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The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Housing Authority of the City of Milwaukee's (Authority) 5(h) and Section 32 homeownership programs (programs). We selected the Authority based on a risk analysis showing that it had high-risk program indicators. Our objectives were to determine whether the Authority properly accounted for and used its programs' proceeds in accordance with HUD's requirements and properly administered its programs in accordance with the Authority's plans.

The Authority did not adequately administer its programs with regard to whether program units were used by purchasers as their residences, sold to eligible purchasers, sold at their appraised value, and met HUD's recapture requirements. It also did not ensure that outstanding mortgage notes owed to it were recaptured. The Authority lacked adequate procedures and controls to ensure that HUD's regulations and its plans were followed in regard to the use of its 5(h) program units by purchasers as their residences and the recapture of outstanding mortgage notes owed to it. It failed to recover $68,366 for two units that it sold that were not used by the purchasers as their residences. Further, the Authority did not recover two outstanding mortgage amounts owed to it totaling $23,399.

The Authority improperly sold a Section 32 program unit for $114,500 to an individual who, five months before the sale, acquired a non-Authority property. It also sold six Section 32 program units for a total of $150,000 below their appraised values. Further, the Authority did not require the appropriate restrictions and/or covenants for any of its 21 Section 32 program units sold.

We informed the Authority's executive director and the Director of HUD's Minneapolis Office of Public Housing of minor deficiency through a memorandum, dated March 31, 2009.

We recommend that the Director of HUD's Minneapolis Office of Public Housing require the Authority to reimburse its applicable homeownership program from nonfederal funds for the improper use of more than $356,000 in program funds and implement adequate procedures and controls to address the findings cited in this audit report to properly secure its interest in program units.