Michigan External Audit Reports

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Audit Reports issued between 1995 and 2006 are available by request. Please contact your local field office for more information.

Issue Date: June 27, 2012
Audit Memorandum No. 2012-CF-1810

Title: Final Civil Action: - Flagstar Bank, FSB, Settled False Claims Act Allegations of Submitting False Certifications to HUD on FHA Loans

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG), assisted the U.S. Attorney’s Office, Southern District of New York, in conducting a review of Flagstar Bank, FSB. The objective of the review was to determine whether Flagstar conducted its operations in the underwriting of Federal Housing Administration (FHA) loans in accordance with HUD-FHA regulations.

Flagstar Bank, FSB, is a supervised direct endorsement lender headquartered in Troy, MI. Since 1988, Flagstar has been a participant in the direct endorsement lender program, a Federal program administered by FHA. The direct endorsement lender program authorizes private-sector mortgage lenders to approve mortgage loans for FHA insurance. Lenders approved for the program must follow various HUD-FHA requirements and provide annual and per loan certifications that the lender complies with these requirements when underwriting and approving loans for FHA insurance.

However, Flagstar did not conduct its operations in the underwriting of FHA loans in accordance with HUD-FHA regulations. On February 24, 2012, Flagstar admitted, acknowledged, and accepted responsibility for submitting false certifications to HUD about the eligibility of its loans for FHA insurance. In a settlement reached with the U.S Attorney’s Office, the lender agreed to pay $132.8 million to the United States in damages and penalties under the False Claims Act and to reform its business practices. Flagstar admitted that during the period January 1, 2002, to February 24, 2012, it delegated underwriting decisions to unauthorized staff. The lender also admitted that it underwrote and approved for FHA insurance loans that did not comply with certain HUD-FHA underwriting requirements, and HUD paid insurance claims on these ineligible loans. Further, the U.S. Attorney’s Office announced that Flagstar set daily quotas for its HUD-approved underwriters and underwriting assistants and paid these employees substantial incentive awards for exceeding daily quotas.

Issue Date: March 30, 2012
Audit Report No.2012-CH-1007

Title: The State of Michigan Lacked Adequate Controls Over Its Use of Neighborhood Stabilization Program Funds Under the Housing and Economic Recovery Act of 2008 for a Project

The U.S. Department of Housing and Urban Development, Office of Inspector General audited the State of Michigan’s Neighborhood Stabilization Program administered by the Michigan State Housing Development Authority. The audit was part of the activities in our fiscal year 2011 annual audit plan. We selected the State based upon our designation of the Program as high risk and citizens’ complaints to our office. Our objective was to determine whether the State complied with Federal requirements in its use of Program funds under the Housing and Economic Recovery Act of 2008 regarding the citizens’ complaints to our office.

The State lacked sufficient documentation to support that it followed Federal requirements in its use of $3.3 million in Program funds for a project. As a result, the U.S. Department of Housing and Urban Development (HUD) lacked assurance that the Authority’s use of $3.3 million in Program funds for the acquisition of a building was reasonable and met Federal requirements.

We recommend that the Director of HUD’s Detroit Office of Community Planning and Development require the State to (1) provide sufficient documentation to support that the Authority’s use of $3.3 million in Program funds for the purchase of the building was reasonable or reimburse its Program from non-Federal funds as appropriate and (2) implement adequate procedures and controls to ensure that it maintains sufficient documentation to support that the Authority’s use of Program funds is for eligible project costs.

Issue Date: January 26, 2012
Audit Report No.2012-CH-1002

Title: The Saginaw Housing Commission, Saginaw, MI, Did Not Administer Its Grant in Accordance With Recovery Act, HUD’s, and Its Requirements

We audited the Saginaw Housing Commission’s American Recovery and Reinvestment Act of 2009 Public Housing Capital Fund Stimulus formula grant. The audit was part of the activities in our fiscal year 2011 annual audit plan. We selected the Commission based upon our previous audits of the Commission’s use of Federal funds and a request to perform a comprehensive review of its programs from the U.S. Department of Housing and Urban Development’s (HUD) management. Our objective was to determine whether the Commission followed Recovery Act and HUD requirements regarding the administration of its Recovery Act grant.

The Commission did not administer its grant in accordance with Recovery Act, HUD’s, and its requirements. Specifically, it (1) inappropriately procured contracts, did not maintain documentation to show that contracts were correctly procured and that Davis-Bacon Act wages were correctly paid, and did not accurately report the number of rehabilitated units in HUD’s Recovery Act Management and Performance System (RAMPS); (2) spent more than $112,000 and obligated nearly $9,200 in Recovery Act funds for activities that were not included in its 5-year action plans or annual statements of performance and evaluation for the years 2009, 2010, and 2011; (3) did not ensure that opportunities to become employed or to receive employment training were provided to eligible Section 3 participants, failed to accurately report the number of its Section 3 new hires in FederalReporting.gov and did not ensure that more than $79,000 from its Recovery Act contracts was collected and remitted to its Section 3 training fund; (4) did not maintain adequate accounting records to support its administrative draws and expenditures; (5) incorrectly spent nearly $48,000 when it did not have a valid contract for architectural services because it amended an expired contract with its architect without competition; (6) overpaid more than $11,000 when it awarded a contract for floor tile replacement without full and open competition; and (7) used nearly $142,000 for the replacement of appliances without documenting the need for new appliances and incorrectly disposed of the appliances that were replaced.

We recommend that the Director of HUD’s Detroit Office of Public Housing require the Commission to (1) provide documentation or reimburse $530,536 from non-Federal funds to HUD for transmission to the U.S. Treasury, (2) reimburse $205,815 from non-Federal funds to HUD for transmission to the U.S. Treasury, (3) correct its Recovery Act overreporting of jobs in RAMPS and FederalReporting.gov, and (4) implement adequate procedures and controls to address the findings cited in this audit report.

Date Issued: September 30, 2011
Audit Report No. 2011-CH-1018

Title: The Pontiac Housing Commission, Pontiac, MI, Did Not Adequately Administer Its American Recovery and Reinvestment Act Capital Fund Grant

The U.S. Department of Housing and Urban Development, Office of Inspector General audited the Pontiac Housing Commission’s Public Housing Capital Fund Stimulus (formula) Recovery Act Funded grant. The audit was part of the activities in our fiscal year 2010 annual audit plan. We selected the Commission for review as part of the Office of Inspector’s General’s commitment to ensure the proper use of Recovery Act funds. Our objective was to determine whether the Commission properly obligated and expended its formula grant and related procurements complied with U.S. Department of Housing and Urban Development (HUD) and Recovery Act requirements.

The Commission’s Recovery Act obligations and expenses were not properly supported, and its related procurements did not comply with HUD’s and its own requirements. Specifically, the Commission did not (1) ensure that its contractors complied with the Davis-Bacon Act, (2) comply with Federal and its contract administration requirements, and (3) properly administer and account for vacant unit turnovers by its force account.

Further, the Commission created a conflict-of-interest relationship when it awarded a carpet installation contract to an employee. This condition occurred because the Commission lacked adequate procedures and controls to ensure that it complied with HUD’s and its own procurement and contract administration requirements. As a result, the Commission used more than $148,000 in Recovery Act grant funds contrary to its annual contributions contract with HUD and its own procurement requirements, and HUD lacked assurance that the Commission effectively managed its grant.

