Inspection and Evaluation Reports

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Issue Date: October 18, 2012
Memorandum Number: 2013-IE-0801

Title: American Recovery and Reinvestment Act Lessons Learned Initiative

In response to a request from the Recovery Accountability and Transparency Board, we gathered and documented information from the U.S. Department of Housing and Urban Development (HUD) regarding its lessons learned from the implementation of the American Recovery and Reinvestment Act of 2009. This initiative was led by the U.S. Department of Interior, Office of Inspector General (OIG). The objective of the initiative was to identify which actions, processes, and mechanisms have been beneficial or posed challenges to agencies and their respective OIGs in meeting the requirements of the Recovery Act.

We identified new monitoring tools and initiatives that HUD developed to monitor Recovery Act-funded programs as well as obstacles and challenges that HUD encountered. The initiative was informational in nature and contains no recommendations.

Issue Date: April 20, 2012
File: IED-12-001R

Title: Evaluation of HUD’s Management of Real Estate Owned Properties

We conducted an evaluation of HUD’s management of its real estate-owned (REO) properties. The objective of our review was to determine whether HUD and its contractors had adequate controls to ensure that HUD REO properties were properly secured and maintained.

We found that the field service managers did not always correctly report vandalism in the HUD REO data system, known as P260, and did not always report each vandalism occurrence to local police departments. As a result, it was difficult to use the P260 system to identify where vandalism of HUD-owned properties occurred, how frequently it occurred in local areas, or the cost to HUD. In addition, the field service managers did not always inspect REO properties at least once every 14 days as required and did not completely document inspections that were performed.

OIG recommended that the Office of Single Family Housing require that field service managers complete the data screen provided in the REO data system for all instances of vandalism or theft and report all such instances to local police departments, whether or not police officers were available to inspect the vandalized properties. We also recommended that the Office of Single Family Housing reemphasize to field service managers that they must conduct routine inspections of REO properties at least once every 14 days.

Issue Date: November 16, 2011
I&E Memorandum: IED-11-008M

Title: Review of Information Reported by HUD Recipients Pertaining to the Number of Jobs Created and Retained with American Recovery and Reinvestment Act Funds

HUD OIG conducted an evaluation of the information reported by HUD recipients pertaining to the number of jobs created and retained with American Recovery and Reinvestment Act Funds. Our evaluation focused on the job data reported by HUD recipients located in the State of New York and covered the reporting periods from the third quarter of 2009 through the fourth quarter of 2010. We wanted to determine the accuracy of the information reported by HUD recipients pertaining to number of jobs created and retained with Recovery Act funds.

Our review of five selected HUD recipients disclosed that the methodology of counting the quarterly hours worked for reporting was not consistent among recipients and there were instances of discrepancies between actual hours worked and hours used in the calculation of jobs for reporting to FederalReporting.gov, the Federal website used for reporting Recovery Act spending and performance. We questioned the accuracy of the job calculations and, in some instances, the data used in these job calculations by recipients, subrecipients, and vendors. However, due to the small sample size, we could not calculate the impact on the nationwide data.

To fully inform the public regarding job creation and retention activities using Recovery Act funding, it is essential to report accurate data. We believe that HUD should: (1) ensure that additional review steps and guidance for accurate reporting of job data be implemented and (2) re-emphasize OMB’s guidance in calculating the estimated number of FTE jobs created based on the actual hours worked.

Issue Date: September 27, 2011
I&E Memorandum: IED-11-007M

Title: Inspection of the Washington, DC Department of Housing and Community Development’s participation in HUD’s Emergency Shelter Grant Program

HUD OIG conducted an inspection of the Washington, DC Department of Housing and Community Development’s (DHCD) participation in HUD’s ESG program in order to determine whether DHCD (the grantee) and its sub-recipients: (1) appropriately used HUD grant funds for eligible homeless assistance services, and (2) accurately entered required information into the Integrated Disbursement and Information System (IDIS).

We determined that DHCD did not use HUD Emergency Shelter Grant funds inappropriately for the transactions that we reviewed. Our inspection also determined that the required information was accurately entered into IDIS for the sample of transactions reviewed. OIG made no recommendations for corrective action.

Issue Date: August 17, 2011
I&E Report: IED-11-004R

Title: Evaluation of Home Equity Conversion Mortgage Loan Payments Made After Death of Borrower

HUD OIG conducted an evaluation of Home Equity Conversion Mortgage (HECM) Loan Payments Made After Death of Borrower. A HUD OIG query of the HUD Single Family Data Warehouse (SFDW) disclosed that servicers of home equity conversion mortgages were making payments to borrowers after the borrowers’ date of death. Therefore, the Inspections and Evaluations Division conducted a review to validate the HECM data and to determine whether such payments resulted in a financial loss to HUD.

