New York External Audit Reports
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Issue Date: May 17, 2012
Audit Memorandum No. 2012-NY-1801
Title: New York City Housing Authority Hotline Complaint, Case Number HL-2011-0705
We completed a review of the New York City Housing Authority’s use of Federal funds. We selected this auditee based on a hotline complaint, case number HL-2011-0705, which alleged a pattern of waste, overspending, and abuse by the Authority. Specifically, the complaint alleged that the Authority (1) froze its Section 8 vouchers due to lack of available funds, (2) overpaid at least one housing manager with an annual salary of $187,000, (3) paid 51 defense attorneys more than $4 million annually, and (4) used Section 8 Federal funds to inefficiently lease office space. The objectives of the review were to determine whether the complaint alleging waste and mismanagement of Federal funds at the Authority had merit and whether there were indications that the Authority did not operate in accordance with HUD requirements.
Our review determined that although the facts of some of the allegations were substantiated, the four complaint allegations pertaining to waste and mismanagement of Federal funds at the Authority did not violate regulations and thus, required no further action. Authority officials confirmed that unoccupied space in 90 Church Street and 250 Broadway was the result of a reduction in employees and a mandatory cessation in hiring. Further, although the Authority compensated three of its commissioners with salaries and a resident board member with a stipend as allowed by New York Code for Public Housing, Authority officials did not have adequate documentation to support how the salaries were determined.
We recommend that the Director of HUD’s New York City Office of Public Housing instruct Authority officials to (1) conduct an office space assessment to determine whether it is cost effective to reallocate existing space at 250 Broadway and 90 Church Street; and (2) establish a written process regarding the assignment of its board of directors’ salaries to ensure that the Authority sets the salaries at reasonable levels and documents this process.
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Issue Date: February 21, 2012
Audit Report No. 2012-NY-1007
Title: The City of Syracuse, NY, Did Not Always Administer Its Economic Development Initiative Program in Accordance With HUD Requirements
We audited the City of Syracuse, NY, pertaining to its Economic Development Initiative (EDI)-Special Project grants. The audit objective was to determine whether City officials were administering EDI Special Project grants effectively, efficiently, and economically in accordance with applicable rules and regulations. Specifically, we wanted to determine whether City officials expended EDI funds for eligible activities that were fully supported and achieved the grant objective.
City officials did not always administer and monitor the City’s EDI-Special Project grants effectively, efficiently, and economically in accordance with applicable rules and regulations. Specifically, they did not ensure that (1) all grant and leveraged costs were adequately documented to support the grant agreement’s intended use, (2) contract and procurement standards were followed, and (3) funds disbursed to recipients were used to complete activities in a timely manner. These deficiencies were due to management’s not implementing effective controls including monitoring procurements, disbursements, and grant progress to ensure that the program was conducted in accordance with the applicable regulations. As a result, more than $2.5 million of the funds disbursed was considered unsupported, and another $198,400 in preaward grant costs was ineligible.
We recommend that the Director of the U.S. Department of Housing and Urban Development’s (HUD) Congressional Grants Division instruct City officials to (1) repay from non-Federal funds the $198,400 in ineligible preaward grant disbursements; (2) submit documentation to justify the unsupported costs of more than $2.5 million so that HUD can make an eligibility determination and repay any amounts determined to be ineligible; and (3) establish controls to ensure that costs are properly procured, eligible, and necessary before being charged to the grants and performance goals are accomplished.
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Issue Date: December 13, 2011
Audit Report No. 2012-NY-1004
Title: The City of Buffalo, NY, Did Not Administer Its Community Development Block Grant-Recovery Act Program Funds in Accordance With HUD Requirements
We completed an audit of the City of Buffalo, NY (City) pertaining to its administration of its supplemental Community Development Block Grant (CDBG) program funded under the American Recovery and Reinvestment Act of 2009. We selected the City based on concerns identified in our completed audit of the City’s CDBG program, Audit Report Number 2011-NY-1010 issued April 15, 2011. Our audit objectives were to determine whether the City efficiently and effectively administered its CDBG-Recovery Act (CDBG-R) program in compliance with Recovery Act and other applicable requirements. Specifically, whether City officials had adequate policies and procedures to ensure that (1) program funds drawn from HUD’s Line of Credit Control System were supported with adequate documentation and (2) CDBG-R program expenditures were for eligible activities that met a national objective of the program.