We recommend that the Director of HUD’s Detroit Office of Public Housing require the Commission to obtain certified weekly payrolls from the 8 contractors identified and determine whether the contractors paid the correct wage rates to their employees. If the contractors failed to pay the correct wages owed to their employees, the Commission should pay wage restitution to these employees. HUD should also require the Commission to (1) pay wage restitution of $4,357 to its two contractors’ employees and submit proof that the employees received the wage restitution, (2) develop written procedures for the enforcement of labor standards to ensure compliance with its own requirements regarding the enforcement of labor standards, (3) maintain a system of contract administration to ensure that its contractors perform in accordance with their contracts, (4) obtain missing contract administration documents and retain them in the contract files, (5) pay wage restitution of $66,210 to its force account staff and provide proof that the payments were made, (6) identify the specific units assigned to each maintenance staff member for phase II unit turnover work and to the contractor for phase III unit turnover work and provide support, and (7) reimburse HUD $38,027 from non-Federal funds for transmission to the U.S. Treasury for the inappropriate use of grant funds.

We also recommend that the Director of HUD’s Detroit Office of Public Housing (1) prohibit the use of force account labor for any future unit turnover work until the Commission can demonstrate that it has the capacity to perform the work (2) follow established procedures for addressing public housing authorities designated as substandard physical, including but not limited to, amending the Commission’s existing memorandum of agreement with HUD to incorporate the recommendations cited in this audit report, and (3) recapture all funds that the Commission obligated for unit turnovers by its force account. This amount includes the work item for cycle painting and carpet removal work by its force account for $24,149, the $15,933 of improper obligations due to the Commission’s conflict-of-interest relationship that has not been spent and repairs to its sidewalk, driveway, and brickwork for transmission to the U.S Treasury.

Date Issued: August 9, 2011
Audit Report No. 2011-CH-1012

Title: The Saginaw Housing Commission, Saginaw, MI, Did Not Fully Implement Prior Audit Recommendations and Continued To Use Its Public Housing Program Funds for Ineligible Purposes

The U.S. Department of Housing and Urban Development’s Office of Inspector General audited the Saginaw Housing Commission’s Public Housing program. The audit was part of the activities in our fiscal year 2011 annual audit plan. We selected the Commission based upon our previous audit report on the Commission’s use of public housing funds, audit report number 2006-CH-1018, issued September 28, 2006, and an indication that the Commission was continuing to use Federal funds for unapproved purposes. Our objective was to determine whether the selected audit recommendations were implemented and whether the Commission used U.S. Department of Housing and Urban Development (HUD) funds for unapproved purposes.

The Commission did not fully implement prior audit recommendations and continued to use its program funds for ineligible purposes. HUD and the Commission did not enter into a repayment agreement for recommendations 1C and 2A from audit report number 2006-CH-1018 until January 24, 2011. The repayment agreement stated that the Commission agreed to make payments beginning February 1, 2011, and ending March 1, 2014. The Commission made its first payment on June 7, 2011. The Commission also continues to use program revenues for ineligible purposes.

The Commission did not effectively administer its HUD programs and violated HUD’s and its own requirements. Specifically, it did not ensure that Public Housing Program Capital Funds were drawn and expended for eligible purposes. The Commission inappropriately used more than $1.5 million in capital funds, was unable to support the use of nearly $395,000 in capital funds, maintained capital funds on hand in excess of $411,000, caused the U.S. Treasury to lose more than $71,000 in interest, inappropriately earned more than $13,000 in interest from its bank, and did not appropriately categorize nearly $822,000 in capital fund draws from HUD’s system.

The Commission did not ensure that its Public Housing Operating Fund program, Section 8 Housing Choice Voucher program, and Homeownership program funds were used for eligible purposes. It inappropriately used nearly $181,000 and was unable to support the use of more than $30,000 in operating program, voucher program, and Homeownership program funds.

The Commission did not ensure that the capital funds and operating program funds were used for eligible purposes. The Commission inappropriately used more than $127,000 in capital funds to demolish structures at its inappropriately obtained property and used nearly $108,000 in operating program funds to operate and maintain the property.

We recommend that the Director of HUD’s Detroit Office of Public Housing require the Commission to (1) reimburse its program from non-Federal funds for the improper use of more than $2 million in program funds, (2) provide documentation or reimburse its program more than $836,000 from non-Federal funds for the unsupported payments cited in this audit report, and (3) implement adequate procedures and controls to address the findings cited in this audit report.

Date Issued: June 3, 2011
Audit Report No.: 2011-CH-1008

Title: The State of Michigan Lacked Adequate Controls Over Its Neighborhood Stabilization Program Regarding Awards, Obligations, Subgrantees' Administrative Expenses and Procurement, and Reporting Accomplishments

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the State of Michigan’s (State) Neighborhood Stabilization Program (Program) administered by the Michigan State Housing Development Authority (Authority). The audit was part of the activities in our fiscal year 2010 annual audit plan. We selected the State based upon our designation of the Program as high risk and a citizen’s complaint to our office. Our objectives were to determine whether the State (1) complied with Federal requirements in its award, obligation, and use of Program funds under the Housing and Economic Recovery Act of 2008 (Act); (2) ensured that a subgrantee complied with the U.S. Department of Housing and Urban Development’s (HUD) regulations when procuring architectural services for its Program-funded rehabilitation projects under the Act; and (3) complied with Federal requirements in its reporting of Program accomplishments under the Act and the American Recovery and Reinvestment Act of 2009 (Recovery Act).

The State did not comply with Federal requirements in its award, obligation, and use of Program funds under the Act, ensure that a subgrantee complied with HUD’s regulations when procuring architectural services for its Program-funded rehabilitation projects under the Act; and comply with Federal requirements in its reporting of Program accomplishments under the Act and Recovery Act. It (1) lacked sufficient documentation to support its award of Program funds under the Act for a project, (2) reported Program obligations under the Act in HUD’s Disaster Recovery Grant Reporting (Reporting) system that did not qualify as obligations, (3) inappropriately disbursed Program funds under the Act for Program obligations that did not qualify as obligations, (4) did not maintain sufficient documentation to support the use of Program funds under the Act for administrative expenses, (5) did not ensure that a subgrantee complied with HUD’s regulations when procuring architectural services for its Program-funded rehabilitation projects under the Act, (6) did not comply with Federal requirements by posting the State’s quarterly performance reports for the Program under the Act for the first through third quarters of 2010 on its official Web site more than 30 days after the end of each quarter, and (7) did not maintain sufficient documentation to support the number of jobs it reported as created or retained from the use of Program funds under the Recovery Act for the first and second quarters of 2010.

As a result, (1) HUD lacked assurance that the Authority awarded $1 million in Program funds under the Act for eligible project costs, (2) the Authority inappropriately reported Program obligations of more than $719,000 under the Act in HUD’s Reporting system and disbursed Program funds for more than $531,000 in Program obligations that did not qualify as obligations, (3) HUD lacked assurance that the Authority used nearly $87,000 in Program funds under the Act for eligible Program administrative costs, (4) HUD and the Authority lack assurance that nearly $68,000 in Program funds under the Act was used efficiently and effectively, (5) the public did not have timely access to the State’s quarterly performance reports for the Program under the Act, and (6) HUD and the public lacked assurance that the Authority accurately reported the number of jobs that the use of Program funds under the Recovery Act created or retained.