We found that although scheduled payments were not made after the date of death of the borrower they were incorrectly recorded in HUD’s Insurance Accounting Collection System (IACS) by lenders. Additionally, loan proceeds from the sale of property and claims paid by HUD were not credited to HECM loan balances in a timely manner, resulting in inaccurate information being reported in SFDW and unreliable financial data being used by HUD. While we noted a few instances in which unscheduled advance payments were made after the death of the borrower, which resulted in overstated claims paid by HUD, we do not believe this is a systemic problem. We also noted instances in which HECM loan servicing files contained indications of suspicious or potentially fraudulent transactions; however, there was no evidence that such matters were referred to HUD for further action.

We believe that the timely reconciliation of HECM loan payment data by lenders and a more comprehensive policy of detecting and reporting fraud will benefit the HECM program.

Issue Date: June 17, 2011
I&E Report: IED-11-003R

Title: Evaluation of HUD’s Governmentwide Purchase Card Program

HUD OIG conducted an evaluation of HUD’s Governmentwide Purchase Card (GPC) Program. Our objective was to determine whether purchase card transactions complied with prescribed policies and procedures.

We selected a total of 73 transactions for review. Our review indicated that the cardholders did not always ensure that: (1) the availability of funds was properly documented, (2) required sources were used, (3) competitive bids were obtained when required, (4) purchase orders were used as required, (5) purchase logs were maintained, (6) sales tax charges were not paid, (7) purchase logs were reconciled with monthly bank statements, (8) supporting records were retained for a sufficient period. We also noted that, in five instances, purchases were split apparently in order to avoid exceeding the micropurchase threshold or cardholders’ single purchase limits.

To improve the effectiveness of the GPC Program, steps must be taken by HUD. These steps include ensuring that: (1) purchase card transactions are conducted in accordance with applicable laws and regulations, (2) managers and approving officials perform a thorough review for potential split purchases, and (3) cardholders are properly trained.

Issue Date: February 16, 2011
I&E Report: IED-11-002R

Title: HUD’s Supportive Housing Program, Survey of Grantee Monitoring of Project Sponsors

HUD OIG conducted a survey of HUD’s Supportive Housing Program (SHP); specifically, the monitoring of nonprofit subgrantees (project sponsors) that deliver supportive housing and/or supportive services. We wanted to assess whether SHP grantees followed Federal regulations and HUD guidance on monitoring project sponsor activities and program expenditures. We also wanted to look at HUD’s role in the grantees monitoring of project sponsors. Questionnaires were sent to all 44 HUD Office of Community Planning and Development (CPD) regional and field offices and to a sample of 11 SHP grantees and 12 project sponsors.

Survey responses indicated that overall HUD is actively providing monitoring guidance to SHP grantees and that most grantees reported compliance with Federal regulations related to their monitoring of project sponsors. However, responses to the survey indicated that improvement is warranted in certain aspects of HUD’s guidance and grantee monitoring.

Effective oversight and monitoring are crucial to ensuring that SHP funds are properly spent to assist in transition people from homelessness. Therefore, HUD should reinforce compliance with Federal regulations and monitoring guidance and ensure that its monitoring reviews include assessment of SHP grantee project sponsor management.

Issue Date: December 9, 2010
I&E Report: IED-11-003M

Title: Utilization of American Recovery and Reinvestment Act of 2009 (ARRA) Funds by the Housing Authority of the City of Fort Myers, Florida

HUD OIG conducted an inspection to address concerns of OIG senior management regarding the Housing Authority of the City of Fort Myers’ (HACFM) use of ARRA funds to construct a new administration building. Specifically, we wanted to know whether: (1) HACFM could use ARRA funds to construct a new administration building, and (2) did HACFM use ARRA funds to purchase furniture and equipment for the new administration building; if yes, was this an eligible activity.

We determined that HACFM could utilize ARRA funds and its fiscal year public housing capital funds for the construction of a new administration building. Also, HACFM did not use ARRA funds to purchase furniture and equipment for the new administration building. These purchases were made from other eligible funding sources. OIG made no recommendations for corrective action.

Issue Date: November 4, 2010
I&E Report: IED-11-001R

Title: HUD's Departmental Enforcement Center's Compliance Division, Evaluation of Suspension and Debarment Referrals

HUD OIG conducted an evaluation of HUD's Departmental Enforcement Center (DEC), specifically, the Compliance Division. We wanted to know whether DEC processed suspension and debarment referrals in a timely manner. We also wanted to identify ways to improve case management for suspensions and debarments. Between October 1, 2006, and December 9, 2009, the Compliance Division received a total of 978 suspension and/or debarment referrals (cases) from HUD OIG, various HUD program offices, and the U.S. Department of Justice.

Review of 62 cases disclosed that suspension and debarment referrals were not processed in a timely manner and federal requirements for entry of suspended or debarred individuals or entities were not met. Delays in the processing of suspension and debarment actions and late entry of information on excluded individuals or entities into the Excluded Parties List System ultimately places HUD and other Federal agencies at an increased risk of awarding contracts, grants, and other subsidies to unethical, dishonest, and irresponsible parties. Further, DEC's record keeping system for suspensions and debarments needs improvement.

