, 09/30/2015. HOUSING Prudential Huntoon Paige Associates, LTD, Did Not Underwrite and Process a $19.9 Million Loan 2015-AT-1003 in Accordance With HUD Requirements, 06/30/2015. Questioned: $10,159,961. Prudential Huntoon Paige Associates, LTD, Did Not Underwrite and Process a $22 Million Loan 2015-AT-1007 in Accordance With HUD Requirements, 08/14/2015. Questioned: $15,727,529. St. Francis Hospital, Inc., Did Not Comply With the Executed Regulatory Agreement and Federal 2015-AT-1009 Regulations for the HUD Section 242 Program, 09/03/2015. Questioned: $21,438,700. Taliafaro, Inc., a Multifamily Housing Management Agent, Did Not Always Comply With HUD’s Requirements or Its Own Policies and Procedures in the Disbursement of Project Funds and 2015-AT-1012 Collection of Its Fees, 09/30/2015. Questioned: $76,221. Unsupported: $61,119. Better use: $2,876. Member First Mortgage, LLC, Grand Rapids, MI, Generally Implemented Its Loss Mitigation and 2015-CH-1005 Quality Control Programs in Accordance With HUD’s Requirements, 09/10/2015. First Source Bank, South Bend, IN, Did Not Always Properly Implement Its Loss Mitigation and 2015-CH-1006 Quality Control Programs in Accordance With HUD Requirements, 09/11/2015. Questioned: $172,872. Unsupported: $139,487. Better use: $191,074. The Cooperative and Management Agent Lacked Adequate Controls Over the Operation of 2015-CH-1010 Carmen-Marine Apartments, Chicago, IL, 09/30/2015. Questioned: $19,866. Unsupported: $19,866. Better use: $22,666,717. NTFN, Inc., Did Not Always Follow HUD and FHA Requirements, 05/26/2015. Questioned: 2015-FW-1001 $146,230. Unsupported: $61,419. Belle Maison Nursing Home, Hammond, LA, Generally Complied With the Owner and Operator 2015-FW-1006 Regulatory Agreements and HUD Requirements for Its Section 232 Loan, 09/23/2015. Christian Care Home Did Not Always Accurately Maintain Resident Trusts and Accounts 2015-KC-1003 Receivable, 06/30/2015. The Operator Generally Complied With Its Executed Regulatory Agreement and HUD 2015-KC-1004 Requirements But Did Not Properly Establish Its Management Agent and Management Agreement, 06/30/2015. 75 SEMIANNUAL REPORT TO CONGRESS Berkadia Approved a Mortgage for the Temtor Project That Was Not Economically Sound, 2015-KC-1005 08/04/2015. Questioned: $11,312,956. Sutton Irvine Residence, Inc., Irvine, CA, Did Not Operate Its Section 202-Funded Project in 2015-LA-1003 Accordance With HUD Rules and Requirements, 04/24/2015. Questioned: $186,032. Unsupported: $159,843. NOVA Financial & Investment Corporation’s FHA-Insured Loans With Downpayment Assistance 2015-LA-1005 Gifts Did Not Always Meet HUD Requirements, 07/09/2015. Questioned: $383,212. Better use: $48,490,784. The Owner of Coconut Grove Apartments Did Not Always Operate Its HUD-Insured Project in 2015-LA-1008 Accordance With HUD Rules and Requirements, 09/22/2015. Questioned: $72,547. Unsupported: $72,547. loanDepot’s FHA-Insured Loans With Downpayment Assistance Funds Did Not Always Meet 2015-LA-1009 HUD Requirements, 09/30/2015. Questioned: $72,210. Better use: $60,060,031. loanDepot’s FHA-Insured Loans With Golden State Finance Authority Downpayment Assistance 2015-LA-1010 Gifts Did Not Always Meet HUD Requirements, 09/30/2015. Questioned: $13,726. Better use: $37,646,644. First Niagara Bank, Lockport, NY, Did Not Always Properly Implement HUD's Loss Mitigation 2015-NY-1006 Requirements in Servicing FHA-Insured Mortgages, 05/22/2015. Better use: $5,978,360. Morris Park Did Not Always Comply With Its Regulatory Agreement and HUD Requirements, 2015-NY-1012 09/30/2015. The Pennsylvania Housing Finance Agency, Harrisburg, PA, Properly Implemented HUD’s Loss 2015-PH-1006 Mitigation Requirements for Servicing Loans Insured by the Federal Housing Administration, 09/28/2015. The Virginia Housing Development Authority, Richmond, VA, Did Not Always Accurately Report 2015-PH-1007 Its Servicing Actions in HUD’s Single Family Default Monitoring System, 09/30/2015. Redwood Juniper Tacoma Apartments Did Not Always Administer Its Program in Accordance 2015-SE-1001 With HUD Rules and Regulations, 04/14/2015. Questioned: $42,700. Unsupported: $42,700. LEAD HAZARD CONTROL The City of High Point Did Not Properly Administer Its Lead-Based Paint Hazard Control Grants 2015-AT-1005 in Compliance With Federal Requirements, 07/09/2015. Questioned: $1,081,338. Unsupported: $874,241. 76 APPENDIX 2 AUDIT REPORTS ISSUED PUBLIC AND INDIAN HOUSING The Housing Authority of the City of Comer Did Not Comply With Conflict-of-Interest and 2015-AT-1002 Procurement Requirements, 04/24/2015. Questioned: $55,322. Unsupported: $33,144. The Housing Authority of the City of Durham, NC, Did Not Always Comply With HUD’s and Its 2015-AT-1011 Own Section 8 Housing Choice Voucher Program Requirements, 09/30/2015. Questioned: $49,565. Unsupported: $34,414. Allocation of Costs to the Waterbury Housing Authority Asset Management Projects Was 2015-BO-1004 Generally Supported, 09/30/2015. Questioned: $169,081. Unsupported: $169,081. The Detroit Housing Commission, Detroit, MI, Did Not Always Manage Its Program Projects in 2015-CH-1002 Accordance With HUD’s Requirements, 08/26/2015. Questioned: $111,761. Brown County Housing Authority, Green Bay, WI, Did Not Always Ensure That Its Section 8 2015-CH-1003 Housing Choice Voucher Program Files Complied With HUD’s and Its Own Requirements, 08/28/2015. Questioned: $53,889. Unsupported: $48,560. Better use: $2,429. The Jefferson Metropolitan Housing Authority, Steubenville, OH, Did Not Always Ensure That Its Section 8 Housing Choice Voucher Program Files Complied With HUD’s and Its Own 2015-CH-1004 Requirements, 09/09/2015. Questioned: $446,372. Unsupported: $421,285. Better use: $107,104. The Jefferson Metropolitan Housing Authority, Steubenville, OH, Did Not Adequately Enforce 2015-CH-1007 HUD’s Housing Quality Standards and Its Own Requirements, 09/24/2015. Questioned: $38,522. Better use: $1,946,865. The Housing Authority of the City of South Bend, IN, Did Not Always Comply With HUD Requirements and Its Own Policies Regarding the Administration of Its Section 8 Housing 2015-CH-1008 Choice Voucher Program, 09/25/2015. Questioned: $534,902. Unsupported: $411,382. Better use: $829,497. The Mesilla Valley Public Housing Authority, Las Cruces, NM, Miscalculated Housing Choice 2015-FW-1004 Vouchers and Incorrectly Paid Rental Assistance, 08/17/2015. Questioned: $23,618. Unsupported: $21,479. Better use: $22. The Housing Authority of the City of Victoria, TX, Allowed Improper and Unsupported Payments, 2015-FW-1005 09/02/2015. Questioned: $782,333. Unsupported: $400,938. Better use: $33,557. The York Housing Authority Did Not Fully Comply With Procurement Requirements and Spent 2015-KC-1006 $21,047 for Ineligible and Unsupported Costs, 08/20/2015. Questioned: $42,295. Unsupported: $30,933. 77 SEMIANNUAL REPORT TO CONGRESS The Stromsburg Housing Authority Did Not Fully Comply With Procurement Requirements and 2015-KC-1007 Spent Funds for Ineligible Expenses, 08/20/2015. Questioned: $45,304. Unsupported: $41,133. The Fairmont Housing Authority Did Not Fully Comply With Procurement Requirements and 2015-KC-1008 Spent Funds for Ineligible Expenses, 09/01/2015. Questioned: $48,902. Unsupported: $47,417. The Pineville Housing Authority Mismanaged Its Public Housing Program, 09/30/2015. 2015-KC-1009 Questioned: $71,006. Unsupported: $69,773. The Anderson Housing Authority Mismanaged Its Public Housing Program, 09/30/2015. 2015-KC-1010 Questioned: $103,785. Unsupported: $100,607. The Lanagan Housing Authority Mismanaged Its Public Housing Program, 09/30/2015. 