We recommend that the Director of HUD’s Detroit Office of Community Planning and Development require the State to (1) provide sufficient documentation to support that the fair market value of the properties was $1 million and that the Authority’s award of $1 million in Program funds under the Act for the purchase of the properties was reasonable or cancel the Authority’s award and award the $1 million in Program funds to an eligible project(s), (2) reimburse HUD from non-Federal funds for the more than $531,000 in Program funds under the Act inappropriately disbursed for Program obligations that did not qualify as obligations, (3) deobligate in HUD’s Reporting system the more than $719,000 in Program funds under the Act that did not qualify as Program obligations, (4) provide sufficient supporting documentation or reimburse its Program from non-Federal funds, as appropriate, for the nearly $87,000 in Program funds under the Act used for unsupported administrative costs, (5) perform a formal cost or price analysis to determine whether the nearly $68,000 in Program funds under the Act was reasonable for the architectural services provided for a subgrantee’s rehabilitation projects, (6) and implement adequate procedures and controls to address the findings cited in this audit report.

We also recommend that the Director of HUD’s Detroit Office of Community Planning and Development recapture the more than $188,000 in Program funds under the Act, which the Authority obligated that did not qualify as Program obligations but the Authority did not disburse, and reallocate the funds in accordance with 42 U.S.C. (United States Code) 5306(c)(4).

Date Issued: October 13, 2010
Audit Report No.: 2011-CH-1001

Title: The City of Flint, MI, Lacked Adequate Controls Over Its HOME Program Regarding Community Housing Development Organizations' Home-Buyer Projects, Subrecipients' Activities, and Reporting Accomplishments in HUD's System

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the City of Flint's (City) HOME Investment Partnerships Program (Program). The audit was part of the activities in our fiscal year 2010 annual audit plan. We selected the City based upon our analysis of risk factors relating to Program grantees in Region V's jurisdiction and a citizen complaint to our office. Our objectives were to determine whether the City complied with Federal requirements in its use of Program funds for community housing development organizations (organization) home-buyer projects and subrecipients activities and accurately reported Program accomplishments in HUD's Integrated Disbursement and Information System (System). This is the second of three planned audit reports on the City's Program.

The City did not comply with Federal requirements in its use of Program funds for organizations home-buyer projects. It (1) did not ensure that organizations entered into lease-purchase agreements or entered into appropriate lease-purchase agreements with households, (2) failed to ensure that an organization transferred homes to home buyers within 42 months of project completion and did not convert the home-buyer projects to rental projects, (3) did not reimburse its HOME trust fund treasury account (treasury account) for terminated projects, (4) inappropriately used Program funds for home-buyer project costs that were administrative expenses, (5) did not prevent an organization from entering into a land contract with a home buyer, (6) inappropriately used Program organization reserve funds for an owner-occupied single-family rehabilitation project, (7) used Program funds for unreasonable acquisition costs, and (8) did not decommit and reprogram Program funds for a terminated project. As a result, the City drew down and disbursed nearly $1.7 million in Program funds for organizations home-buyer projects that did not meet Federal requirements and inappropriately drew down and disbursed more than $143,000 in additional Program funds.

The City also did not comply with Federal requirements in its use of Program funds for subrecipients activities. It (1) inappropriately used Program funds for costs that were not associated with an eligible project, were administrative expenses, and were unrelated to the City's Program activities; (2) lacked sufficient documentation to support Program funds used for projects; and (3) did not reprogram Program funds for a terminated project. As a result, the City inappropriately drew down and disbursed nearly $427,000 in Program funds and lacked sufficient documentation to support nearly $65,000 in Program funds.

Further, the City did not accurately report Program accomplishments in HUD's System. It (1) inappropriately entered activity data into HUD's System for 61 properties under 2 or more activity numbers for a total of 130 activities, (2) overreported Program units created by 79 units, (3) did not accurately report completion dates for 35 home-buyer activities, and (4) inappropriately reported the type of activity in HUD's System for 2 activities.

We recommend that the Acting Director of HUD's Detroit Office of Community Planning and Development require the City to (1) revise 12-month lease agreements and 60-month purchase option agreements with households to 36-month lease-purchase agreements, convert the home-buyer project to a rental project, or reimburse its Program more than $843,000 from non-Federal funds; (2) convert home-buyer projects to rental projects if it can support that the homes meet property standards or reimburse its Program more than $607,000 from non-Federal funds; (3) reimburse its treasury account nearly $164,000 from non-Federal funds; (4) reimburse its Program nearly $406,000; (5) reimburse its Program nearly $26,000 from non-Federal funds or reprogram the nearly $26,000 from Program organization reserve funds to Program entitlement or subrecipient funds; (6) decommit more than $94,000 in Program funds; (7) reimburse its Program nearly $112,000 from non-Federal funds or reprogram the nearly $112,000 from homeowner and/or acquisition-only activity costs to administrative costs; (8) provide supporting documentation or reimburse its treasury account nearly $65,000 from non-Federal funds; (9) reimburse its treasury account nearly $14,000 from non-Federal funds or reprogram nearly $14,000 to the appropriate project; (10) revise Program accomplishments in HUD's System as appropriate; and (11) implement adequate procedures and controls to address the findings cited in this audit report.

Date Issued: September 15, 2010
Audit Report No.: 2010-CH-1012

Title: Michaelson, Connor, and Boul, Southfield, MI, Did Not Provide Adequate Oversight of Closings on the Sales of HUD Real Estate-Owned Homes

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General (OIG) audited Michaelson, Connor, and Boul, Incorporated (MCB), a management and marketing contractor for HUD real estate-owned properties in Michigan. We selected MCB based on the results of our audit of Custom Closing, a HUD-designated closing agent for the State of Michigan (see OIG audit report #2009-CH-1021, issued September 2009). Our objective was to determine whether MCB complied with HUD's requirements regarding the sales of HUD single-family real estate-owned homes (HUD homes) in Michigan, in particular the closing activities. The audit was part of the activities in our fiscal year 2010 annual audit plan.

MCB did not adequately provide oversight of the closings on the sales of HUD homes. Specifically, it did not always request lead-based paint stabilization services and/or city presale inspections in a timely manner. Further, it did not adequately monitor the closing agents and report to HUD deficiencies with closing sales of HUD homes as required under its contract. As a result, HUD and MCB incurred an additional $1 million plus in holding costs to maintain the homes in its inventory and lost the opportunity to receive more than $47,000 in proceeds as buyers cancelled their sales contracts due to closing delays.

On February 5, 2010, HUD awarded MCB the contract for overseeing and/or monitoring lenders for compliance with HUD's requirements. MCB's current management and marketing contract was scheduled to end on August 31, 2010. However, HUD extended MCB's current management and marketing contract to September 30, 2010. Given that MCB's contract is scheduled to expire in less than 30-days, this report does not contain a recommendation for MCB to improve its procedures and controls regarding the oversight of the closings on HUD homes since it will no longer perform this function.

We recommend that the Deputy Assistant Secretary for Single Family Housing require MCB to provide documentation showing that the buyers cancelled their sales contracts for case numbers 263-335607 and 262-151588 for reasons other than delayed actions by MCB and/or the closing agents or reimburse HUD $47,947 from non-Federal funds for the losses HUD incurred on the sales of the two homes.

We also recommend that the Deputy Assistant Secretary for Single Family Housing implement requirements for the new management and marketing contracts that provide specific responsibilities for performing activities under the contracts, including but not limited to requesting city presale inspections and lead-based paint stabilization, to ensure that sales of HUD homes close in a timely manner and monitoring the closing agents for compliance with their contracts with HUD.