To improve the effectiveness of HUD's administrative sanctions program, steps must be taken by DEC to ensure that suspension and debarment actions are processed consistently and in a timely manner. These steps include development of formalized written policies and procedures for the Compliance Division and department wide guidance. Also, a uniform record keeping system that provides for a complete historical record of the suspension and debarment process should be established.

Issue Date: September 29, 2010
I&E Report: IED-10-003

Title: Evaluation of the Effectiveness of HUD's Credit Watch Termination Initiative in Deterring Deficiencies in the Performance of Lenders' Loans

We evaluated HUD’s Credit Watch Termination Initiative (Credit Watch) to determine whether it was used effectively to deter deficiencies and substandard performance in Federal Housing Administration (FHA) single-family lending. We also sought to determine whether Credit Watch could be manipulated, allowing lenders to avoid HUD’s scrutiny and program sanctions. While we noted a past instance in which a lender manipulated the Credit Watch program to avoid HUD scrutiny (i.e., closing an “at-risk” branch office approaching the 200 percent termination threshold and then opening a new branch office in the same lending area to originate loans), our review did not disclose a systemic problem.

Credit Watch statistical reports effectively identified lender branch offices with unacceptable high default and claim rates. However, we observed that historically Credit Watch analyses and sanctions were narrower in scope than permitted by Federal regulations; results of the analyses were not routinely shared or coordinated with other departmental oversight efforts; and procedures for proposed termination actions were not available and records were incomplete. We noted one other matter concerning procedures for determining and supporting the de minimis amount used to identify lenders that are subject to the Credit Watch process.

OIG recommended that HUD’s Office of Single Family Housing (Single Family) establish a formal process to better coordinate the Credit Watch results with other departmental oversight efforts. Further, Single Family needs to formally document its procedures for postponing and withdrawing proposed Credit Watch terminations and establish a uniform record keeping system for the process and results. We also recommended that Single Family formally document its procedures for the de minimis amount and ensure the basis for the amount is supported.

Issue Date: September 21, 2010
I&E Report: IED-10-002

Title: ACORN Housing Corporation, Inc., Evaluation of HUD Housing Counseling Grant Expenditures

In response to a congressional request, we performed an evaluation of grant funds awarded under HUD's Housing Counseling Program to ACORN Housing Corporation, Inc. (AHC), now operating as Affordable Housing Centers of America (AHCOA). We wanted to know whether AHC used its fiscal years 2008 and 2009 HUD grant funds totaling $3,252,399 in compliance with grant agreement requirements. Our tests focused on HUD funds used to pay the salary and fringe benefit costs (salary expenses) of AHC staff that provided housing counseling directly to clients. More than $2.544 million was charge to the HUD grants as salary expenses ($1.353 million or 83 percent in FY 2008 and $1.191 million or 73 percent in FY 2009).

Salary expenses charged by AHC to the HUD housing counseling grants were not fully supported. Payroll records requested did not comply with OMB Circular A-122, for example, time sheets did not distribute hours by grant. Further, the caseload allocation method used by AHC to determine the amount of HUD-chargeable salary expenses was problematic and unsupported. Consequently, HUD had no assurance that the counselors' salary expenses charged to the HUD grants reflected grant-eligible services. Also, ineligible salary expenses totaling $65,548.37 were charged to the FY 2009 HUD grant, and Federal procurement standards at 24 CFR Part 84 which requires open and free competition was not met.

OIG recommended that HUD's Office of Single Family Housing, Program Support Division, require AHCOA to reimburse the program for unsupported and ineligible salary expenses charged to the HUD housing counseling grants and implement a time and activities system that meets OMB Circular A-122 requirements. Further, AHCOA needs to implement a procurement system that complies with 24 CFR Part 84. We also recommended that Single Family's Program Support Division consider placing AHCOA in inactive status while it initiates corrective actions to address the exceptions and recommendations in the report and provide AHCOA with technical guidance and assistance as needed.

Issue Date: March 2010
I&E Report: IED-09-002

Title: Inspection of the State of Louisiana 's Road Home Elevation Incentive Program Homeowner Compliance

We completed an inspection of the State of Louisiana 's (State) Road Home Elevation Incentive (elevation grant) program funded by HUD Community Development Block Grant disaster recovery funds. We wanted to know whether homeowners used the funds to elevate their homes as set forth in their grant agreements. Our inspection covered 199 (about 10 percent) of the 1,906 property owners who received more than $44.4 million in elevation grants during the first round of State funding in 2006 and 2007.

Results of our inspections strongly suggest that the elevation grant program is at risk and could fail to achieve its intended goal of reducing homeowner flood risks from future hurricanes. Most homeowners had not elevated their homes, even though they received grants of up to $30,000 in 2006 and 2007 to pay toward the construction costs. Seventy-nine percent of the homes we inspected (158 of 199 properties) were not elevated. These noncompliant homeowners received grant funds exceeding $3.8 million. More than 29,000 homeowners have now received taxpayer funded checks totaling $845 million to leverage the cost of elevating their properties.