City officials did not always administer the CDBG-R program in accordance with applicable rules and regulations. Specifically, City officials (1) disbursed CDBG-R program funds for questionable street repaving and curb and sidewalk replacement expenditures and (2) failed to administer the City’s housing rehabilitation loan program in accordance with its own procedures and subcontractor agreement. As a result, program funds were used for unsupported capital improvements and emergency rehabilitation loan expenditures. Consequently, City officials could not assure HUD that all CDBG-R disbursements complied with HUD rules and regulations and that the program’s objectives were met.
We recommend that the Director of HUD’s Buffalo Office of Community Planning and Development instruct City officials to (1) provide documentation to justify the more than $1.5 million in unsupported costs for questionable CDBG-R and fiscal year 2010 CDBG street repaving and curb and sidewalk replacement expenditures; (2) reprogram the remaining $159,388 in obligated and unobligated street repaving and curb and sidewalk replacement project funds if there is a lack of capacity, to ensure that these funds are put to better use for other eligible program activities; (3) provide documentation to justify the $249,312 in unsupported costs for housing rehabilitation repairs, and (4) suspend incurring costs for CDBG-R capital improvement activities until HUD determines whether City officials have the capacity to complete these activities in compliance with HUD regulations.
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Issue Date: October 25, 2011
Audit Report No. 2012-NY-1003
Title: The City of Syracuse, NY, Did Not Always Administer Its CDBG Program in Accordance With HUD Requirements
We audited the operations of the City of Syracuse, NY, pertaining to its Community Development Block Grant (CDBG) program. The objectives of the audit were to determine whether the City administered its CDBG program effectively, efficiently, and economically in accordance with applicable rules and regulations. Specifically, we wanted to determine whether City officials had (1) established and implemented the necessary controls to ensure that program activities were adequately documented and administered in accordance with HUD regulations, and (2) expended CDBG funds for eligible activities.
The City did not always administer its CDBG program in accordance with HUD regulations. Specifically, it had administrative weaknesses in its float loan program. City officials could not demonstrate that $907,195 in float loan funds used to finance 11 new housing construction activities (1) were provided to qualified nonprofits; (2) were necessary, reasonable, and adequately supported; and (3) met a national objective. Review of four CDBG Special Housing Program activities revealed that City officials did not ensure that national objectives were obtained; costs charged were necessary, reasonable, and adequately supported; and performance goals were achieved. In addition, 38 CDBG activities administered by both the City and various subrecipients, budgeted for funding during program years 2004-2007, had been either not completed or not started due to a lack of controls.
We recommend that the Director of HUD’s Buffalo Office of Community Planning and Development instruct City officials to (1) repay from non-Federal funds the $162,200 in ineligible float loan activity costs; (2) submit documentation to justify the unsupported float loan costs of $744,995 and unsupported Special Housing Program costs of $415,927, so that HUD can make an eligibility determination, and repay any amounts determined to be ineligible; (3) reallocate for other viable activities the $408,282 in unused CDBG funding authority related to the 38 activities from program years 2004-2007 that had been either not completed or not started or return the unused funds to the U.S. Treasury; and (4) establish controls to ensure that costs are eligible and necessary before being charged to the program, program activities meet a national objective, and performance goals are accomplished.
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Issue Date: October 18, 2011
Audit Report No. 2012-NY-1002
Title: The City of New York, NY, Charged Questionable Expenditures to Its Homelessness Prevention and Rapid Re-Housing Program
We completed an audit of the City of New York, NY (City), pertaining to its administration of its Homelessness Prevention and Rapid Re-Housing Program (HPRP) funded under the American Recovery and Reinvestment Act of 2009. Our audit objectives were to determine whether City officials (1) disbursed HPRP funds efficiently and effectively in accordance with HUD and other applicable requirements; (2) had a financial management system in place to adequately safeguard the funds; and (3) adequately monitored their subgrantees to ensure compliance with Recovery Act requirements, HPRP guidelines, and other applicable HUD regulations.
City officials did not always follow applicable HUD regulations in administering the City’s HPRP. Specifically, they (1) disbursed HPRP funds for questionable rental assistance payments and salary expenditures, and (2) did not adequately monitor subgrantees. As a result, program funds were used for ineligible rental assistance and unsupported administrative salaries. Consequently, City officials could not assure HUD that all HPRP disbursements complied with HUD rules and regulations.
We recommend that the Director of HUD’s New York City Office of Community Planning and Development instruct City officials to (1) reimburse from non-Federal funds $93,436 for ineligible costs pertaining to questionable rental assistance, (2) provide documentation to justify $329,937 in unsupported salary expenses, and (3) strengthen subgrantee monitoring procedures to ensure that all policies and procedures are implemented, thus complying with HPRP requirements.