Date Issued: August 4, 2010
Audit Memorandum No.: 2010-CH-1811

Title: D & R Mortgage Corporation, Farmington Hills, MI, Did Not Properly Underwrite a Selection of FHA Loans

The U.S. Department of Housing and Urban Development's Office of Inspector General (OIG) reviewed 15 Federal Housing Administration (FHA) loans that D & R Mortgage Corporation (D & R) underwrote as an FHA direct endorsement lender. Our review objective was to determine whether D & R underwrote the 15 loans in accordance with FHA requirements. This review is part of Operation Watchdog, an OIG initiative to review the underwriting of 15 direct endorsement lenders at the suggestion of the FHA Commissioner. The Commissioner expressed concern regarding the increasing claim rates against the FHA insurance fund for failed loans. D & R did not properly underwrite 9 of the 15 loans reviewed because its underwriters did not follow FHA's requirements. As a result, FHA's insurance fund suffered actual losses of more than $936,000 on the 9 loans. D & R's direct endorsement underwriters incorrectly certified that due diligence was used in underwriting the nine loans.

We recommend that HUD's Associate General Counsel for Program Enforcement determine legal sufficiency and if legally sufficient, pursue remedies under the Program Civil Remedies Act against D & R and/or its principals for incorrectly certifying to the integrity of the data or that due diligence was exercised during the underwriting of 9 loans that resulted in losses to HUD totaling $936,572, which could result in affirmative civil enforcement action of approximately $1,940,644. We also recommend that HUD's Deputy Assistant Secretary for Single Family take appropriate administrative action against D & R and/or its principals for the material underwriting deficiencies cited in this report once the affirmative civil enforcement action cited in recommendation 1A is completed.

Date Issued: July 22, 2010
Audit Memorandum No.: 2010-CH-1808

Title: Mac-Clair Mortgage Corporation, Flint, MI, Did Not Properly Underwrite a Selection of FHA Loans

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General (OIG) reviewed 20 Federal Housing Administration (FHA) loans that Mac-Clair Mortgage Corporation (Mac-Clair) underwrote as an FHA direct endorsement lender. Our review objective was to determine whether Mac-Clair underwrote the 20 loans in accordance with FHA requirements. This review is part of Operation Watchdog an OIG initiative to review the underwriting of 15 direct endorsement lenders at the suggestion of the FHA Commissioner. The Commissioner expressed concern regarding the increasing claim rates against the FHA insurance fund for failed loans. Mac-Clair did not properly underwrite 7 of the 20 loans reviewed because its underwriters did not follow FHA's requirements. As a result, FHA's insurance fund suffered actual losses of $562,551. Further, Mac-Clair's direct endorsement underwriters incorrectly certified that due diligence was used in underwriting the seven loans.

We recommend that HUD's Associate General Counsel for Program Enforcement determine legal sufficiency and if legally sufficient, pursue remedies under the Program Fraud Civil Remedies Act against Mac-Clair and/or its principals for incorrectly certifying to the integrity of the data or that due diligence was exercised during the underwriting of seven loans that resulted in losses to HUD totaling $562,551 which could result in affirmative civil enforcement action of approximately $1,177,602. We also recommend that HUD's Deputy Assistant Secretary for Single Family take appropriate administrative action against Mac-Clair and/or its principals for the material underwriting deficiencies cited in this report once the affirmative civil enforcement action cited in Recommendation 1A is completed.

Date Issued: July 21, 2010
Audit Memorandum No.: 2010-CH-1807

Title: Birmingham Bancorp Mortgage Corporation, West Bloomfield, MI, Did Not Properly Underwrite a Selection of FHA Loans

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General (OIG) reviewed 20 Federal Housing Administration (FHA) loans that Birmingham Bancorp Mortgage Corporation (Birmingham) underwrote as an FHA direct endorsement lender. Our review objective was to determine whether Birmingham underwrote the 20 loans in accordance with FHA requirements. This review is part of Operation Watchdog, an OIG initiative to review the underwriting of 15 direct endorsement lenders at the suggestion of the FHA Commissioner. The FHA Commissioner expressed concern regarding the increasing claim rates against the FHA insurance fund for failed loans. Birmingham did not properly underwrite 9 of the 20 loans reviewed because its underwriters did not follow FHA's requirements. As a result, FHA's insurance fund suffered actual losses of $643,340. Further, Birmingham's direct endorsement underwriters incorrectly certified that due diligence was used in underwriting the nine loans.

We recommend that HUD's Associate General Counsel for Program Enforcement determine legal sufficiency and if legally sufficient, pursue remedies under the Program Fraud Civil Remedies Act against Birmingham and/or its principals for incorrectly certifying to the integrity of the data or that due diligence was exercised during the underwriting of 9 loans that resulted in losses to HUD totaling $643,340, which could result in affirmative civil enforcement action of approximately $1,354,180. We also recommend that HUD's Deputy Assistant Secretary for Single Family take appropriate administrative action against Birmingham and/or its principals for the material underwriting deficiencies cited in this report once the affirmative civil enforcement action cited in recommendation 1A is completed.

Date Issued: May 14, 2010
Audit Report No.: 2010-CH-1007

Title: The Michigan State Housing Development Authority, Lansing, MI, Needs To Improve Its Controls Over Section 8 Project-Based Housing Assistance Payments

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Michigan State Housing Development Authority's (Authority) Section 8 Project-Based Voucher program (program). The audit was part of the activities in our fiscal year 2010 annual audit plan. We selected the Authority's program based upon our analysis of the housing authorities programs in Region V's jurisdiction and as part of our internal audit of HUD's oversight of the program. Our objective was to determine whether the Authority operated its program in accordance with HUD's and its requirements. This is the second of two audit reports on the Authority's program.

The Authority's program administration regarding documentation of households eligibility and housing assistance and utility allowance payment calculations was inadequate. The Authority did not ensure that its household files contained the required documentation to support households admission to and continued assistance on the program. Of the 89 files statistically selected for review, all 89 were missing documentation required by HUD and the Authority's program administrative plan to support nearly $629,000 in housing assistance and utility allowance payments and associated administrative fees.

In addition, the Authority did not effectively manage its housing assistance calculation and payment process in accordance with HUD requirements and its program administrative plan, resulting in nearly $23,000 in overpayments for 25 households and more than $3,000 in underpayments for 29 households for the period September 1, 2007, through August 31, 2009. Further, it received nearly $33,000 ($16,417 in administrative fees related to the overpayments and $16,572 in administrative fees related to the underpayments) in program administrative fees for the households with incorrect housing assistance payments. Based on our statistical sample, we estimate that over the next year, the Authority will overpay nearly $25,000 and underpay more than $5,000 in housing assistance and utility allowance payments due to calculation errors.

The Authority also inappropriately made more than $47,000 in overpayments of housing assistance and utility allowances for units when it failed to ensure that units receiving program housing assistance payments were under an executed housing assistance payments contract. Based on our statistical sample, we estimate that over the next year, the Authority will overpay nearly $56,000 in housing assistance and utility allowances for units not under housing assistance payments contracts.

The Authority did not effectively use HUD's Enterprise Income Verification system (system) Income Discrepancy Report (report) to recover or reimburse program housing assistance and utility allowance payments for households with unreported, underreported, or overestimated income, resulting in more than $32,000 in overpayments and more than $1,700 in underpayments of housing assistance and utility allowances. Further, the Authority did not remove six deceased individuals from its program and did not recover more than $6,000 in housing assistance and utility allowance payments from the properties owners.