2015-KC-1011 Questioned: $65,407. Unsupported: $64,185. The Fresno Housing Authority’s Procurement of Goods and Services Did Not Always Comply 2015-LA-1007 With HUD Regulations, 09/11/2015. The Bucks County Housing Authority, Doylestown, PA, Did Not Always Ensure That Its Program 2015-PH-1002 Units Met Housing Quality Standards, 05/05/2015. The Richmond Redevelopment and Housing Authority, Richmond, VA, Did Not Comply With 2015-PH-1008 HUD Requirements When Procuring Services, 09/30/2015. Questioned: $6,565,897. Unsupported: $6,565,897. AUDIT-RELATED MEMORANDUMS10 COMMUNITY PLANNING AND DEVELOPMENT Veterans First Did Not Administer or Spend Its Supportive Housing Program Grants in 2015-LA-1802 Accordance With HUD Requirements, 09/24/2015. Questioned: $409,169. Unsupported: $401,086. The City of Richmond, CA, Did Not Adequately Support Its Use of HUD-Funded Expenses for Its 2015-LA-1803 Filbert Phase 1 and Filbert Phase 2 Activities, 09/30/2015. Questioned: $2,379,877. GENERAL COUNSEL Final Civil Action: First Tennessee Settled Allegations of Failing To Comply With HUD’s Federal 2015-AT-1801 Housing Administration Loan Requirements, 09/29/2015. Questioned: $142,000,000. Property Owner Debarred for Violating Federal Housing Administration Insurance Requirements 2015-CF-1805 for Multifamily Properties, 09/09/2015. 10 The memorandum format is used to communicate the results of reviews not performed in accordance with generally accepted government auditing standards, to close out assignments with no findings and recommendations, to respond to requests for information, to report on the results of a survey, or to report the results of civil or administrative outcomes from civil fraud efforts. 78 APPENDIX 2 AUDIT REPORTS ISSUED Taylor, Bean & Whitaker Mortgage Corporation and Home America Mortgage, Inc., Settled Civil 2015-CF-1806 Claims Related to Failing To Comply With FHA Underwriting Requirements, 09/09/2015. Questioned: $596,984. Mason-McDuffie Mortgage Corporation Settled Allegations of Failing To Comply With HUD’s 2015-CF-1807 FHA Loan Requirements, 09/28/2015. Questioned: $465,981. Reverse Mortgage Solutions, Inc., Settled Alleged Violations of FHA Loan Requirements Related 2015-CF-1808 to Home Equity Conversion Mortgages, 09/28/2015. Questioned: $13,693,035. Iron Mountain Settled Allegations of Making False Disclosures and False Statements Regarding 2015-CF-1809 Discounts and Prices Relevant to Contracts It Had With HUD, 09/29/2015. Questioned: $202,237. Final Civil Action: GTL Investments, Inc., Doing Business as John Adams Mortgage Company, 2015-CH-1801 Settled Allegations of Failing To Comply With HUD’s FHA Loan Requirements, 09/30/2015. Questioned: $4,263,931. Owner of HUD-Insured Multifamily Property Settled Allegations of Authorizing and Paying Out 2015-DE-1802 Project Funds for Unallowable Expenses, 09/30/2015. Questioned: $500,000. Final Civil Action, Bank of America, NA, Lender Settled Alleged Violations of Home Equity 2015-PH-1806 Conversion Mortgage Program, 08/26/2015. Questioned: $98,492. Final Civil Action, Borrower Settled Alleged Violations of Home Equity Conversion Mortgage 2015-PH-1807 Program, 09/16/2015. Better use: $2,500. HOUSING Opportunity in Living, Centennial, CO’s Participation in the HUD Single Family Property 2015-DE-1801 Disposition Program, 08/25/2015. PUBLIC AND INDIAN HOUSING 2015-BO-1801 The Cambridge Housing Authority Appropriately Handled Exception Payments, 09/16/2015. The Covington Housing Authority, Covington, LA, Generally Ensured That It Followed Federal 2015-FW-1804 Requirements When Administering Its Section 8 Housing Choice Voucher Program, 04/08/2015. The Housing Authority of the City of Lockney, Lockney, TX, Did Not Operate Its Public Housing 2015-FW-1805 Programs in Accordance With Requirements, 04/10/2015. Questioned: $37,506. Unsupported: $17,178. Better use: $46,950. The Housing Authority of Bexar County, TX, Did Not Operate Its HUD Public Housing Programs 2015-FW-1806 in Accordance With Regulations and Other Requirements, 06/11/2015. Questioned: $583,756. Unsupported: $580,733. Better use: $2,557. 79 SEMIANNUAL REPORT TO CONGRESS The Hot Springs Housing Authority, Hot Springs, AR, Did Not Comply With Federal Regulations 2015-FW-1807 and Other Requirements When Administering Its Public Housing Programs, 08/14/2015. Questioned: $677,459. Unsupported: $662,808. The Duson Housing Authority, Duson, LA, Failed To Administer Its Public Housing Program in 2015-FW-1808 Accordance With HUD Requirements, 09/10/2015. The Oakland Housing Authority Complied With HUD Requirements on the Use of Housing 2015-LA-1801 Choice Voucher Exception Payment Standards, 04/15/2015. The Chicago Housing Authority, Chicago, IL, Did Not Always Make Payments for Outside Legal 2015-PH-1805 Services in Compliance With Requirements, 04/20/2015. Questioned: $503,744. Unsupported: $503,744. The Housing Authority of the City of Pittsburgh, PA, Did Not Always Make Payments for Outside 2015-PH-1808 Legal Services in Compliance With Applicable Requirements, 09/30/2015. Questioned: $141,164. Unsupported: $141,164. 80 APPENDIX 3 TABLES APPENDIX 3 TABLES TABLE A Audit reports issued before the start of period with no management decision at 9/30/2015 *Significant audit reports described in previous semiannual reports REASON FOR LACK OF REPORT NUMBER & TITLE ISSUE DATE MANAGEMENT DECISION * 2014-FO-0003 Additional Details To Supplement Our Report on HUD’s Fiscal See chapter 10, page 53 12/16/2013 Years 2013 and 2012 (Restated) Financial Statements * 2014-FO-0004 HUD’s Fiscal Year 2013 Compliance With the Improper See chapter 10, page 54 04/15/2014 Payments Elimination and Recovery Act of 2010 * 2014-LA-0004 HUD Could Not Support the Reasonableness of the Operating and Capital Fund Programs’ Fees and Did Not Adequately Monitor Central Office See chapter 10, page 55 06/30/2014 Cost Centers * 2014-KC-0002 The Data in CAIVRS Did Not Agree With the Data in FHA’s See chapter 10, page 55 07/02/2014 Default and Claims Systems * 2014-NY-1007 The Niagara Falls Housing Authority Did Not Always Administer See chapter 10, page 56 07/10/2014 Its HOPE VI Grant Program and Activities in Accordance With HUD Requirements * 2014-LA-0005 HUD Did Not Always Recover FHA Single-Family Indemnification Losses and Ensure That Indemnification Agreements Were See chapter 10, page 57 08/08/2014 Extended * 2015-FO-0002 Interim Report on HUD's Internal Controls Over Financial See chapter 10, page 58 12/08/2014 Reporting * 2015-PH-1803 Final Civil Action Borrower Settled Alleged Violations of Home See chapter 10, page 60 01/30/2015 Equity Conversion Mortgage Program * 2015-PH-1804 Final Civil Action Court Ordered a Former Executive Director of the Philadelphia Housing Authority To Pay Civil Penalties for Violating Federal See chapter 10, page 60 02/19/2015 Lobbying Disclosure Requirements and Restrictions * 2015-FO-0003 Fiscal Years 2014 and 2013 Financial Statements Audit See chapter 10, page 58 02/27/2015 * 2015-CF-1801 Group One Mortgage, Inc., Settled Allegations of Failing To See chapter 10, page 61 03/27/2015 Comply With Federal Housing Administration Underwriting Requirements * 2015-CF-1804 Borrower Settled Allegations of Not Complying With the See chapter 10, page 62 03/27/2015 Primary Residence Requirement of the Federal Housing Administration Program * 2015-SE-1801 Civic Construction, LLC, Settled Allegations of Making False See chapter 10, page 62 03/30/2015 Claims to the Seattle Housing Authority 81 SEMIANNUAL REPORT TO CONGRESS TABLE B Significant audit reports for which final action had not been completed within 12 months after the date of the Inspector General’s report REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION Housing Authority of the City of Tupelo, 2002-AT-1002 Housing Programs Operations, Tupelo, 07/03/2002 10/31/2002 07/01/2016 Mississippi Corporacion para el Fomento Economico de la Ciudad Capital, San Juan, Puerto Rico, Did 2005-AT-1013 09/15/2005 01/11/2006 Note 1 Not Administer Its Independent Capital Fund in Accordance with HUD Requirements The Cathedral Foundation of Jacksonville, FL, 2007-AT-1010 Used More Than $2.65 Million in Project 08/14/2007 12/03/2007 04/10/2017 Funds for Questioned Costs State of Louisiana, Road Home Program, Funded 418 Grants Coded Ineligible or 2008-AO-1002 01/30/2008 05/12/2008 Note 1 Lacking an Eligibility Determination, Baton Rouge, LA Review of Selected FHA