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Issue Date: September 22, 2011
Audit Report No.: 2011-NY-1016
Title: The City of Buffalo, NY, Did Not Always Disburse Homelessness Prevention and Rapid Re-Housing Program Funds in Accordance With Regulations
We completed and audit of the City of Buffalo, NY (City), pertaining to its administration of its Homelessness Prevention and Rapid Re-Housing Program (HPRP) funded under the American Recovery and Reinvestment Act of 2009. Our audit objectives were to determine whether the City efficiently and effectively administered its HPRP in compliance with Recovery Act and other applicable requirements. Specifically, whether City officials had adequate policies and procedures to ensure that (1) program funds drawn from HUD’s Line of Credit Control System were supported with adequate documentation, (2) subrecipients were properly procured, and (3) subrecipients were monitored to ensure compliance with all applicable requirements.
City officials did not always administer the HPRP grant in accordance with applicable rules and regulations. Specifically, City officials (1) made cash advances to a subrecipient that were not supported by the immediate cash requirements, (2) failed to provide adequate support for the selection of subrecipients, and (3) did not adequately monitor subrecipients. As a result, City officials could not assure HUD that they had effective control and accountability over all funds, and that those funds were used solely for authorized purposes.
We recommend that the Director of HUD’s Buffalo Office of Community Planning and Development instruct City officials to (1) provide documentation to support advances of $138,268, (2) provide documentation to justify the costs of two subrecipients with contracts totaling $392,141, and (3) revise its monitoring policies and procedures to ensure that it monitors the day-to-day activities of all subrecipients during the term of the grant agreements.
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Issue Date: September 6, 2011
Audit Report No.: 2011-NY-1014
Title: All American Home Mortgage Corp., Brooklyn, NY, Did Not Always Comply With HUD-FHA Loan Underwriting Requirements
We completed an audit of All American Home Mortgage Corp., a nonsupervised lender located in Brooklyn, NY. Our audit objectives were to determine whether All American officials (1) approved Federal Housing Administration (FHA)-insured loans in accordance with the requirements of the U.S. Department of Housing and Urban Development (HUD)-FHA, and (2) implemented a quality control plan in accordance with HUD-FHA requirements.
All American officials did not always approve FHA-insured loans in accordance with HUD-FHA requirements. Specifically, material underwriting deficiencies were noted regarding 6 of the 20 loans reviewed, such as inadequate verification of gift funds, the statutory minimum investment, source of funds, improper calculation of income and inconsistent information not reconciled etc. As a result, loans were approved for potentially ineligible borrowers, which caused HUD-FHA to incur an unnecessary insurance risk. All American officials also charged the borrowers $680 in unallowable fees, such as wire and courier fees. In addition, All American officials did not ensure that their quality control plan was implemented in accordance with HUD-FHA requirements. Consequently, the effectiveness of the plan was impaired, resulting in a lack of assurance that loan origination problems were identified and appropriate corrective action was taken to prevent similar occurrences.
We recommend that HUD’s Acting Deputy Assistant Secretary for Single Family Housing require All American officials to (1) indemnify HUD against future losses related to the five loans, which were underwritten in violation of HUD-FHA requirements; (2) reimburse HUD $181,515 in claims and associated fees paid on one loan; (3) ensure that borrowers have been reimbursed $680 for unallowable wire and courier fees; (4) establish procedures to ensure HUD-FHA underwriting requirements are properly implemented and documented; and (5) implement quality control procedures to ensure that management responses and planned corrective action are adequately documented and quality control reviews are always conducted in accordance with HUD-FHA requirements.
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Issue Date: August 16, 2011
Audit Report No.: 2011-NY-1012
Title: Ameritrust Mortgage Bankers, Inc., Lake Success, NY, Did Not Always Comply With HUD-FHA Loan Origination and Quality Control Requirements
We completed an audit of Ameritrust Mortgage Bankers, Inc., a nonsupervised lender* located in Lake Success. Our audit objectives were to determine whether Ameritrust officials (1) approved FHA-insured loans in accordance with the requirements of the U.S. Department of Housing and Urban Development (HUD)-FHA, and (2) implemented a quality control plan in accordance with HUD-FHA requirements.