We recommend that the Acting Director of HUD's Detroit Office of Public Housing require the Authority to (1) reimburse its program from non-Federal funds for the improper use of nearly $118,000 in program funds, (2) provide documentation or reimburse its program more than $757,000 from non-Federal funds for the unsupported payments cited in this audit report, and (3) implement adequate procedures and controls to address the findings cited in this audit report to prevent nearly $89,000 in program funds from being spent on excessive housing assistance and utility allowance payments over the next year.

Date Issued: April 14, 2010
Audit Memorandum No.: 2010-CH-1805

Title: The Benton Harbor Housing Commission of Benton Harbor, MI, Had Sufficient Capacity to Adequately Administer Its Recovery Act Funding

In accordance with our goal to review funds provided under the American Recovery and Reinvestment Act of 2009 (Recovery Act), the U.S. Department of Housing and Urban Development's Office of Inspector General conducted a capacity review of the Benton Harbor Housing Commission's (Commission) operations. We selected the Commission based upon the results of our audit of the Commission's Public Housing Capital Fund (Capital Fund) program (see Office of Inspector General audit report #2006-CH-1010, issued May 18, 2006). Our objective was to determine whether there was evidence that the Commission lacked the capacity to adequately administer its Recovery Act funding. Under the Recovery Act, HUD allocated more than $600,000 in Capital Fund program funding to the Commission. Based upon our review, under the direction of the current executive director, the Commission had sufficient capacity to effectively and efficiently administer its Recovery Act funding.

Date Issued: March 31, 2010
Audit Memorandum No.: 2010-CH-1804

Title: The City of Saginaw, MI, Needs To Improve Its Capacity To Effectively and Efficiently Administer Its Community Development Block Grant Program Under the American Recovery and Reinvestment Act of 2009

The U.S. Department of Housing and Urban Development's Office of Inspector General reviewed the City of Saginaw's (City) Community Development Block Grant (Block Grant) program under the American Recovery and Reinvestment Act of 2009 (Act). The review was part of the activities in our fiscal year 2010 annual audit plan. We selected the City based upon the results of our prior audit of the City's Block Grant-funded demolition activities. Our objective was to determine whether the City had the capacity to effectively and efficiently administer its Block Grant program under the Act. We found that the City's capacity to effectively and efficiently administer its Block Grant program under the Act had weaknesses. Specifically, the City: (1) did not have documentation, such as a use survey, to support that work associated its program principally benefited Saginaw's low- to moderate- income residents; (2) lacked a work completion schedule in its program contract; (3) did not follow HUD's regulations and its own requirements for monitoring the program project; (4) had not established sufficient policies and procedures for its Block Grant program under the Act.

We recommend that the Director of HUD's Detroit Office of Community Planning and Development require the City to provide documentation, such as a use survey, to support that the $335,750 in Block Grant funds under the Act principally benefitted the City's low- to moderate-income residents. If the City cannot provide supporting documentation, it should amend its substantial amendment to remove the program project and include for the $335,750 in Block Grant funds an eligible activity or activities that meet one of HUD's three national objectives. We also recommend that HUD's Director require the City to implement adequate policies, procedures, and controls to ensure that Block Grant funds under the Act are used effectively and efficiently and in accordance with applicable requirements.

Date Issued: January 12, 2010
Audit Memorandum No.: 2010-CH-1801

Title: Wayne County, MI, Needs To Improve Its Capacity to Effectively and Efficiently Administer Its Neighborhood Stabilization Program

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General reviewed Wayne County's (County) Neighborhood Stabilization Program (Program). The review was part of the activities in our fiscal year 2009 annual audit plan. We selected the County based upon a request from HUD's Detroit Office of Community Planning and Development. Our objective was to determine whether the County had the capacity to effectively and efficiently administer its Neighborhood Stabilization Program. Congress amended the Neighborhood Stabilization Program and increased its funding as part of the American Recovery and Reinvestment Act of 2009 (Recovery Act). As part of a consortium, the Wayne County Land Bank Corporation (Corporation), which is controlled by the County, submitted an application to HUD, dated July 13, 2009, that totaled $290 million in additional Neighborhood Stabilization Program funds under the Recovery Act. The application is under review by HUD.

We found that the County needs to improve its capacity to effectively and efficiently administer its Neighborhood Stabilization Program. Specifically, the County: (1) did not ensure that the Corporation fully complied with HUD's regulations for full and open competition regarding the procurement of project management services for the County's Neighborhood Stabilization Program; (2) had not established sufficient policies, procedures, and controls for its Program as of December 16, 2009; and (3) provided a detailed fiscal year 2010 through 2013 budget for planning and administrative costs ($2,609,096) that exceeded 10 percent of the County's total Program grant and its revised Program budget for planning and administrative costs ($2,590,915) by more than $18,000. Lastly, HUD's Detroit Office of Community Planning and Development did not include sufficient special conditions in its Neighborhood Stabilization Program grant agreement with the County.

Date Issued: November 24, 2009
Audit Report No.: 2010-CH-1003

Title: The Grand Rapids Housing Commission, Grand Rapids, Michigan, Needs to Improve Its Administration of Its Section 8 Project-Based Voucher Program

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Grand Rapids Housing Commission's (Commission) Section 8 Project-Based Voucher program (program). The audit was part of the activities in our fiscal year 2009 annual audit plan. We selected the Commission's program based upon our internal audit survey of HUD's oversight of the program and our analysis of risk factors relating to the housing agencies in Region V's jurisdiction. Our objective was to determine whether the Commission effectively administered its program in accordance with HUD's and its own requirements.

The Commission's administration of its program was inadequate. It lacked documentation to support its selection and approval of program projects and provided housing assistance for units without appropriate housing assistance payments contracts. As a result, it could not support that its eight projects were eligible for more than $2.8 million in program assistance, overpaid more than $84,000 in program funds, and lacked support that more than $210,000 in program administrative fees received were appropriate. We estimate that over the next 12 months, the Commission will receive nearly $130,000 in improper administrative fees.

The Commission provided housing assistance for improper households. It failed to ensure that six of its program participants met program eligibility requirements. As a result, it overpaid nearly $30,000 in program funds and received more than $3,000 in administrative fees contrary to HUD's and its requirements.

The Commission made improper adjustments to housing assistance payments for 78 households. Of those adjustments, duplicate adjustments were made for 61 households, adjustments were incorrectly calculated for 19 households, and two of the households adjustments lacked supporting documents. As a result, the Commission overpaid nearly $10,000 and underpaid more than $10,000 in housing assistance.

The Commission provided improper housing assistance for vacant units. It failed to follow its administrative plan in providing vacancy payments for 24 households, resulting in more than $5,500 in overpayments and more than $1,300 in underpayments.

We informed the Commission's executive director and the Acting Director of HUD's Detroit Office of Public Housing of minor deficiencies through a memorandum, dated November 19, 2009.

We recommend that the Acting Director of HUD's Detroit Office of Public Housing require the Commission to reimburse its program from nonfederal funds for the improper use of more than $102,000 in program funds, provide documentation or reimburse its program more than $3 million from nonfederal funds for the unsupported payments cited in this audit report, and implement adequate procedures and controls to address the findings cited in this audit report to prevent more than $140,000 in program funds and administrative fees from being used improperly over the next year.

Date Issued: November 3, 2009
Audit Report No.: 2010-CH-1002

Title: The City of Saginaw, Michigan, Lacked Adequate Controls over Its Community Development Block Grant-Funded Demolition Activities

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the City of Saginaw's (City) Community Development Block Grant (Block Grant) program-funded demolition activities. The audit was part of the activities in our fiscal year 2009 annual audit plan. We selected the City based upon a request from HUD's Detroit Office of Community Planning and Development. Our audit objective was to determine whether the City effectively administered its Block Grant program-funded demolition activities.