Major Applications’ 2008-DP-0004 06/12/2008 10/08/2008 Note 1 Information Security Controls State of Louisiana, Road Home Program, Did Not Ensure That Road Home Employees Were 2009-AO-1001 05/05/2009 09/16/2009 Note 1 Eligible To Receive Additional Compensation Grants, Baton Rouge, LA State of Louisiana, Road Home Program, Did Not Ensure That Multiple Disbursements to a 2009-AO-1002 05/05/2009 09/16/2009 Note 1 Single Damaged Residence Address Were Eligible, Baton Rouge, LA The City of Rome Did Not Administer Its Economic Development Activity in 2009-NY-1012 05/20/2009 09/23/2009 01/30/2032 Accordance With HUD Requirements, Rome, NY 82 APPENDIX 3 TABLES REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION Review of Implementation of Security 2009-DP-0005 06/11/2009 11/17/2009 Note 2 Controls over HUD's Business Partners The Housing Authority of the City of Terre Haute Failed To Follow Federal Requirements 2009-CH-1011 and Its Employment Contract Regarding 07/31/2009 11/24/2009 10/01/2015 Nonprofit Development Activities, Terre Haute, IN HUD Lacked Adequate Controls to Ensure the 2009-AT-0001 Timely Commitment and Expenditure of 09/28/2009 03/18/2011 Note 2 HOME Funds The Housing Authority of Whitesburg 2010-AT-1003 04/28/2010 08/26/2010 11/29/2035 Mismanaged Its Operations, Whitesburg, KY Sasha Bruce Youthwork, Incorporated, Did 2010-PH-1008 Not Support More Than $1.9 Million in 05/11/2010 11/03/2010 Note 2 Expenditures, Washington, DC The DuPage Housing Authority 2010-CH-1008 Inappropriately Administered Its Section 8 06/15/2010 10/08/2010 10/30/2015 Project-Based Voucher Program, Wheaton, IL The City of Flint Lacked Adequate Controls Over Its HOME Program Regarding Community Housing Development 2011-CH-1001 10/13/2010 02/03/2011 Note 2 Organizations’ Home-Buyer Projects, Subrecipients’ Activities, and Reporting Accomplishments in HUD’s System, Flint, MI Additional Details To Supplement Our Report 2011-FO-0003 on HUD's Fiscal Years 2010 and 2009 11/15/2010 08/08/2011 Note 2 Financial Statements The District of Columbia Did Not Administer 2011-PH-1005 Its HOME Program in Accordance With 12/23/2010 04/22/2011 Note 1 Federal Requirements, Washington, DC The City of Cleveland Lacked Adequate Controls Over Its HOME Investment 2011-CH-1003 Partnerships Program and American Dream 12/27/2010 04/26/2011 03/31/2016 Downpayment Initiative-Funded Afford-A- Home Program, Cleveland, OH 83 SEMIANNUAL REPORT TO CONGRESS REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION The State of Indiana’s Administrator Lacked Adequate Controls Over the State’s HOME Investment Partnerships Program and 2011-CH-1004 01/31/2011 05/25/2011 Note 2 American Dream Downpayment Initiative- Funded First Home/PLUS Program, Indianapolis, IN The DuPage Housing Authority Inappropriately Administered Its Section 8 2011-CH-1006 03/23/2011 07/28/2011 10/30/2015 Housing Choice Voucher Program, Wheaton, IL The East Orange Revitalization and Development Corporation Did Not Always 2011-NY-1009 04/07/2011 08/03/2011 Note 2 Comply With HOME Program Requirements and Federal Regulations, East Orange, NJ The Municipality of Mayaguez Did Not Ensure 2011-AT-1006 Compliance With HOME Program Objectives, 04/08/2011 08/05/2011 Note 1 Mayaguez, PR The City of Buffalo Did Not Always Administer 2011-NY-1010 Its CDBG Program in Accordance With HUD 04/15/2011 01/25/2012 Note 1 Requirements, Buffalo, NY The Office of Healthcare Programs Could 2011-FW-0002 Increase Its Controls To More Effectively 04/26/2011 08/17/2011 Note 2 Monitor the Section 232 Program The Lafayette Parish Housing Authority Violated HUD Procurement Requirements and 2011-AO-0001 06/22/2011 10/13/2011 05/31/2016 Executed Unreasonable and Unnecessary Contracts The City of Compton Did Not Administer Its 2011-LA-1016 HOME Program in Compliance With HOME 08/18/2011 12/15/2011 Note 2 Requirements, Compton, CA The City of Buffalo Did Not Always Disburse Homelessness Prevention and Rapid Re- 2011-NY-1016 09/22/2011 01/25/2012 Note 1 Housing Program Funds in Accordance With Regulations, Buffalo, NY The Municipality of San Juan Did Not Properly 2011-AT-1018 Manage Its HOME Investment Partnerships 09/28/2011 01/12/2012 Note 2 Program, San Juan, PR 84 APPENDIX 3 TABLES REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION The City of Cleveland Lacked Adequate Controls Over Its HOME Investment 2011-CH-1014 Partnerships Program-Funded Housing Trust 09/29/2011 01/26/2012 Note 1 Fund Program Home-Buyer Activities, Cleveland, OH The Pontiac Housing Commission Did Not Adequately Administer Its American Recovery 2011-CH-1018 09/30/2011 01/10/2012 03/31/2016 and Reinvestment Act Capital Fund Grant, Pontiac, MI The City of New York Charged Questionable 2012-NY-1002 10/18/2011 02/16/2012 Note 1 Expenditures to Its HPRP, New York, NY The City of Syracuse Did Not Always 2012-NY-1003 Administer Its CDBG Program in Accordance 10/25/2011 02/22/2012 Note 2 With HUD Requirements, Syracuse, NY HUD Needed to Improve Its Use of Its 2012-PH-0001 Integrated Disbursement and Information 10/31/2011 02/28/2012 Note 1 System To Oversee Its CDBG Program Additional Details To Supplement Our Report 2012-FO-0003 on HUD's Fiscal Years 2011 and 2010 Financial 11/15/2011 05/10/2012 04/30/2016 Statements HUD Did Not Adequately Support the 2012-LA-0001 Reasonableness of the Fee-for-Service 11/16/2011 03/27/2012 Note 2 Amounts or Monitor the Amounts Charged The State of Indiana’s Administrator Lacked Adequate Controls Over the State’s HOME 2012-CH-1004 Investment Partnerships Program Regarding 02/24/2012 06/22/2012 Note 2 CHDOs’ Activities and Income, Indianapolis, IN The State of Texas Did Not Follow Requirements for Its Infrastructure and 2012-FW-1005 03/07/2012 07/05/2012 Note 2 Revitalization Contracts Funded With CDBG Disaster Recovery Program Funds, Austin, TX The City of Los Angeles Did Not Expend Brownfields Economic Development Initiative 2012-LA-1005 and Section 108 Funds for the Goodyear 03/13/2012 09/19/2012 03/31/2016 Industrial Tract Project in Accordance With HUD Requirements, Los Angeles, CA 85 REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION The Municipality of Bayamón Did Not Always Ensure Compliance With HOME Investment 2012-AT-1009 05/23/2012 09/18/2012 Note 1 Partnerships Program Requirements, Bayamon, PR The City of Phoenix Did Not Always Comply With Program Requirements When 2012-LA-1008 06/15/2012 10/15/2012 10/30/2015 Administering Its NSP1 and NSP2 Grants, Phoenix, AZ The Hammond Housing Authority Did Not Administer Its Recovery Act Grants in 2012-CH-1009 08/03/2012 11/30/2012 11/30/2015 Accordance With Recovery Act, HUD’s, and Its Own Requirements, Hammond, IN Prince George’s County Generally Did Not 2012-PH-1011 Administer Its HOME Program in Accordance 08/03/2012 11/30/2012 Note 1 With Federal Requirements, Largo, MD The Stark Metropolitan Housing Authority Did Not Always Administer Its Grant in 2012-CH-1011 09/27/2012 01/15/2013 12/31/2018 Accordance With Recovery Act, HUD’s, and Its Own Requirements, Canton, OH The Saginaw Housing Commission Did Not Always Administer Its Section 8 Housing 2012-CH-1012 Choice Voucher Program in Accordance With 09/27/2012 01/07/2013 01/01/2023 HUD’s and Its Own Requirements, Saginaw, MI The Flint Housing Commission Did Not Always Administer Its Grants in Accordance 2012-CH-1013 09/27/2012 01/24/2013 02/29/2016 With Recovery Act, HUD’s, and Its Own Requirements, Flint, MI Review of Controls Over HUD’s Mobile 2012-DP-0005 09/28/2012 12/18/2012 Note 2 Devices Luzerne County Did Not Properly Evaluate, 2013-PH-1001 Underwrite, and Monitor a High-Risk Loan, 10/31/2012 01/31/2013 Note 1 Wilkes-Barre, PA Additional Details To Supplement Our Report 2013-FO-0003 on HUD’s Fiscal Years 2012 and 2011 Financial 11/15/2012 05/15/2013 10/01/2015 Statements 86 APPENDIX 3 TABLES REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION The Municipality of Ponce Did Not Always Ensure Compliance With HOME Investment 2013-AT-1001 11/30/2012 03/29/2013 Note 1 Partnerships