Robust State oversight and enforcement of grant terms are needed to increase and reduce the risk of program failure. It is imperative that HUD and State officials work quickly and collaboratively to reduce the incidence of noncompliance in the program going forward. The State must ensure that monitoring of the grant provides adequate coverage to specifically identify compliant and noncompliant recipients. Elevation grant recipients that have yet to meet the terms of their grant agreements must be advised to either elevate the subject property or return the elevation grant funds to the State. Furthermore, program remedies for noncompliance set out in the elevation grant agreements must be enforced starting with recovery, where warranted, of the $3.8 million in grant funds from the 158 noncompliant homeowners in our sample.

Issue Date: March 2010
I&E Report: IED-09-007

Title: Evaluation of Debt Servicing and Collections, Financial Operations Center, Albany, NY

We evaluated the efforts of HUD's Financial Operations Center (FOC) in managing Federal Housing Administration (FHA) debts due HUD as a result of single-family indemnification agreements and civil money penalties (CMP). We wanted to know whether FOC debt servicing and collections complied with applicable Federal laws and regulations. We also wanted to determine the status and assess the collectability of the September 30, 2008, indemnification debt balance of more than $45.9 million.

FOC staff complied with the Federal statutory and regulatory guidelines covering the collection of indemnification and CMP debt. The FOC serviced debt in a timely manner, and debt management decisions were reasonable and prudent. FOC collection rates compared favorably with rates of the U.S. Department of Veterans Affairs and private collection agencies.

Regarding the indemnification debt balance of $45.9 million, much of it is seriously delinquent, old and the likelihood of collection is doubtful. As of September 30, 2009, the debt balance stood at almost $40.9 million.

Issue Date: March 2010
I&E Report: IED-09-006

Title: Recovery Accountability and Transparency Board Survey of Contracts and Grants Workforce Staffing and Qualifications Evaluation of Reported Staffing Levels

We evaluated HUD 's September 2009 response to questions posed by the Recovery Accountability and Transparency Board 's survey of staff resources dedicated to American Reinvestment and Recovery Act (ARRA). We wanted to know if the reported number of HUD contract and grant personnel responsible for ARRA funding and oversight could be validated and relied on for public disclosure.

The full-time equivalent (FTE) staffing levels submitted in response to the Board survey could not be validated. The reported FTE staffing levels reflected informed estimates by headquarters program management of ARRA activities. Documentation was not available to support the estimates because HUD does not track workforce time and activity directly, pay period by pay period. A comparison of FTE estimates from the survey for the 3rd quarter of FY 2009 to ARRA activity reported in HUD 's Total Estimation and Allocation Mechanism for the same period disclosed material and unexplained differences in the staffing data reported by the Office of Community Planning and Development (CPD) and the Office of Public and Indian Housing (PIH). CPD and PIH are responsible for awarding and monitoring $11.26 billion (83 percent) of HUD 's $13.62 billion in Recovery Act funding.

HUD 's oversight of Recovery Act activities can be improved through implementation of a verifiable process to account for staff time. A documented count of FTEs provides information to senior management for use in decision making concerning HUD 's responsibilities under ARRA. It also serves as a control process consistent with the guidelines set out in Office of Management and Budget Circular A-123. Further, any future responses to ARRA requests should be supported by information that can be validated.

Issue Date: November 2009
I&E Report: IED-09-005

Title: Inspection of the Assignment and Assumption of Mark-to-Market Loans Lakeshore Village Apartments Cleveland, OH

We conducted an inspection of post-Mark-to-Market (M2M) restructuring of mortgage debt of Lakeshore Village Apartments (Lakeshore Village), Cleveland, OH, to determine the validity of an informal complaint from HUD's Multifamily Office of Asset Management (OAM). OAM staff was concerned that, in approving the assignment and assumption of the restructured debt instruments, HUD's Office of Affordable Housing Preservation (OAHP) was not sufficiently verifying information provided from purchasers and sellers and stated that OAHP (1) allowed the nonprofit purchaser to retain approximately $400,000 that should have been remitted to HUD, (2) failed to provide timely information to OAM during the decision-making process, and (3) ignored questions raised by OAM staff about the amount of proceeds due HUD at loan closing.

Our inspection did not substantiate any of the allegations in the informal complaint. OAHP followed HUD guidelines appropriately in calculating the post-M2M proceeds due HUD at closing, took into consideration questions raised by OAM staff during the loan approval process, and did not ignore OAM's concerns. Nevertheless, OAHP and OAM could not reach full agreement on some of OAM's concerns. Going forward better communications between the two offices are needed to adequately resolve questions raised during the loan approval process. Apart from our inspection objective, we observed three other matters that the Office of Housing should address concerning (1) certified source and use of funds statement, (2) voting rights on the Assumption/Subordination Loan Committee, and (3) safe harboring certification.

We recommended that the Office of Housing ensure that (1) OAM and OAHP continue their pre-loan committee meetings and provide a comprehensive record of the concerns raised and the decisions arrived at during the assignment and assumption approval process, (2) the assignment and assumption approval process not be completed until such time as a certified source and use of funds statement is received by OAHP, (3) existing HUD guidelines are amended as soon as possible to clarify OAHP's and OAM's responsibilities during the assignment and assumption approval process, and (4) nonprofit purchasers who intend to qualify for safe harboring status include a certification of their independence from any for-profit entity by declaring, "the information contained in these documents is true and correct under the penalty of perjury."