The City did not effectively administer its Block Grant program-funded demolition activities. It lacked sufficient information for demolition activities to support nearly $138,000 in Block Grant funds used for demolition activity costs, did not request reimbursement from property owners and/or place liens on properties for more than $80,000 in Block Grant funds used for demolition activities, and did not provide sufficient documentation to support that it was not required to request reimbursement from property owners and/or place liens on properties for nearly $51,000 in Block Grant funds used for demolition activities.

We informed the director of the City's Department of Development (Department) and the Director of HUD's Detroit Office of Community Planning and Development of a minor deficiency through a memorandum, dated November 3, 2009.

We recommend that the Director of HUD's Detroit Office of Community Planning and Development require the City to (1) provide sufficient supporting documentation or reimburse its Block Grant program from nonfederal funds for the nearly $138,000 in Block Grant funds used for unsupported expenses, (2) reimburse its Block Grant program more than $80,000 from nonfederal funds for the demolition activities for which the City did not request the property owners to reimburse the City or place liens on the properties, (3) provide sufficient supporting documentation or reimburse its Block Grant program from nonfederal funds for the nearly $51,000 in Block Grant funds used for the demolition activities for which the City did not provide sufficient documentation to support that it was not required to request reimbursement from property owners and/or place liens on properties, and (4) implement adequate procedures and controls to address the finding cited in this audit report.

Date Issued: September 30, 2009
Audit Report No.: 2009-CH-1021

Title: Custom Closing Services, Incorporated, Farmington Hills, Michigan, Did Not Always Comply with Its Contract When Closing Sales of HUD Real Estate-Owned Properties

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General performed an audit of Custom Closing Services, Incorporated (Custom), a contractor closing sales of HUD real estate-owned properties in the state of Michigan. The audit was conducted based on a complaint to our hotline alleging that Custom caused significant delays in the closing of HUD homes in Michigan. Our audit objective was to determine whether Custom complied with its contract for closing sales of HUD real estate-owned properties.

Custom did not fully comply with its contract when closing sales of HUD homes. Specifically, it did not request city pre-sale inspections and contract extensions in a timely manner. Additionally, Custom did not always cancel expired sales contracts and submit requests for payments to the marketing and management contractor for cancelled contracts in a timely manner. It also did not provide required information to HUD. Custom's delays in requesting pre-sale inspections contributed to delays in the closings of HUD homes, which resulted in HUD incurring additional holding costs to maintain properties in its inventory. In addition, HUD lacked assurance that Custom represented HUD's best interests and upheld a positive image of HUD as required under the performance measures of its contract.

Date Issued: September 30, 2009
Audit Report No.: 2009-CH-1020

Title: The City of Flint, Michigan, Lacked Adequate Controls over Its Commitment and Disbursement of HOME Investment Partnerships Program Funds

The City did not effectively commit and disburse Program funds. It inappropriately reported in HUD's Integrated Disbursement and Information System (System) at least $2.5 million in Program funds as subgrants, did not cancel subgrants in HUD's System totaling $400,000 in Program funds, did not reduce a subgrant in HUD's System by nearly $1,000 in Program funds, and could not provide written agreements supporting nearly $141,000 of subgrants in HUD's System. As a result, the City must commit nearly $870,000 in Program funds for eligible subgrants and/or activities by September 30, 2009.

The City also inappropriately drew down and disbursed more than $1 million in Program funds that were not used for eligible Program costs for more than 15 days after the City drew down the Program funds from its HOME trust fund treasury account (treasury account) and/or HUD's five-year disbursement deadlines as of July 31, 2007, and June 30, 2008. As a result of the inappropriate draw downs and disbursements, the City avoided not meeting HUD's five-year disbursement deadlines and losing more than $499,000 in Program funds.

We recommend that the Director of HUD's Detroit Office of Community Planning and Development reduce the City's line of credit in its treasury account by nearly $680,000 for the Program funds that the City did not appropriately commit by HUD's 24-month commitment deadline and drawdown and disburse by HUD's five-year disbursement deadlines. We also recommend that the Director require the City to cancel incorrect subgrants in HUD's System totaling more than $1.5 million in Program funds, provide written agreements supporting subgrants or decommit nearly $141,000 of Program funds in HUD's System, reduce subgrants by more than $30,000 in Program funds, and implement adequate procedures and controls to address the findings cited in this audit report. These procedures and controls should help ensure that Program funds are committed and disbursed in accordance with federal requirements and the City does not lose more than $730,000 in Program funds over the next month.

Date Issued: September 30, 2009
Audit Report No.: 2009-CH-1019

Title: The Michigan State Housing Development Authority, Lansing, Michigan, Failed to Operate Its Section 8 Project-Based Voucher Program According to HUD's and Its Requirements

The Authority lacked documentation to support its selection and approval of program projects. As a result, it could not support that any of the five projects it had approved since January 1, 2007, were eligible for more than $1 million in program assistance and nearly $85,000 in program administrative fees received by the Authority were appropriate. We estimate that over the next 12 months, the Authority will receive more than $70,000 in program funds for improper administrative fees.

The Authority's program units generally met HUD's housing quality standards. Of the 60 program units selected for inspection, 23 did not meet minimum housing quality standards, and four (7 percent) materially failed due to 24-hour exigent health and safety hazards that predated the Authority's previous inspections. As a result, more than $5,700 in program funds was spent on units that were not decent, safe, and sanitary.

We informed the Agency's executive director and the Acting Director of HUD's Detroit Office of Public Housing of a minor deficiency through a memorandum, dated September 29, 2009.

We recommend that the Acting Director of HUD's Detroit Office of Public Housing require the Authority to reimburse its program from nonfederal funds for the improper use of more than $85,000 in program funds, provide documentation or reimburse its program more than $1 million from nonfederal funds for the unsupported payments cited in this audit report, and implement adequate procedures and controls to address the findings cited in this audit report to prevent more than $93,000 in program funds from not being used over the next year to house needy families.

Date Issued: September 24, 2008
Audit Report No.: 2008-CH-1013

Title: The Highland Park Housing Commission, Highland Park, Michigan, Lacked Adequate Controls Over Unit Conditions and Maintenance Program

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Highland Park Housing Commission's (Commission) Public Housing program (program). The audit was part of the activities in our annual audit plan. We selected the Commission based upon its fiscal year 2005 independent auditor's report that identified it as having a high-risk program. Our objectives were to determine whether the Commission effectively maintained its program units in accordance with HUD's requirements and appropriately used its program operating subsidies. This is the second of two audit reports on the Commission's program.

The Commission did not maintain 45 of 46 program units statistically selected for inspection in good repair, order, and condition. There were 705 deficiencies in the 45 units (average of 14.69 deficiencies per unit) including 43 hazards that HUD requires to be corrected within 24 hours. Based on our statistical sample, we estimate that HUD will pay more than $283,000 in program operating subsidies over the next year for the Commission's units that are not maintained in good repair, order, and condition.

The Commission lacked an effective maintenance process to ensure that program unit deficiencies were identified and repaired in a timely manner. It did not have an approved maintenance policy, failed to implement a preventive maintenance program, did not complete work orders in accordance with HUD's requirements and or/its maintenance policy, and failed to turn around program units in a timely manner. In addition, the Commission inappropriately received more than $29,000 in excess program operating subsidies for seven units that were vacant for more than 12 months. We estimate that the Commission will not receive nearly $116,000 in household payments over the next year due to program units being vacant for more than 30 days.