Program Requirements, Ponce, PR The City of Albany CDBG Recovery Act 2013-NY-1001 12/06/2012 04/03/2013 Note 2 Program, Albany, NY HUD Policies Did Not Always Ensure That 2013-PH-0002 Borrowers Complied With Program Residency 12/20/2012 04/19/2013 Note 1 Requirements The Idaho Housing and Finance Association Did Not Always Comply With HOME 2013-SE-1001 Investment Partnerships Program Match and 12/21/2012 12/21/2012 Note 1 Compliance Monitoring Requirements, Boise, ID The City of Paterson Had Weaknesses in the 2013-NY-1004 Administration of Its Housing Opportunities 02/25/2013 04/15/2013 Note 1 for Persons with AIDS Program, Paterson, NJ Bay Vista Methodist Heights Violated Its 2013-LA-1003 Agreement With HUD When Administering Its 03/14/2013 05/15/2013 Note 1 Trust Funds, San Diego, CA The Municipality of Arecibo Did Not Always 2013-AT-1003 Ensure Compliance With CDBG Program 03/22/2013 06/14/2013 Note 2 Requirements, Arecibo, PR Follow-up of the Inspections and Evaluations Division on Its Inspection of the State of 2013-IE-0803 Louisiana’s Road Home Elevation Incentive 03/29/2013 09/29/2014 Note 2 Program Homeowner Compliance (IED-09- 002, March 2010) The Housing Authority of the City of El Paso Did Not Follow Recovery Act Obligation 2013-FW-1004 04/12/2013 08/27/2013 Note 2 Requirements or Procurement Policies, El Paso, TX The City of San Bernardino Did Not Administer Its CDBG and CDBG-Recovery Act 2013-LA-1004 04/23/2013 09/06/2013 09/30/2017 Programs in Accordance With HUD Rules and Regulations, San Bernardino, CA 87 SEMIANNUAL REPORT TO CONGRESS REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION Nassau County Did Not Administer It's HOME Investment Partnerships Program in 2013-NY-1006 05/13/2013 09/06/2013 Note 1 Accordance With HUD Requirements, Nassau County, NY The Management and Board of Commissioners of the Harris County Housing 2013-FW-1006 06/19/2013 02/11/2014 08/13/2016 Authority Mismanaged the Authority, Houston, TX HUD Did Not Enforce the Reporting Requirements of Section 3 of the Housing 2013-KC-0002 06/26/2013 10/24/2013 Note 2 and Urban Development Act of 1968 for Public Housing Authorities HUD Officials Did Not Always Monitor 2013-NY-0003 Grantee Compliance With the CDBG 07/19/2013 11/26/2013 Note 2 Timeliness Spending Requirement The Puerto Rico Housing Finance Authority 2013-AT-1006 Did Not Always Comply With HOME 07/23/2013 11/20/2013 Note 2 Requirements, San Juan, PR Essex County's HOME Investment Partnerships Program Was Not Always 2013-NY-1009 Administered in Compliance With Program 08/09/2013 11/05/2013 Note 2 Requirements and Federal Regulations, Essex County, NJ The Lending Company, Inc., Did Not Always 2013-LA-1008 Comply With FHA Underwriting and Quality 08/20/2013 12/24/2013 12/31/2015 Control Program Requirements, Phoenix, AZ Economic Development Programs Lacked 2013-AT-0003 Adequate Controls To Ensure Program 09/03/2013 02/04/2014 12/31/2015 Effectiveness FHA Paid Claims for Approximately 4,457 2013-LA-0002 Preforeclosure Sales That Did Not Meet 09/05/2013 03/31/2014 Note 1 Minimum Net Sales Proceeds Requirements The City of Hawthorne Inappropriately Used 2013-LA-1009 Nearly $1.6 Million in HOME Funds for Section 09/13/2013 01/06/2014 Note 2 8 Tenants, Hawthorne, CA 88 APPENDIX 3 TABLES REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION The State of Michigan Lacked Adequate Controls Over Its NSP Under the American 2013-CH-1006 09/15/2013 01/13/2014 Note 2 Recovery and Reinvestment Act of 2009, Lansing, MI Community Advocates Did Not Properly 2013-CH-1008 Administer Its Program and Recovery Act 09/17/2013 01/15/2014 Note 2 Grant Funds, Milwaukee, WI The City of Hawthorne Did Not Administer Its CDBG Program Cost Allocations in 2013-LA-1010 09/20/2013 01/06/2014 Note 2 Accordance With HUD Rules and Requirements, Hawthorne, CA Reviews of Six FHA Lenders Demonstrated 2013-LA-0803 That HUD Needs To Strengthen Its Oversight 09/23/2013 03/27/2014 10/15/2015 of Prohibited Restrictive Covenants The City of New Orleans Did Not Have Adequate Financial and Programmatic 2013-FW-1008 Controls To Ensure That It Expended and 09/24/2013 01/06/2014 11/10/2015 Reported Funds in Accordance With Program Requirements, New Orleans, LA The Malakoff Housing Authority Did Not Have Sufficient Controls Over Its Public Housing 2013-FW-1805 09/26/2013 12/19/2013 12/01/2015 Programs, Including Its Recovery Act Funds, Malakoff, TX The City of Auburn Did Not Always Administer 2013-NY-1010 Its CDBG Program in Accordance With HUD 09/26/2013 01/24/2014 Note 2 Requirements, Auburn, NY The Flint Housing Commission Did Not Always Administer Its Grant in Accordance 2013-CH-1009 09/27/2013 01/14/2014 01/23/2016 With Recovery Act, HUD’s, and Its Own Requirements, Flint, MI The City of West Palm Beach Did Not Always 2013-AT-1008 Properly Administer Its HOME Program, West 09/30/2013 01/17/2014 Note 2 Palm Beach, FL The City of Toledo Did Not Always Administer 2013-CH-1010 Its CDBG-R Program in Accordance With 09/30/2013 01/15/2014 Note 2 HUD’s and Its Own Requirements, Toledo, OH 89 SEMIANNUAL REPORT TO CONGRESS REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION The Michigan State Housing Development Authority Did Not Follow HUD’s Requirements 2013-CH-1011 09/30/2013 01/15/2014 07/31/2029 Regarding the Administration of Its Program, Lansing, MI The Hamtramck Housing Commission Did Not Administer Its Grant in Accordance With 2013-CH-1012 09/30/2013 01/21/2014 01/23/2016 Recovery Act, HUD’s, and Its Own Requirements, Hamtramck, MI The Jefferson County Housing Authority Did 2013-DE-1005 Not Properly Use Its Disposition Sales 09/30/2013 01/24/2014 02/28/2020 Proceeds, Wheat Ridge, CO Information System Control Weaknesses 2014-DP-0001 11/07/2013 01/30/2014 Note 2 Identified in the Line of Credit Control System The Colfax Housing Authority Did Not Properly Administer Its Programs, Including Its 2014-FW-1801 11/08/2013 02/05/2014 11/15/2015 2009 American Recovery and Reinvestment Act Grant, Colfax, LA The City of Flint Lacked Adequate Controls 2014-CH-1001 Over Its HOME Investment Partnerships 11/15/2013 03/13/2014 Note 2 Program, Flint, MI The Municipality of Arecibo Did Not Properly 2014-AT-1001 12/03/2013 01/24/2014 Note 2 Administer Its HOME Program, Arecibo, PR Government National Mortgage Association 2014-FO-0001 Fiscal Years 2013 and 2012 Financial 12/06/2013 05/02/2014 Note 2 Statements Audit Federal Housing Administration Fiscal Years 2014-FO-0002 12/13/2013 04/14/2014 Note 2 2013 and 2012 Financial Statements Audit Additional Details To Supplement Our Report 2014-FO-0003 On HUD's Fiscal Years 2013 and 2012 12/16/2013 07/09/2014 Note 3 (Restated) Financial Statements The City of Norfolk Generally Failed To Justify 2014-PH-1001 12/17/2013 04/16/2014 12/31/2015 Its CDBG Activities, Norfolk, VA 90 APPENDIX 3 TABLES REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION The State of Mississippi Did Not Ensure That Its Subrecipient and Appraisers Complied With 2014-AT-1004 Requirements, and It Did Not Fully Implement 12/30/2013 04/15/2014 Note 2 Adequate Procedures for Its Disaster Infrastructure Program, Jackson, MS The City of Detroit Lacked Adequate Controls Over Its Neighborhood Stabilization Program- 2014-CH-1002 Funded Demolition Activities Under the 01/06/2014 05/05/2014 Note 2 Housing and Economic Recovery Act of 2008, Detroit, MI The Paterson Housing Authority Had 2014-NY-1001 Weaknesses in Administration of its Housing 01/15/2014 06/12/2014 07/01/2025 Choice Voucher Program, Paterson, NJ The Boston Office of Public Housing Did Not Provide Adequate Oversight of Environmental 2014-FW-0001 02/07/2014 03/17/2015 10/01/2016 Reviews of Three Housing Agencies, Including Reviews Involving Recovery Act Funds HUD Did Not Provide Effective Oversight of 2014-NY-0001 02/19/2014 06/10/2014 Note 2 Section 202 Multifamily Project Refinances CPD Did Not Monitor Grantees’ CPD-Funded 2014-LA-0001 Assets Transferred by Former Redevelopment 02/28/2014 06/19/2014 10/16/2015 Agencies To Minimize