Issue Date: September 2009
I&E Report: IED-09-004

Title: Inspection of Whether Duplicate Rental Assistance Payments Were Made to CPD Grant Recipients

We completed an inspection to determine whether recipients of rental assistance payments under HUD's Community Planning and Development (CPD) Programs also received rental subsidies under HUD's Section 8 Housing Programs. CPD funding for rental assistance to eligible individuals is provided through five separate grant programs?Shelter Plus Care, Supportive Housing Program, Housing Opportunities for Persons with Aids, Section 8 Moderate Rehabilitation for Single Room Occupancy, and HOME Investment Partnerships Program. These programs are in addition to HUD's Section 8 programs that also pay for rental assistance. HUD's CPD Director for the New York office expressed concern that the duplication of subsidy payments may be occurring between the programs.

Based on the sample of 123 CPD grant recipients in the New York office, our inspection disclosed no instances of duplication of rental assistance payments made using both CPD funds and Section 8 funds. However, we did find that CPD grantees administering the programs were not consistent in their approach to enforcing the prohibition against such duplications. Also, we identified one instance where rental assistance payments continued for an individual after the person moved out.

We recommend that the Deputy Assistant Secretary for Special Needs Programs advise the (1) Regional CPD Directors to provide clear guidance and technical support to its grantees to ensure that they clearly understand their responsibilities in enforcing federal regulations pertaining to the proper payment of rental assistance subsidies under the Shelter Plus Care and Supportive Housing Programs; and (2) New York CPD Director to follow-up with the New York State Office of Mental Health (OMH) to determine whether an overpayment of rental assistance was made, and if so, the OMH should be directed to take appropriate measures to recapture the funds.

Issue Date: September 2009
I&E Report: IED-09-004

Title: Inspection of Whether Duplicate Rental Assistance Payments Were Made to CPD Grant Recipients

Issue Date: September 2009
I&E Report: IED-08-005

Title: Inspection of HUD's Recapture of Unspent Pre-2005 Disaster Recovery Grant Funds

We performed an inspection to determine whether HUD had appropriately recaptured unspent funds awarded from the more than $5.3 billion in Community Development Block Grant Disaster Recovery funding appropriated before 2005. According to HUD data, as of August 2008, grant awards totaling $4.7 billion had no unspent funds; 121 grant awards had unspent funds, of which HUD recaptured or deobligated more than $17.5 million.

Our inspection disclosed that HUD did recapture and deobligate unspent pre-2005 Disaster Recovery grant funds from expired grant contracts, as required. Unspent funds were recaptured or deobligated through HUD's Line of Credit Control System as the grants expired. However, we noted three observations that warrant management attention. First, HUD did not ensure that expired Disaster Recovery grants were closed out and unspent grant funds were recaptured or deobligated on a timely basis. Second, the Disaster Recovery Grant Reporting (DRGR) system did not contain accurate information regarding the closeout status of expired Disaster Recovery grants. Finally, closeout documentation was missing from five Disaster Recovery grant files we reviewed.

HUD's oversight of Disaster Recovery grants can be improved by implementing steps that ensure (1) closeout of disaster grants and recapture of unspent grant funds is completed timely, (2) correct and timely grant status information is entered into the DRGR system, and (3) that formal closeout documents are included in the grant files.

Issue Date: June 2009
I&E Report: IED-08-004

Title: Evaluation of HUD's Workers' Compensation Program

We completed an evaluation of HUD's management of its Workers' Compensation Program (WCP). Our primary objectives were to determine whether HUD's contractor, Lifecare Management Partners (Lifecare) of Alexandria, VA, managed the program in accordance with its contract terms and identify opportunities to improve program policy and procedures. We also wanted to determine the level of program noncompliance and potential fraud among HUD's 371 former employees and WCP beneficiaries. Lifecare has administered HUD's WCP agency-wide since April 1997.

We concluded that Lifecare managed the program in accordance with its services contract. We recommend that HUD modify Lifecare's contract to add fraud detection steps similar to our testing of public records and to add a formal referral process to ensure the proper investigative agency receives the information when appropriate.

Issue Date: May 2009
I&E Report: IED-09-003

Title: Evaluation of Mortgagee Review Board Enforcement Actions

In response to a request from Senator Charles Grassley, Ranking Member, Senate Committee on Finance, we conducted an evaluation of Mortgagee Review Board (MRB/Board) enforcement actions as part of HUD's oversight of Federal Housing Administration (FHA) single-family mortgage lenders. Senator Grassley asked us to update a review of the MRB by the Government Accountability Office (GAO) in its 2004 report on FHA risk management. The evaluation focused on MRB rulings in fiscal year (FY) 2008 and the 10 specific questions that were asked in his letter. Our objectives were to identify the facts related to those questions and provide an independent assessment of the MRB's effectiveness in deterring abuse in FHA mortgage lending.