We recommend that the Director of HUD's Detroit Office of Public Housing require the Commission to reimburse its program from nonfederal funds for the improper use of funds, provide support or reimburse its program from nonfederal funds for the unsupported payments, and implement adequate procedures and controls to address the findings cited in this audit report. These procedures and controls should help to ensure that nearly $400,000 in program funds is spent according to HUD's requirements.

Date Issued: April 30, 2008
Audit Report No.: 2008-CH-1008

Title: The Lansing Housing Commission, Lansing, Michigan Failed to Follow HUD's Requirements for Its Nonprofit Development Activities

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Lansing Housing Commission's (Commission) nonprofit development activities. The review of public housing authorities' development activities is set forth in our fiscal year 2007 annual audit plan. We selected the Commission because it was identified as having high-risk indicators of nonprofit development activity. Our objective was to determine whether the Commission diverted or pledged resources subject to its annual contributions contract (contract), other agreement, or regulation for the benefit of non-HUD developments.

The Commission defaulted substantially on its contract when it improperly pledged resources for the benefit of the Lansing Housing Commission Nonprofit Development Corporation (Corporation) and the Oliver Gardens Limited Dividend Housing Association Limited Partnership (Partnership), organizations created by the Commission without HUD approval. In May 2006, the Commission inappropriately and without conditions guaranteed the obligations of the Partnership's general partner, the Oliver Gardens Limited Liability Company, in a guaranty agreement. Further, the Commission executed another guaranty agreement in September 2006 that unconditionally and irrevocably guaranteed the full and punctual payment of a loan entered into by the Corporation. As of February 29, 2008, the Commission has placed $1.4 million in federal assets at risk by entering into the guaranty agreements which made it responsible for all operating deficits and potential judgements of the Corporation and Partnership. The Commission also inappropriately used more than $745,000 in Public Housing funds for two nonfederal developments, Oliver Gardens and The Abigail.

Lastly, the Commission managed and provided Section 8 housing assistance to the Oliver Gardens, a 30-unit senior housing project that the Partnership owns, and it performed unit inspections of the project's units, thus creating a conflict of interest.

We informed the Commission's executive director and the Director of HUD's Detroit Office of Public Housing of minor deficiencies through a memorandum, dated April 17, 2008.

We recommend that the Director of HUD's Detroit Office of Public Housing require the Commission to amend the guaranty agreements regarding the Corporation and the Partnership to remove the Commission's pledging of its federal assets, submit the amended guaranty agreements to HUD for review and approval to ensure that they comply with its contract with HUD, reimburse the applicable programs for the improper use of Public Housing funds and its receipt of Section 8 administrative fees related to Oliver Gardens, contract with an independent third-party to perform housing quality standards inspections of Oliver Gardens as required by HUD, and implement procedures and controls to address the findings cited in this audit report. We also recommend that the Director refer the Commission's substantial default of its contract to HUD headquarters and request appropriate action be taken against the Commission.

Date Issued: February 15, 2008
Audit Report No.: 2008-CH-1003

Title: The Highland Park Housing Commission, Highland Park, Michigan, Did Not Effectively Administer Its Public Housing and Capital Fund Programs

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Highland Park Housing Commission's (Commission) Public Housing and Public Housing Capital Fund programs (programs). The audit was part of the activities in our annual audit plan. We selected the Commission based upon its fiscal year 2005 independent auditor's report that identified it as having high-risk programs. Our objectives were to determine whether the Commission effectively administered its programs and followed HUD's requirements. This is the first of two audit reports on the Commission.

The Commission's programs administration regarding admission and occupancy, and procurement was inadequate. It did not comply with HUD's requirements and its policies in administering its admission and occupancy process. It was unable to support more than $153,000 in Public Housing operating subsidies received, did not receive total household payments of nearly $29,000, received excess total household payments of more than $13,000, and received nearly $8,000 in Public Housing operating subsidies to which it was not entitled.

The Commission's procurement activities were not conducted according to its and HUD's requirements. It did not follow HUD's requirements for full and open competition regarding the procurement of professional, housing maintenance, and general cleaning services totaling nearly $83,000 and lacked supporting documentation for more than $61,000 in work under the Commission's Public Housing Capital Fund program.

We informed the Commission's acting executive director and the Director of HUD's Detroit Office of Public Housing Hub of minor deficiencies through a memorandum, dated February 15, 2008.

We recommend that the Director of HUD's Detroit Office of Public Housing require the Commission to provide support or reimburse its applicable program from nonfederal funds for the unsupported payments, reimburse its applicable program from nonfederal funds for the improper use of funds, and implement adequate procedures and controls to help ensure that nearly $70,000 in Public Housing funds will be put to better use regarding its administration and occupancy processes.

Date Issued: September 28, 2007
Audit Report No.: 2007-CH-1016

Title: The Plymouth Housing Commission, Plymouth, Michigan, Failed to Adequately Administer Its Section 8 Housing Choice Voucher Program

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Plymouth Housing Commission's (Commission) Section 8 Housing Choice Voucher program (program). The audit was part of the activities in our annual audit plan. We selected the Commission based upon a risk analysis that identified it as having a high-risk program. Our objective was to determine whether the Commission administered its program in accordance with HUD's requirements. This is the second of two audit reports on the programs administered by the Commission.

The Commission's program administration regarding housing unit conditions, the effectiveness of its abatement process, rent reasonableness determinations, zero-income households, and procurement of consulting services was inadequate. Of the 61 housing units statistically selected for inspection, 42 did not meet HUD's housing quality standards, and 38 had 181 health and safety violations that existed at the time of the Commission's previous inspections. The 38 units had between 1 and 15 preexisting health and safety violations per unit. Based on our statistical sample, we estimate that over the next year, HUD will pay more than $1.4 million in housing assistance on units with housing quality standards violations.

The Commission did not comply with its abatement process. Of the 40 statistically selected program units that failed an annual housing or quality housing standards inspection between October 2006 and April 2007, 13 units with emergency health and safety violations were not corrected in a timely manner. It also failed to abate the housing assistance for nine units and improperly abated the housing assistance payments for eight units.

The Commission did not properly determine the reasonableness of program rents before approving housing assistance contracts for all 66 household files reviewed. It also did not adequately determine income for 7 of 25 households that reported zero income. Further, the Commission did not follow its own procurement policy when it acquired the consulting services of The Schiff Group for the administration of its program.

We informed the Commission's executive director and the Director of HUD's Detroit Office of Public Housing of minor deficiencies through a memorandum, dated September 27, 2007.

Date Issued: August 3, 2007
Audit Report No.: 2007-CH-1012

Title: The Plymouth Housing Commission, Plymouth, Michigan, Needs to Improve Its Section 8 Housing Choice Voucher Program Administration

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Plymouth Housing Commission's (Commission) Section 8 Housing Choice Voucher program (program). The audit was part of the activities in our fiscal year 2006 annual audit plan. We selected the Commission based upon a risk analysis that identified it as having a high-risk program. Our objective was to determine whether the Commission administered its program in accordance with HUD's requirements. This is the first of two audit reports on the Commission's program.