HUD’s Risk Violations Increased the Cost of Housing’s 2014-AT-0001 03/14/2014 07/11/2014 Note 2 Administration of Its Bond Refund Program Vieques Sports City Complex, Office of the 2014-AT-1801 Commissioner for Municipal Affairs, Section 03/20/2014 07/11/2014 Note 2 108 Loan Guarantee Program, San Juan, PR HUD’s Fiscal Year 2013 Compliance With the 2014-FO-0004 Improper Payments Elimination and Recovery 04/15/2014 01/07/2015 Note 3 Act of 2010 The Yakama Nation Housing Authority Did 2014-SE-1002 Not Always Spend Its Recovery Act Funds in 04/29/2014 08/26/2014 12/31/2015 Accordance With Requirements, Wapato, WA The Hamtramck Housing Commission Did Not Always Administer Its Grant in 2014-CH-1003 04/30/2014 08/08/2014 02/29/2016 Accordance With Recovery Act, HUD’s, or Its Own Requirements, Hamtramck, MI 91 SEMIANNUAL REPORT TO CONGRESS REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION Fiscal Year 2013 Review of Information 2014-DP-0005 Systems Controls in Support of the Financial 04/30/2014 02/09/2015 10/31/2015 Statements Audit The County of Northumberland Did Not Administer Its Homelessness Prevention and 2014-PH-1004 04/30/2014 08/28/2014 Note 2 Rapid Re-Housing Program Grant According to Recovery Act Requirements, Sunbury, PA Improvements Are Needed Over 2014-FW-0002 Environmental Reviews of Public Housing and 05/12/2014 03/17/2015 10/01/2016 Recovery Act Funds in the Kansas City Office The City of Huntsville, Community Development Department, Did Not 2014-AT-1005 05/29/2014 09/23/2014 12/31/2015 Adequately Account for and Administer the Mirabeau Apartments Project, Huntsville, AL Potential Antideficiency Act Violations 2014-FW-0801 05/30/2014 09/22/2014 Note 2 Intergovernmental Personnel Act Agreements Financial and Administrative Control Weaknesses Existed in Middlesex County, NJ's 2014-NY-1005 06/10/2014 07/17/2014 Note 2 HOME Investment Partnerships Program, Middlesex County, NJ HUD Adequately Implemented and Monitored 2014-LA-0003 the HUD-VASH Program, but Changes Are 06/18/2014 10/08/2014 12/01/2015 Needed To Improve Lease Rates HUD Could Not Support the Reasonableness of the Operating and Capital Fund Programs’ 2014-LA-0004 06/30/2014 10/20/2014 Note 3 Fees and Did Not Adequately Monitor Central Office Cost Centers The Data in CAIVRS Did Not Agree With the 2014-KC-0002 07/02/2014 10/27/2014 Note 3 Data in FHA’s Default and Claims Systems Monmouth County Expended CDBG Funds for Eligible Activities, but Control Weaknesses 2014-NY-1006 07/02/2014 08/06/2014 Note 2 Need To Be Strengthened, Monmouth County, NJ The White Mountain Apache Housing Authority Did Not Always Comply With Its 2014-LA-1004 07/08/2014 10/24/2014 10/24/2015 Indian Housing Block Grant Requirements, White River, AZ 92 APPENDIX 3 TABLES REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION The State of Texas’ Contractor Did Not Perform Adequate Hurricane Dolly Damage 2014-FW-1004 07/15/2014 11/12/2014 11/10/2015 Inspections and Failed To Meet Critical Performance Benchmarks, Austin, TX The Cumberland Plateau Regional Housing Authority Did Not Procure Services in 2014-PH-1007 07/15/2014 09/05/2014 Note 2 Accordance With HUD Requirements, Lebanon, VA Palladia, Inc., Did Not Administer Its 2014-NY-1008 Supportive Housing Program in Accordance 07/25/2014 11/21/2014 11/20/2015 With HUD Requirements, New York, NY The Municipality of Carolina Did Not Properly 2014-AT-1007 08/08/2014 12/05/2014 12/31/2015 Administer Its HOME Program, Carolina, PR HUD Did Not Always Recover FHA Single- Family Indemnification Losses and Ensure 2014-LA-0005 08/08/2014 12/03/2014 Note 3 That Indemnification Agreements Were Extended The Kenner Housing Authority Did Not Administer Its Public Housing and Recovery 2014-FW-1805 08/13/2014 11/10/2014 10/27/2015 Act Programs in Accordance With Regulations and Guidance, Kenner, LA The Goshen Housing Authority Failed To Follow HUD’s and Its Own Requirements 2014-CH-1006 08/14/2014 01/21/2015 11/30/2015 Regarding the Administration of Its Program, Goshen, IN The South Landry Housing Authority Did Not Always Comply With Federal Procurement 2014-FW-1806 and Financial Requirements, Including a 08/19/2014 12/09/2014 12/31/2015 Procurement Using Recovery Act Funds, Grand Coteau, LA HUD’s ONAP Lacked Adequate Controls Over 2014-LA-0006 08/19/2014 12/09/2014 12/09/2015 the ICDBG Closeout Process The City of Richmond Did Not Administer Its 2014-LA-1005 NSP in Accordance With Requirements, 08/22/2014 12/19/2014 12/16/2015 Richmond, CA 93 SEMIANNUAL REPORT TO CONGRESS REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION The State of New Jersey Did Not Fully Comply With Federal Procurement and Cost 2014-PH-1008 08/29/2014 09/02/2015 10/10/2015 Principle Requirements in Implementing Its Tourism Marketing Program Asset Repositioning Fees for Public Housing Authorities With Units Approved for 2014-NY-0003 09/04/2014 12/29/2014 01/01/2016 Demolition or Disposition Were Not Always Accurately Calculated Miami-Dade County Did Not Always Properly 2014-AT-1010 09/11/2014 12/11/2014 12/10/2015 Administer Its HOME Program, Miami, FL HUD Did Not Always Enforce the Requirements of the Regulatory Agreements 2014-KC-0003 09/17/2014 11/25/2014 Note 2 and HUD Handbooks Pertaining to Owner Advances and Distributions The City of Jersey City's, NJ HOME Investment Partnerships Program Administration Had 2014-NY-1009 09/18/2014 01/13/2015 01/08/2016 Financial and Administrative Controls Weaknesses, City of Jersey City, NJ The Former Owner of Yale Court Apartments Used Project Funds in Violation of the 2014-FW-1005 09/22/2014 02/19/2015 11/03/2015 Regulatory Agreement With HUD, Houston, TX Information System Control Weaknesses 2014-DP-0006 09/23/2014 12/01/2014 11/26/2015 Identified in the Program Accounting System Improvements Are Needed Over 2014-FW-0005 Environmental Reviews of Public Housing and 09/24/2014 03/17/2015 10/01/2016 Recovery Act Funds in the Detroit Office Lenders Generated $428 Million in Gains 2014-KC-0004 09/24/2014 01/22/2015 12/10/2015 From Modifying Defaulted FHA Loans Wellston Housing Authority Improperly 2014-KC-0005 Administered the Community Service and 09/24/2014 01/20/2015 12/31/2015 Self-Sufficiency Requirement The City of Pomona Did Not Administer Its 2014-LA-1006 NSP in Accordance With HUD Rules and 09/25/2014 01/23/2015 10/27/2015 Requirements, Pomona, CA 94 APPENDIX 3 TABLES REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION Cornerstone Home Lending Did Not Adequately Underwrite 16 Loans, Violated the Real Estate Settlement Procedures Act, and 2014-FW-1006 09/26/2014 03/30/2015 02/18/2016 Did Not Implement an Adequate Quality Control Plan During Our Review Period, Houston, TX EverBank Did Not Properly Determine 2014-AT-1012 Mortgagor Eligibility for FHA’s Preforeclosure 09/29/2014 01/30/2015 Note 2 Sale Program, Jacksonville, FL The Department of Housing and Community Development Did Not Always Operate Its 2014-BO-1004 09/29/2014 12/12/2014 11/25/2015 Disaster Recovery Programs Effectively and Efficiently, Montpelier, VT The Owner and Former Management Agents 2014-CH-1010 Lacked Adequate Controls Over the 09/29/2014 01/27/2015 02/24/2016 Operation of Lake Village of Auburn Hills, MI The City of Los Angeles Did Not Always 2014-LA-1007 Ensure That CDBG-Funded Projects Met 09/29/2014 01/27/2015 01/27/2016 National Program Objectives, Los Angeles, CA Peoples Home Equity, Inc., Did Not Follow HUD Requirements in Approving FHA Loans 2014-AT-1013 09/30/2014 02/10/2015 Note 2 and Implementing Its Quality Control Program, Brentwood, TN The Housing Authority of the City of 2014-AT-1016 Spartanburg Used HUD Program Funds for 09/30/2014 01/28/2015 03/02/2016 Ineligible Expenses, Spartanburg, SC HUD Did Not Always Provide Adequate 2014-CH-0001 Oversight of Its Property-Flipping Waiver 09/30/2014 03/24/2015 12/31/2015 Requirements The City of Chicago Lacked Adequate Controls Over Its HOME Investment 2014-CH-1011 Partnerships Program-Funded Rental New 09/30/2014 01/28/2015 08/29/2016 Construction