The MRB was established by statute in 1989 as an enforcement body at HUD authorized to take administrative sanctions against FHA approved lenders. These include letters of reprimand, probations and suspensions, withdrawals, and entering into settlement agreements with lenders. It is also authorized to impose civil money penalties against lenders for a set of violations specified in the regulations at 24 C.F.R. 30.35. A description of and the cause for each administrative action taken by the Board is required, under 24 C.F.R. 25.10, to be published in the Federal Register at least quarterly. The MRB's annual report indicated it ruled on 94 single-family lender referrals in FY 2008, 65 of which were administrative cases of noncompliance with FHA annual recertification requirements.

We reviewed 25 referrals (no administrative cases) to the MRB during FY 2008 for rulings on violations of FHA single-family regulations and policy.

The MRB's sanctions directly affected only a small number of lenders out of a possible 12,461 FHA approved single-family lenders. The violations for which the MRB cited lenders rarely warranted withdrawal of FHA lending authority. The sanctions and fines obtained against lenders were frequently mitigated. Elapsed time to complete Board action was slow, taking an average of 6.4 months following notice to the lender, and was prolonged by case development or settlement negotiations in many instances. The MRB's public visibility was also greatly reduced because the results of its rulings were not published in the Federal Register in FY 2008 as required or otherwise disseminated on HUD's Web site.

The MRB will remain marginal as an effective sanctioning body unless its enforcement actions include a much larger caseload. Its effectiveness will depend on FHA dedicating more resources to quality assurance monitoring and referring a greater number of targeted lenders to the MRB for sanctioning. A referral to the Board should elicit the expectation of a maximum sanction that reach in a significant way to problematic lenders and serve as a strong deterrent to abusive practices. Imposed penalties should be viewed as of real financial consequence to the violating lender, rather than as a negotiable administrative cost of doing FHA mortgage business. For greater public impact and higher industry visibility, Board decisions and the adverse consequences of violating FHA lending standards must be timely disseminated through the Federal Register, the Department's and trade association Web sites.

Issue Date: October 08
I&E Report: IED-08-006

Title: Progress Payments for Construction at Savoy Place, New Orleans, Louisiana

We completed an inspection of HUD funds drawn from the Line of Credit Control System (LOCCS) to pay for construction at Savoy Place, the last phase of the Desire Development at The Housing Authority of New Orleans (HANO). The Desire Development is a three-phase HOPE VI development, comprising of Abundance, Treasure, and Savoy Place. We compared progress payments HANO made to the developer, Michaels Development Company, with documentation of construction work performed. In addition, we discussed the records with key contractor personnel at HANO.

The objective of the inspection was to determine whether HUD funds drawn from LOCCS for Savoy Place before Hurricane Katrina corresponded with the cost of construction.

We determined that the progress payments to Michaels Development Company were used for construction work completed at Savoy Place and that HUD funds drawn corresponded with the progress payments made.

Issue Date: September 08
I&E Report: IED-08-003

Title: Reconstruction of Public Housing Damaged by Hurricane Katrina on the Mississippi Gulf Coast

We completed an evaluation of public housing reconstruction with HUD funds on the Mississippi Gulf Coast. Our objective was to determine the status of the recovery efforts and determine how the risks of building on sites located in designated flood plains are being addressed.

Hurricane Katrina damaged 29 project sites. After Hurricane Katrina, FEMA revised floodplain guidance in the affected areas, and HUD made $100 million in grant funds available for public housing recovery through the State of Mississippi. As of August 31, 2008, the State had approved or was considering using these funds on a total of 24 developments proposed by the PHAs, 13 of which are in floodplain areas. The estimated total construction cost of the 24 proposed projects is $231 million, including estimated total HUD funding of $91 million. The State of Mississippi has followed a specific process in the major reconstruction of the five Gulf Coast public housing authorities severely damaged by Hurricane Katrina.

The Mississippi Development Authority (MDA), the State agency responsible for assuring PHA compliance with floodplain construction regulations, followed HUD's floodplain management and eight-step decision-making processes in its project funding decisions and is requiring necessary mitigating actions. MDA is also requiring PHAs to provide proof of each project's total financing and future cash flows to sustain operations and to maintain 100 percent insurance coverage on replacement values for all hazard types.

The Office of Inspector General will continue to monitor the use of these and other HUD disaster recovery funds allocated to the Gulf Coast as well as perform future inspections of other coastal recovery programs and related regulatory compliance.

Issue Date: September 08
I&E Report: IED-07-001

Title: Evaluation of FHEO Housing Discrimination Complaint Processing and Compliance

We completed an evaluation of HUD's Office of Fair Housing and Equal Opportunity (FHEO) and its nonprofit affiliated Fair Housing Assistance Program (FHAP) and their processing of housing discrimination complaints. The objective of our evaluation was to determine whether FHEO and FHAP intake and investigation processes are timely completed, consistently thorough, and accurately reported in the Title VIII Automated Paperless Tracking Office System (TEAPOTS). Our evaluation follows prior work conducted by the Government Accountability Office (GAO) that addressed similar program management issues. In its October 2005 report (GAO-06-79) the Government Accountability Office found deficiencies in processing timeliness, documentation sufficiency, and the data integrity of TEAPOTS and recommended corrective actions to improve performance.