Ameritrust officials did not always approve FHA-insured loans in accordance with HUD-FHA requirements. Specifically, 11 of the 20 loans reviewed exhibited material underwriting deficiencies, such as inadequately verified and documented borrowers’ income, assets, liabilities, and credit histories. As a result, the FHA insurance fund incurred actual losses of $183,327 on 1 loan and faces potential losses of more than $2.7 million on 10 loans, for total losses of more than $2.9 million. Ameritrust officials also charged the borrowers $3,843 in unallowable fees, namely excessive loan discount and second appraisal fees, without providing written justification. In addition, Ameritrust officials did not ensure that their quality control plan was implemented in accordance with HUD-FHA requirements. Consequently, the quality control plan provided no assurance that deficiencies in the loan origination and underwriting processes were promptly identified and appropriate corrective actions were taken to prevent recurrences.
We recommend that HUD’s Acting Deputy Assistant Secretary for Single Family Housing require Ameritrust officials to (1) indemnify HUD against future losses related to the 10 loans, which were underwritten in violation of HUD-FHA requirements; (2) reimburse HUD $183,327 for the claim and related fees paid on one loan; (3) ensure that borrowers have been reimbursed $3,843 for unallowable excessive loan discount and second appraisal fees; and (4) establish procedures to ensure that the quality control plan is implemented in accordance with HUD-FHA requirements. If the lender officially ceases its operations, the recommendations applicable to the quality control finding are not warranted.
* A nonsupervised lender is a HUD-FHA approved lending institution, the principal activity of which involves lending or investing funds in real estate mortgages.
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Issue Date: July 14, 2011
Audit Memorandum No.: 2011-NY-1802
Title: The City of Dunkirk, NY, Used Community Development Block Grant Recovery Act Funding for an Ineligible Activity
We conducted a review of the City of Dunkirk, NY (City), pertaining to its Community Development Block Grant (CDBG) funds received under the American Recovery and Reinvestment Act of 2009 (Recovery Act). We selected this auditee based on a congressional interest inquiry received by the Recovery Act Transparency and Accountability Board and forwarded to the U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General (OIG) in September 2010. The inquiry pertained to a concern that CDBG funds received under the Recovery Act (CDBG-R) may have been used to support an activity prohibited by Section 1604 of the Recovery Act. The primary objective of our review was to evaluate the validity of the congressional concern that the City used CDBG-R funds for an activity prohibited by the Recovery Act.
The City’s water park Recovery Act project was an activity prohibited under Section 1604 of the Recovery Act. Federal funding expended to date of $134,654 was, therefore, ineligible for inclusion under CDBG-R. Accordingly, the remaining $18,866 of the total $153,520 in CDBG-R grant funding to the City should be reprogrammed to another eligible activity. The ineligible costs occurred because City officials were either not aware of or misinterpreted the restrictions on the use of CDBG-R funds and did not have adequate controls to ensure that CDBG-R costs incurred were for eligible activities and supported by adequate documentation.
We recommend that the Director of HUD’s Buffalo Community Planning and Development Division instruct City officials to reimburse the CDBG-R program line of credit the $134,654 expended on ineligible Recovery Act costs from non-Federal funds, reprogram the remaining $18,866 in CDBG-R funding to other eligible activities and do not allow City officials to use Recovery Act funds to support the water park project, submit a plan to use the $153,520 in funds for a project that is eligible under the Recovery Act and provide guidance on the allowable activities for CDBG-R funds and direct City officials to establish controls to ensure that all CDBG-R costs are only incurred for eligible activities that are supported by appropriate documentation.
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Issue Date: April 15, 2011
Audit Report No.: 2011-NY-1010
Title: The City of Buffalo Did Not Always Administer Its Community Development Block Grant Program in Accordance With HUD Requirements
We completed an audit of the operations of the City of Buffalo, NY (City), pertaining to its administration of its Community Development Block Grant (CDBG) program. Our audit objectives were to determine whether the City (1) administered its CDBG program effectively, efficiently, and economically in accordance with applicable rules and regulations, and (2) expended CDBG funds for eligible activities that met a national objective of the program.
The City did not always follow applicable HUD regulations in its administration of the CDBG program. In addition, it did not always ensure that CDBG funds were expended for eligible activities that met a national objective of the program. Specifically, the City (1) disbursed CDBG program funds for questionable street improvement expenditures, (2) did not adequately monitor its subrecipient-administered economic development program, and (3) charged ineligible and unsupported costs for clean and seal program activities to the CDBG program. As a result, program funds were used for ineligible and unsupported expenses and the City’s ability to administer its CDBG program effectively and efficiently and ensure that the program’s objectives were met was diminished. Consequently, the City is not able to demonstrate that it made the best use of CDBG funds to meet the community’s needs.