Projects and Program Income, Chicago, IL 95 SEMIANNUAL REPORT TO CONGRESS REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION The Owner and Former Management Agents Lacked Adequate Controls Over the 2014-CH-1012 09/30/2014 01/28/2015 02/19/2016 Operation of Lake Village of Fairlane Apartments, Dearborn, MI Complaint Allegations Substantiated - City of 2014-DE-1802 Colorado Springs’ HOME and CDBG 09/30/2014 02/02/2015 01/29/2016 Programs, Colorado Springs, CO The Jefferson Parish Department of Community Development Did Not Always Support Expenditures, Comply With 2014-FW-1007 09/30/2014 01/26/2015 10/15/2015 Procurement Requirements, or Provide Adequate Oversight of Subrecipients, Jefferson, LA The HUD Office of the Chief Financial Officer 2014-KC-0006 Had Not Always Implemented Its User Fee 09/30/2014 01/22/2015 11/30/2016 Policy HUD Policies Did Not Always Ensure That 2014-PH-0001 HECM Borrowers Complied With Residency 09/30/2014 01/28/2015 01/26/2016 Requirements SIGNIFICANT AUDIT REPORTS ISSUED WITHIN THE PAST 12 MONTHS THAT WERE DESCRIBED IN PREVIOUS SEMIANNUAL REPORTS FOR WHICH FINAL ACTION HAD NOT BEEN COMPLETED AS OF 09/30/2015 The Management of the Housing Authority of 2015-FW-1801 the City of Taylor Did Not Exercise Adequate 10/02/2014 01/30/2015 01/28/2016 Oversight of Its Programs, Taylor, TX Information System Control Weaknesses 2015-DP-0001 Identified in the Single Family Housing 10/21/2014 12/12/2014 12/01/2015 Enterprise Data Warehouse The Rotan Housing Authority Did Not Administer Its Public Housing and Recovery 2015-FW-1802 10/31/2014 02/20/2015 02/19/2016 Act Programs in Accordance With Regulations and Other Requirements, Rotan, TX Audit of the Federal Housing Administration's 2015-FO-0001 Financial Statements for Fiscal Years 2014 and 11/14/2014 04/14/2015 10/31/2015 2013 96 APPENDIX 3 TABLES REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION The City of New York Did Not Always Disburse CDBG Disaster Recovery Assistance Funds to 2015-NY-1001 11/24/2014 03/23/2015 03/18/2016 Its Subrecipient in Accordance With Federal Regulations, New York, NY The Freeport Housing Authority Did Not Administer Its Low-Rent Housing and 2015-NY-1002 12/01/2014 03/19/2015 12/31/2015 Homeownership Programs in Accordance With HUD's Regulations, Freeport, NY HUD Did Not Always Follow Applicable Requirements or Use Best Practices in the 2015-NY-0001 12/02/2014 05/19/2015 10/30/2015 Procurement and Administration of Its Multifamily Servicing Contract The Office of the Commissioner for Municipal Affairs Needs To Make Improvements in 2015-AT-1001 12/05/2014 04/03/2015 03/31/2016 Administering Its Section 108 Loan Guarantee Program, San Juan, PR Interim Report on HUD's Internal Controls 2015-FO-0002 12/08/2014 09/28/2015 Note 3 Over Financial Reporting Office of the Chief Financial Officer Loan 2015-DP-0004 12/09/2014 04/17/2015 11/05/2015 Accounting System Glenbrook Manor Could Not Always Show That Project Costs Were Eligible and 2015-BO-1001 12/16/2014 05/21/2015 Note 2 Supported in Accordance With HUD Requirements, Stamford, CT Intergovernmental Personnel Act Appointment Created an Inherent Conflict of 2015-FW-0801 01/20/2015 05/20/2015 01/04/2016 Interest in the Office of Public and Indian Housing HUD Lacked Adequate Oversight To Ensure That Public Housing Agencies Complied With 2015-PH-0001 01/30/2015 07/10/2015 10/01/2016 Federal Lobbying Disclosure Requirements and Restrictions The County of Beaver Did Not Always Administer Its HOME Program in Accordance 2015-PH-1001 01/30/2015 08/31/2015 10/30/2015 With Applicable HUD and Federal Requirements, Beaver Falls, PA 97 SEMIANNUAL REPORT TO CONGRESS REPORT ISSUE DECISION FINAL REPORT TITLE NUMBER DATE DATE ACTION Rhode Island Housing Did Not Always 2015-BO-1002 Adequately Support HOME Fund 02/04/2015 05/21/2015 02/03/2016 Expenditures, Providence, RI HUD Subsidized More Than 106,000 2015-KC-0001 02/13/2015 06/05/2015 10/31/2016 Noncompliant Households The Chicago Housing Authority Moving to 2015-CH-1001 Work Housing Choice Voucher Program, 02/24/2015 06/10/2015 04/01/2018 Chicago, IL Fiscal Year 2014 Review of Information 2015-DP-0005 Systems Controls in Support of the Financial 02/24/2015 07/02/2015 07/02/2016 Statements Audit Audit of the Government National Mortgage 2015-FO-0003 Association’s Financial Statements for Fiscal 02/27/2015 06/25/2015 Note 3 Years 2014 and 2013 The State of Rhode Island Did Not Always 2015-BO-1003 Operate Its NSP in Compliance With HUD 03/04/2015 07/01/2015 11/01/2015 Regulations, Providence, RI Breakthrough Living Program Did Not 2015-KC-1001 Administer Its Program in Accordance With 03/05/2015 05/05/2015 05/06/2016 HUD Rules and Regulations, Topeka, KS The City of Minot Did Not Fully Comply With 2015-KC-1002 Federal and Local Procurement 03/13/2015 06/29/2015 06/29/2016 Requirements, Minot, ND HUD’s Office of Community Planning and Development Did Not Always Pursue 2015-AT-0001 Remedial Actions but Generally Implemented 03/31/2015 08/28/2015 04/30/2016 Sufficient Controls for Administering Its Neighborhood Stabilization Program AUDITS EXCLUDED: 79 audits under repayment plans 34 audits under debt claims collection processing, formal judicial review, investigation, or legislative solution NOTES: 1. Management did not meet the target date. Target date is more than 1 year old. 2. Management did not meet the target date. Target date is less than 1 year old. 3. No management decision 98 APPENDIX 3 TABLES TABLE C Inspector General-issued reports with questioned and unsupported costs at 9/30/2015 (thousands) NUMBER QUESTIONED UNSUPPORTED AUDIT REPORTS OF AUDIT COSTS COSTS REPORTS For which no management decision had been made A1 17 1,658,672 1,554,483 by the commencement of the reporting period For which litigation, legislation, or A2 investigation was pending at the 5 27,333 5,170 commencement of the reporting period For which additional costs were added A3 - 145 0 to reports in beginning inventory A4 For which costs were added to noncost reports 2 1,485 0 B1 Which were issued during the reporting period 69 535,639 297,401 B2 Which were reopened during the reporting period 0 0 0 SUBTOTALS (A + B) 93 2,223,274 1,857,054 For which a management decision was made during C 2411 1,627,505 1,553,997 the reporting period 1) Dollar value of disallowed costs: 812 1,570,099 1,506,341 Due HUD 16 35,983 28,157 Due program participants (2) Dollar value of costs not disallowed 413 21,423 19,499 For which a management decision had been made D not to determine costs until completion of litigation, 5 27,333 5,170 legislation, or investigation For which no management decision had been made 64 568,436 297,887 E by the end of the reporting period <168> 14 <538,054> 14 <293,078>14 11 Seven audit reports also contain recommendations with funds to be put to better use. 12 Zero audit reports also contain recommendations with funds due program participants. 13 Four audit reports also contain recommendations with funds agreed to by management. 14 The figures in brackets represent data at the recommendation level as compared to the report level. See Explanations of Tables C and D. 99 SEMIANNUAL REPORT TO CONGRESS TABLE D Inspector General-issued reports with recommendations that funds be put to better use at 9/30/2015 (thousands) NUMBER AUDIT REPORTS OF AUDIT DOLLAR VALUE REPORTS For which no management decision had been made by the A1 16 2,153,719 commencement of the reporting period For which litigation, legislation, or investigation was pending A2 2 1,854 at the commencement of the reporting period A3 For which additional costs were added to reports in beginning inventory - 79 A4 For which costs were added to noncost reports 0 0 B1 Which were issued during the reporting period 31 783,048 B2 Which were reopened during the reporting period 0 0 SUBTOTALS (A + B) 49 2,938,700 C For which a management decision was made during the reporting period 1215 499,209 (1) Dollar value of recommendations that were agreed to by management: 2 449,454 Due HUD 9 25,547 Due program participants (2) Dollar value of recommendations that were not agreed to 216 24,208 by management For which a management decision had been made not to determine D 2 1,854 costs until completion of litigation, legislation, or investigation For which no management decision had been made by the end of the 35 2,437,637 E reporting period < 49 > 17 <862,639>17 15 Six audit reports also contain recommendations with questioned costs. 