Based on our tests of random samples of FHEO and FHAP investigations nationwide, we found evidence of the same or similar processing deficiencies noted in the GAO report. Our tests covered fair housing investigations opened and conducted during two periods subsequent to the GAO review, January through June 2006 and October through December 2007. Consequently, although several compliance improvements were noted, we recommend that HUD conduct aggressive monitoring and appropriate tests of current case documentation compliance with the Fair Housing Act, related regulations, and Handbook guidelines.

Issue Date: September 08
I&E Report: IED-07-003

Title: HAP Overpayments to Multifamily Property Owners after Hurricane Katrina

We completed an inspection of Section 8 housing assistance payments (HAP) to owners of multifamily properties in Louisiana that were severely damaged or destroyed by Hurricane Katrina in August 2005. The tenants vacated these properties shortly after Katrina struck. In the storm's aftermath, HUD and the Louisiana Housing Finance Agency (LHFA) continued to subsidize property owners, although many properties under HAP contract were vacant and not habitable. In November 2005, HUD notified its New Orleans field office that the owners of the vacant properties were entitled to HAP only for a 1-month grace period (September 2005).

The primary objective of the inspection was to determine the amount of Section 8 HAP overpayments that were made to these property owners and whether HUD had recaptured any of the overpayments. To satisfy this objective, we obtained and analyzed information from relevant HUD management and financial data systems and discussed our data with the Office of Multifamily Housing.

We determined that HUD and the LHFA made HAP overpayments of $1,607,283 to 27 multifamily property owners in Louisiana . Most of the overpayments were incurred for the month of October 2005. As of July 24, 2008, HUD and the LHFA had recovered a total of $527,407 related to 7 of the 27 properties. More than $1 million remains to be recovered, including $145,362 from two properties for which HAPs were resumed in March 2007 and January 2008, respectively.

HUD plans to send out collection letters to the property owners that have not made repayments. The draft letters inform owners to either remit the total amount of the HAP overpayment within 2 weeks or to have future HAPs reduced by the amounts owed to HUD in cases in which the owners plan to reopen their buildings to Section 8 tenants. Noncompliance with these instructions may result in administrative sanctions against the ownership/management parties.

Issue Date: January 24, 2008
I&E Report: IED-07-002

Title: Monitoring of Local Governments Under the State CDBG Program

We completed a nationwide inspection of the monitoring conducted by State agencies of units of general local government (referred to in this document as local grant recipients) under the State Community Development Block Grant (CDBG) program. Monitoring is one method used by States to ensure compliance with program regulations and assists agencies in the detection and prevention of fraud.

The objective of this inspection was to determine the types and extent of monitoring utilized by the States to ensure the proper use of CDBG funds by local grant recipients. The inspection also set out to determine whether the monitoring efforts resulted in any remedial actions taken by the States. The review focused on the monitoring efforts carried out by the States during their 2004 and 2005 program years and did not evaluate the effectiveness of their monitoring.

We determined that, except for the need to improve their monitoring of the receipt of single audit reports from local grant recipients, the participating States are essentially adhering to the basic Federal monitoring requirements. Almost all of the participating States have conducted on-site monitoring visits during their 2004 and 2005 program years, and all 49 participating States and Puerto Rico submitted their annual performance and evaluation reports to HUD. While the States have assigned staff to monitor the local grant recipients, a total of six States advised that inadequate resources have hindered their ability to monitor the local grant recipients. It was also noted that five of the nine States we contacted issued sanctions against local grant recipients for not complying with program requirements or achieving program objectives.

Issue Date: January 24, 2008
I&E Report: IED-08-001

Title: Evaluation of Community Development Block Grant and Public and Indian Housing Funding of Hurricane Katrina Reconstruction, Biloxi Housing Authority Risk Assessment

We completed a risk assessment of Community Development Block Grant (CDBG), Office of Public and Indian Housing (PIH), and other funding associated with Katrina Public Housing reconstruction on the Mississippi Gulf Coast. Our objectives were (1) to identify the source, amounts, and disposition of disaster relief funding and (2) to assess the "overlap" risk associated with the multiple funding sources and the extent to which there may be duplication of planned uses for the funds or inappropriate obligations.

We focused our fieldwork and evaluation on the Biloxi Housing Authority and its Katrina recovery activities because of the severity of damage and the multi-million-dollar cost of restoring public housing in the city.

We identified sources and uses of more than $22 million in disaster recovery funds managed by the Biloxi Housing Authority through September 2007. We concluded that the Biloxi Housing Authority had demonstrated sufficient accounting and management control over these resources to minimize the risk of funding overlaps. However, because the state of Mississippi has allocated an additional $41 million in CDBG funding to support the Biloxi Housing Authority's continued recovery, we also recognize that HUD and the Mississippi Development Authority need to exercise close scrutiny of each grant application and the sites selected for redevelopment and carefully monitor the future construction and related expenditure of taxpayer funds.