The Commission's program administration regarding documentation to support households' eligibility for housing assistance, housing assistance and utility allowance payments calculations, the Family Self-Sufficiency program, household portability, and the cost allocation plan for indirect costs was inadequate. The Commission was unable to support more than $138,000 in housing assistance and utility allowance payments, overpaid nearly $10,000 and underpaid nearly $9,000 in housing assistance and utility allowances, lacked adequate documentation to support nearly $1,900 in reduced housing assistance and utility allowance payments, and failed to remove from its program households that did not receive housing assistance for more than 180 days.

Further, the Commission failed to administer its and the Dearborn Heights Housing Commission's Family Self-Sufficiency programs according to the United States Code, HUD's requirements, and its family self-sufficiency action plan. As a result, the Commission had nearly $930,000 in escrow funds that should have been paid to program participants or reimbursed to the applicable program, misused $53,000 in Housing Choice Voucher/Family Self-Sufficiency Program Coordinators (Coordinators) funds, inappropriately paid more than $14,000 in final escrow payments, could not support more than $13,000 in participants' escrow accounts, and overfunded and underfunded participants' escrow accounts by more than $2,000.

The Commission had weaknesses in the accuracy of housing assistance and program administrative fee payments it made to receiving housing authorities for port-out households. It also failed to establish an adequate cost allocation plan and appropriately allocate indirect costs shared by all of the housing programs it administered.

We informed the Commission's executive director and the director of HUD's Detroit Office of Public Housing of minor deficiencies through a memorandum, dated August 2, 2007.

We recommend that the director of HUD's Detroit Office of Public Housing require the Commission to reimburse its program from nonfederal funds for the improper use of program funds, reimburse its Coordinators funds from nonfederal funds for incorrectly administering its Family Self-Sufficiency program, provide support or reimburse its program from nonfederal funds for the unsupported payments, and implement adequate procedures and controls to address the findings cited in this audit report.

Date Issued: July 17, 2007
Audit Report No.: 2007-CH-1009

Title: The Boyne City Housing Commission, Boyne City, Michigan, Failed to Follow HUD's Requirements for Its Nonprofit Development Activities

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Boyne City Housing Commission's (Commission) nonprofit development activities. The review of public housing authorities' development activities is set forth in our fiscal year 2006 annual audit plan. We selected the Commission because it was identified as having high-risk indicators of nonprofit development activity. Our objective was to determine whether the Commission diverted or pledged resources subject to its annual contributions contract (contract), other agreement, or regulation for the benefit of non-HUD developments.

The Commission, under the direction of its former executive director, defaulted substantially on its contract when it improperly pledged resources for the benefit of the Boyne City Nonprofit Housing Corporation (Corporation) and the Boyne City Housing Commission Limited Dividend Housing Association Limited Partnership (Limited Partnership), organizations created by the Commission, without HUD approval. The Commission obtained two bank loans to purchase 13.47 acres of land. The loans' promissory notes included a provision that allows the bank to setoff the amounts owed on the loans against any and all accounts the Commission has with the bank. As of April 2007, the Commission owed more than $137,000 on the two loans.

The Commission failed to file a declaration of trust on the land to protect HUD's interest and to prevent a conveyance or encumbrance without HUD approval. It also did not obtain HUD's approval to sell 4.82 acres of the land at more than $51,000 below fair market value. Further, the Commission managed Deer Meadows, a 30-unit senior housing project receiving Section 8 housing assistance from the Commission that the Limited Partnership owns and the Commission performed unit inspections, thus creating a conflict of interest.

We informed the Commission's executive director and the director of HUD's Detroit Office of Public Housing of minor deficiencies through a memorandum, dated July 11, 2007.

We recommend that the director of HUD's Detroit Office of Public Housing require the Commission to amend its promissory notes to eliminate the setoff provision to prevent the seizure of the Commission's funds in case of default on the notes; file a declaration of trust on the remaining land to protect HUD's interest; reimburse the applicable program for the sale of part of the land at below fair market value, and the improper Section 8 administrative fees received related to Deer Meadows; contract with an independent third party to perform housing quality standards inspections of Deer Meadows as required by HUD; and implement adequate procedures and controls to address the findings cited in this audit report. We also recommend that the director refer the Commission's substantial default of its contract to HUD headquarters and request appropriate action be taken against the Commission.

Date Issued: January 25, 2007
Audit Report No.: 2007-CH-1002

Title: Benton Harbor Housing Commission, Benton Harbor, Michigan, Did Not Effectively Manage Its Public Housing Program and Has Not Used Special Purpose Grant Funds It Received More Than Nine Years Ago

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Benton Harbor Housing Commission's (Commission) public housing program (program) and its home ownership program funded with Special Purpose Grant (Grant) funds from the City of Benton Harbor (City). The audit was conducted based upon a request from HUD's Detroit Office of Public Housing. Our objectives were to determine whether the Commission effectively maintained its program units in accordance with applicable requirements and appropriately used its program operating subsidies and the City's Grant funds. This is the second of two audit reports on the Commission.

The Commission did not maintain the 42 program units statistically selected for inspection in good repair, order, and condition. There were 1,079 deficiencies, including 167 which HUD requires to be corrected within 24 hours, in the 42 units (average of 25.71 deficiencies per unit). In addition, the Commission did not always conduct its annual program unit inspections within one year. Based on our statistical sample, we estimate that over the next year HUD will pay more than $153,000 in program operating subsidies for the Commission's units that are not maintained in good repair, order, and condition.

The Commission did not comply with HUD's requirements and its policies in administering its program's admission and occupancy process. It was unable to support nearly $167,000 in program operating subsidies received, did not receive total household payments of nearly $2,900, received excess total household payments of $218, underpaid more than $1,500 in utility allowance payments, and was unable to support more than $7,500 in total household payments received.

The Commission lacked an effective maintenance process to ensure program unit deficiencies were identified and repaired in a timely manner. It did not have an approved maintenance policy, implement a preventive maintenance program, complete work orders in accordance with HUD's requirements and/or its maintenance policy, and turn around 98 program units in a timely manner. In addition, the Commission inappropriately received nearly $10,000 in excess program operating subsidies for eight units that were vacant for more than 12 months. We estimate that over the next year the Commission will not receive nearly $50,000 in household payments due to program units being vacant more than 30 days.

The Commission failed to properly administer its home ownership program in accordance with its master participation agreement with eight lending institutions. As a result, the City's residents have not benefited from more than $1 million in financing for the purchase and rehabilitation of family residential owner-occupied homes as of November 2006. In addition, the Commission has not used $240,000 in Grant funds it received from the City more than nine years ago for the home ownership program and nearly $83,000 in interest earned on the Grant funds.

We informed the Authority's executive director and the director of HUD's Detroit Office of Public Housing of minor deficiencies through a memorandum, dated January 22, 2007.

We recommend that the director of HUD's Detroit Office of Public Housing require the Commission to reimburse its program from nonfederal funds for the improper use of funds, provide support or reimburse its program from nonfederal funds for the unsupported payments, and implement adequate procedures and controls to address the findings cited in this audit report. These procedures and controls should help ensure that nearly $203,000 in program funds is spent according to HUD's requirements.

We also recommend that the director of HUD's Detroit Office of Public Housing, in coordination with the director of HUD's Detroit Office of Multifamily Housing, require the Commission to reimburse the City $240,000 from its home ownership program's accounts so the City can use the Grant funds to support housing rehabilitation, transfer to its general fund nearly $83,000 from its home ownership program's accounts so it can use the funds to provide housing services in accordance with the Michigan Compiled Laws, and provide support or transfer more than $60,000 from its home ownership program's accounts so it can use the monies to provide housing services in accordance with the Michigan Compiled Laws.