16 One audit report also contains recommendations with funds agreed to by management. 17 The figures in brackets represent data at the recommendation level as compared to the report level. See Explanations of Tables C and D. 100 APPENDIX 3 TABLES EXPLANATIONS OF TABLES C AND D The Inspector General Act Amendments of 1988 require inspectors general and agency heads to report cost data on management decisions and final actions on audit reports. The current method of reporting at the “report” level rather than at the individual audit “recommendation” level results in misleading reporting of cost data. Under the Act, an audit “report” does not have a management decision or final action until all questioned cost items or other recommendations have a management decision or final action. Under these circumstances, the use of the “report” based rather than the “recommendation” based method of reporting distorts the actual agency efforts to resolve and complete action on audit recommendations. For example, certain cost items or recommendations could have a management decision and repayment (final action) in a short period of time. Other cost items or nonmonetary recommendation issues in the same audit report may be more complex, requiring a longer period of time for management’s decision or final action. Although management may have taken timely action on all but one of many recommendations in an audit report, the current “all or nothing” reporting format does not recognize their efforts. The closing inventory for items with no management decision in tables C and D (line E) reflects figures at the report level as well as the recommendation level. 101 SEMIANNUAL REPORT TO CONGRESS HUD OIG TELEPHONE DIRECTORY OFFICE OF AUDIT HEADQUARTERS OFFICE Washington, DC 202-708-0364 REGION 1 Boston, MA 617-994-8380 Hartford, CT 860-240-4837 REGION 2 New York, NY 212-264-4174 Buffalo, NY 716-551-5755 Newark, NJ 973-776-7339 REGION 3 Philadelphia, PA 215-656-0500 Baltimore, MD 410-962-2520 Pittsburgh, PA 412-644-6372 Richmond, VA 804-771-2100 REGION 4 Atlanta, GA 404-331-3369 Greensboro, NC 336-547-4001 Jacksonville, FL 404-331-3369 Knoxville, TN 404-331-3369 Miami, FL 305-536-5387 San Juan, PR 787-766-5540 REGION 5 Chicago, IL 312-353-7832 Columbus, OH 614-280-6138 Detroit, MI 313-226-6280 REGION 6 Fort Worth, TX 817-978-9309 Baton Rouge, LA 225-448-3976 Houston, TX 713-718-3199 New Orleans, LA 504-671-3715 Albuquerque, NM 505-346-7270 Oklahoma City, OK 405-609-8606 San Antonio, TX 210-475-6800 102 HUD OIG TELEPHONE DIRECTORY REGION 7-8-10 Kansas City, KS 913-551-5870 St. Louis, MO 314-539-6339 Denver, CO 303-672-5452 Seattle, WA 206-220-5360 REG ION 9 Los Angeles, CA 213-894-8016 Las Vegas, NV 702-366-2100 Phoenix, AZ 602-379-7250 San Francisco, CA 415-489-6400 OFFICE OF INVESTIGATION HEADQ UARTERS Washington, DC 202-708-5998 REG ION 1-2 New York, NY 212-264-8062 Boston, MA 617-994-8450 Hartford, CT 860-240-4800 Manchester, NH 603-666-7988 Newark, NJ 973-776-7355 REG ION 3 Philadelphia, PA 215-430-6758 Baltimore, MD 410-209-6533 Pittsburgh, PA 412-644-6598 Richmond, VA 804-822-4890 REGION 4 Atlanta, GA 404-331-5001 Birmingham, AL 205-745-4314 Columbia, SC 803-451-4318 Greensboro, NC 336-547-4000 Memphis, TN 901-554-3148 Miami, FL 305-536-3087 San Juan, PR 787-766-5868 Tampa, FL 813-228-2026 Jackson, MS 601-329-6924 REG ION 5 Chicago, IL 312-353-4196 Cleveland, OH 216-357-7800 Columbus, OH 614-469-6677 Detroit, MI 313-226-6280 Grand Rapids, MI 313-226-6280 Indianapolis, IN 317-957-7377 Minneapolis-St. Paul, MN 612-370-3130 103 SEMIANNUAL REPORT TO CONGRESS REGION 6 Fort Worth, TX 817-978-5440 Baton Rouge, LA 225-448-3941 Houston, TX 713-718-3227 Little Rock, AR 501-324-5931 New Orleans, LA 504-671-3700 Oklahoma City, OK 405-609-8601 San Antonio, TX 210-475-6822 REGION 7-8-10 Denver, CO 303-672-5350 Billings, MT 406-247-4080 Kansas City, KS 913-551-5866 Salt Lake City, UT 801-524-6090 St. Louis, MO 314-539-6559 Seattle, WA 206-220-5380 REG ION 9 Los Angeles, CA 213-894-0219 Las Vegas, NV 702-366-2144 Phoenix, AZ 602-379-7252 Sacramento, CA 916-930-5691 San Francisco, CA 415-489-6683 JOINT CIVIL FRAUD DIVISION AUDIT AND Kansas City, KS 913-551-5566 INVESTIGATION 104 ACRONYMS LIST ACRONYMS LIST ACD.........................................................................Accelerated Claims Disposition Program ARCATS...................................................................Audit Resolution and Corrective Actions Tracking System CAIVRS....................................................................Credit Alert Verification Reporting System CDBG.......................................................................Community Development Block Grant CDBG-DR......................................................................Community Development Block Grant Disaster Recovery CFR..........................................................................Code of Federal Regulations CHDO......................................................................community housing development organization CPD..........................................................................Office of Community Planning and Development CWCOT...................................................................Claims Without Conveyance of Title program DCIA........................................................................Debt Collection Improvement Act of 1996 DHS..........................................................................U.S. Department of Homeland Security DOJ.........................................................................U.S. Department of Justice FBI............................................................................Federal Bureau of Investigation ERM.........................................................................enterprise risk management FFMIA......................................................................Federal Financial Management Improvement Act of 1996 FHA..........................................................................Federal Housing Administration FHFA........................................................................Federal Housing Finance Agency FHIP.........................................................................Fair Housing Initiatives Program FIFO.........................................................................first-in, first-out FIRMS......................................................................Facilities Integrated Resource Management System FISMA......................................................................Federal Information Security Modernization Act of 2014 FMFIA......................................................................Federal Managers’ Financial Integrity Act GAO.........................................................................U.S. Government Accountability Office GFAS........................................................................Ginnie Mae Financial and Accounting System Ginnie Mae.............................................................Government National Mortgage Association HAMP......................................................................Home Affordable Modification Program HECM......................................................................home equity conversion mortgage HIFMIP....................................................................HUD’s Integrated Financial Management Improvement Project HOME......................................................................HOME Investment Partnerships Program 105 SEMIANNUAL