Issue Date: January 24, 2008
I&E Report: IED-07-007

Title: Preforeclosure Sales Program in Region III

We completed an evaluation of the preforeclosure sales program in Region III. Our objectives were to determine whether mortgagees administered the program in compliance with Federal Housing Administration (FHA) requirements and whether these procedures effectively limited the risk of program fraud and abuse.

We determined that mortgagees technically complied with most FHA requirements in administering the program for the homes tested in our sample. However, we also found that current FHA program guidelines were not adequate to ensure that several homes approved for preforeclosure sale were sold at fair market or optimum value. As a consequence, the U.S. Department of Housing and Urban Development (HUD) may be incurring higher insurance claims than necessary on some properties sold through this loss mitigation program. Although modest in terms of volume and the total dollar amount of FHA insurance claims, preforeclosure sales, therefore, remain inherently vulnerable to investor exploitation as well as fraud schemes.

Issue Date: January 24, 2008
I&E Report: IED-07-007

Title: Preforeclosure Sales Program in Region III

Issue Date: November 21, 2007
I&E Report: 2007-11-20

Title: Review of HUD's Performance in the Gulf Coast

We reviewed the work that HUD conducted in its four major program areas to include Community Planning and Development including the Community Development Block Grants disaster funding, Public and Indian Housing including the temporary housing assistance programs, Single Family Housing, and Multifamily Housing. We also briefly summarize activities in Other Program areas.

Overall we determined that HUD took prompt action to assist in the aftermath of the Gulf disaster by enacting the Continuity of Operations Plan, establishing task forces, putting a moratorium on foreclosures, redirecting already programmed funds, and partnering with FEMA to assist the evacuees and address infrastructure needs. HUD took immediate and continuing action by helping HUD's assisted housing families and the homeless, worked closely with the states to approve their action plans, and generally made funds available in a timely manner.

Issue Date: June 01, 2007
I&E Report: IED-06-0002

Title: College Student Section 8 Recipients

We completed a limited review concerning college students living in Section 8 subsidized housing. We conducted the review in response to media and congressional attention and subsequent issuance of new regulations and policy guidance by HUD that restricted the eligibility of the students. The media had reported that taxpayer subsidized housing was being occupied by students to offset the high price of college. It also reported concerns by the National Low Income Housing Coalition that the college students were misusing HUD's Section 8 Program.

The objectives of our review were to determine: the extent of college student participation in the Section 8 program; and whether the public housing authorities and multifamily property owners had started certifying/recertifying college students under HUD's new regulations and policy guidance.

We determined that the public housing authorities (PHAs) and the multifamily property owners were not in full compliance of HUD's new regulations and policy guidance. We estimated that a substantial number of college students were using HUD's Section 8 program. However, we could not determine the exact extent of student participation because PHAs and/or some multifamily property owners did not solicit student status for all adult household members. In addition, the PHAs had not updated their administrative plans to incorporate HUD's new requirements for college students. Also, multifamily property owners either did not solicit or did not verify if college students were independent from their parents and if their parents were income-eligible. Additionally, the owners did not verify the students' non-tuition portion of educational financial assistance.

Issue Date: June 05, 2007
I&E Report: IED-06-0011

Title: Social Security Number Validation for Single Family Loans

We completed a limited review of social security number validation procedures used by lenders to qualify single family loans for FHA mortgage insurance. Prior to 2005, the use of invalid or false social security numbers (SSNs) by borrowers and co-borrowers to obtain FHA insured mortgages was an issue. Effective June 2005, FHA required the lenders to validate borrowers social security numbers by matching their names and dates of birth through FHA Connection. The FHA outlined specific procedures for the lenders to follow.

The objectives of our review were to determine: whether lenders are using the social security number validation procedures, if the procedures are working, and how lenders resolve validation failures.

We determined that: 1) lenders were using the validation procedures and the procedures were working; 2) use of invalid SSNs and total loans originated by lenders, significantly decreased since HUD's implementation of the revised validation procedures; 3) the findings reported in the Quality Assurance Division's reviews of the mortgage companies on the use of invalid or false social security numbers has declined considerably; and 4) lenders properly resolved validation failures when the SSNs failed initial verification through FHA Connection.

Issue Date: June 05, 2007
I&E Report: IED-06-0012

Title: Sprint FONCARDS

We completed a limited review concerning Sprint FONCARDS or calling cards. We conducted the review to ensure adequate controls were present.

The objectives of our review were to determine the controls in place to identify waste, fraud or abuse regarding the FTS 2001 Sprint FONCARD.

We determined that verification memorandums were not being sent to individuals to verify that calls were official and were made by the individual as required in the monthly review process. We also determined that there was a limited inventory of the cards. A complete inventory of personnel and FONCARD numbers are required in order to identify and notify individuals.