REPORT TO CONGRESS ACRONYMS LIST (CONCLUDED) HPS..........................................................................HUD Procurement System HUD.........................................................................U.S. Department of Housing and Urban Development IDIS..........................................................................Integrated Disbursement and Information System IPERA.......................................................................Improper Payments Elimination and Recovery Act of 2010 IT..............................................................................information technology LOCCS.....................................................................Line of Credit Control System MAP.........................................................................multifamily accelerated processing NCIS........................................................................New Core Interface Solution OCFO.......................................................................Office of the Chief Financial Officer OGC.........................................................................Office of General Counsel OI.............................................................................Office of Investigation OIG..........................................................................Office of Inspector General OMB.........................................................................Office of Management and Budget OPHI........................................................................Office of Public Housing Investments PFCRA.....................................................................Program Fraud Civil Remedies Act PHA..........................................................................public housing agency PIH...........................................................................Office of Public and Indian Housing SHP..........................................................................Supportive Housing Program SPS...........................................................................Small Purchase System SSA...........................................................................Social Security Administration U.S.C........................................................................United States Code VA.............................................................................U.S. Department of Veterans Affairs 106 REPORTING REQUIREMENTS REPORTING REQUIREMENTS The specific reporting requirements as prescribed by the Inspector General Act of 1978, as amended by the Inspector General Act of 1988, are listed below: SOURCE-REQUIREMENT PAGES Section 4(a)(2)-review of existing and proposed legislation and regulations. 50 Section 5(a)(1)-description of significant problems, abuses, and deficiencies relating 14-49 to the administration of programs and operations of the Department. Section 5(a)(2)-description of recommendations for corrective action with 53 respect to significant problems, abuses, and deficiencies. Section 5(a)(3)-identification of each significant recommendation described in Appendix 3, previous Semiannual Report on which corrective action has not been completed. Table B, 96 Section 5(a)(4)-summary of matters referred to prosecutive authorities and the 14-46 prosecutions and convictions that have resulted. Section 5(a)(5)-summary of reports made on instances where information or assistance No instances was unreasonably refused or not provided, as required by Section 6(b)(2) of the Act. Section 5(a)(6)-listing of each audit report completed during the reporting period, and Appendix 2, for each report, where applicable, the total dollar value of questioned and unsupported 71 costs and the dollar value of recommendations that funds be put to better use. Section 5(a)(7)-summary of each particularly significant report. 14-49 Section 5(a)(8)-statistical tables showing the total number of audit reports and the Appendix 3, total dollar value of questioned and unsupported costs. Table C, 99 Section 5(a)(9)-statistical tables showing the total number of audit reports and the Appendix 3, dollar value of recommendations that funds be put to better use by management. Table D, 100 Section 5(a)(10)-summary of each audit report issued before the commencement of the Appendix 3, reporting period for which no management decision had been made by the end of the period. Table A, 81 Section 5(a)(11)-a description and explanation of the reasons for any significant 62 revised management decisions made during the reporting period. Section 5(a)(12)-information concerning any significant management decision with 64 which the Inspector General is in disagreement. Section 5(a)(13)-the information described under section 05(b) of the 66 Federal Financial Management Improvement Act of 1996. 107 FRAUD ALERT Every day, loan modification and foreclosure rescue scams rob vulnerable homeowners of their money and their homes. The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General, is the Department’s law enforcement arm and is responsible for investigating complaints and allegations of mortgage fraud. Following are some of the more common scams: COMMON LOAN MODIFICATION SCAMS Phony counseling scams: The scam artist says that he or she can negotiate a deal with the lender to modify the mortgage — for an upfront fee. Phony foreclosure rescue scams: Some scammers advise homeowners to make their mortgage payments directly to the scammer while he or she negotiates with the lender. Once the homeowner has made a few mortgage payments, the scammer disappears with the homeowner’s money. Fake “government” modification programs: Some scammers claim to be affiliated with or approved by the government. The scammer’s company name and Web site may appear to be a real government agency, but the Web site address will end with .com or .net instead of .gov. Forensic loan audit: Because advance fees for loan counseling services are prohibited, scammers may sell their services as “forensic mortgage audits.” The scammer will say that the audit report can be used to avoid foreclosure, force a mortgage modification, or even cancel a loan. The fraudster typically will request an upfront fee for this service. Mass joinder lawsuit: The scam artist, usually a lawyer, law firm, or marketing partner, will promise that he or she can force lenders to modify loans. The scammers will try to “sell” participation in a lawsuit against the mortgage lender, claiming that the homeowner cannot participate in the lawsuit until he or she pays some type of upfront fee. Rent-to-own or leaseback scheme: The homeowner surrenders the title or deed as part of a deal that will let the homeowner stay in the home as a renter and then buy it back in a few years. However, the scammer has no intention of selling the home back to the homeowner and, instead, takes the monthly “rent” payments and allows the home to go into foreclosure. Remember, only work with a HUD-approved housing counselor to understand your options for assistance. HUD-approved housing counseling agencies are available to provide information and assistance. Call 888- 995-HOPE to speak with an expert about your situation. HUD-approved counseling is free of charge. If you suspect fraud, contact the hotline. Report fraud, waste, and mismanagement in HUD programs and operations by Faxing the OIG hotline: 202-708-4829 Emailing the OIG hotline: firstname.lastname@example.org Sending written information to Department of Housing and Urban Development Inspector General Hotline (GFI) 451 7th Street, SW Room 8254 Washington, DC 20410 Internet http://www.hudoig.gov/hotline/index.php ALL INFORMATION IS CONFIDENTIAL, AND YOU MAY REMAIN ANONYMOUS. 109 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Report Number 74 www.hudoig.gov
Semiannual Report to Congress for the period Ending September 30, 2015
Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-12-18.
Below is a raw (and likely hideous) rendition of the original report. (PDF)