We recommend that the Director of HUD’s Buffalo Office of Community Planning and Development instruct the City to (1) reimburse from non-Federal funds $467,429 for ineligible costs pertaining to street improvement projects not done and clean and seal code enforcement, (2) provide documentation to justify the more than $22.8 million in unsupported costs for previously incurred general City maintenance expenses, transactions charged to the CDBG program income account, and unsupported clean and seal program costs, (3) reprogram the more than $4.7 million in remaining economic development project funds if there is a lack of capacity, to ensure that these funds are put to better use for other eligible program activities, and (4) ensure that $744,479 in fiscal year 2010 clean and seal program funds will be put to better use by developing administrative control procedures that will ensure compliance with CDBG program requirements. Any costs determined to be ineligible should be reimbursed from non-Federal funds.
Further, we recommend that the Director of HUD’s Buffalo Office of Community Planning and Development require the City to suspend incurring costs and/or reimbursing itself for costs paid from the City’s municipal general expense account for public facilities, economic development, and clean and seal activities until HUD determines that the City has the capacity to carry out these activities in compliance with HUD regulations.
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Issue Date: March 10, 2011
Audit Report No.: 2011-NY-1006
Title: Financial Management and Procurement Controls at Westbeth Artists Houses, New York, NY, Did Not Always Comply With Regulations
We audited Westbeth Artists Houses (auditee) in response to a complaint submitted to the Office of Inspector General (OIG) hotline alleging that project funds were used to pay an executive director in violation of U.S. Department of Housing and Urban Development (HUD) regulations. Our audit objectives were to assess the merits of the complaint and determine whether project operations generally complied with HUD regulations pertaining to financial, procurement, and tenant certification processes.
The complaint had merit because the duties of the executive director position for which project funds were disbursed were not adequately supported. In addition, although tenant certifications were properly performed, the project’s financial management and procurement processes did not always comply with HUD regulations. Specifically, project funds were used to pay expenses that were inadequately supported, deemed unnecessary and unreasonable, and ineligible. In addition, auditee officials did not always follow prudent procurement practices when executing contracts, resulting in a lack of assurance that services were obtained at the most economical price. These conditions occurred because auditee officials believed that the funds used to pay for the executive director’s position were not subject to HUD regulation and weaknesses existed in the project’s financial and procurement controls.
We recommend that the Director of HUD’s New York Office of Multifamily Housing instruct auditee officials to (1) provide justification for the $304,485 expended for the costs related to the executive director’s position so that HUD can determine whether it is justified and provide documentation to substantiate the $28,351 in unsupported expenses, (2) reimburse the $7,030 in expenses deemed unnecessary and unreasonable, along with the ineligible expenses of $37,650, and (3) ensure that controls over financial management and procurement processes are strengthened.
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Issue Date: February 7, 2011
Audit Report No.: 2011-NY-1005
Title: The Lower Manhattan Development Corporation, New York, NY, Community Development Block Grant Disaster Recovery Assistance Funds
We completed the fifteenth audit report in our ongoing review of the Lower Manhattan Development Corporation’s (LMDC) administration of the $2.783 billion in Community Development Block Grant (CDBG) Disaster Recovery Assistance funds provided to the State of New York in the aftermath of the September 11, 2001, terrorist attacks on the World Trade Center in New York City. During the audit period, October 1, 2009 through March 31, 2010, LMDC disbursed $206.9 million of the $2.783 billion being administered.
The objectives of this audit were to determine whether LMDC disbursed CDBG Disaster Recovery Assistance funds for the Economic Development and East River Waterfront programs in accordance with the guidelines established under its action plans. LMDC officials generally disbursed the funds reviewed in accordance with applicable action plans. However, documentation for the award of Small Firm Assistance Program grants, administered under the Economic Development Program, was not always adequate to ensure that grants were awarded in accordance with LMDC guidelines. Further, additional program requirements could provide greater assurance that program objectives will be achieved.
We recommend that HUD’s Deputy Assistant Secretary for Grant Programs direct LMDC officials to (1) strengthen Small Firm Assistance Program processing controls to ensure that adequate documentation is maintained for the basis of awarding grants, thus providing greater assurance that any grants awarded from the $3.1 million authorized under a subrecipient agreement but not yet expended will be adequately supported, and (2) consider administrative changes that might better ensure that program objectives will be met.
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Issue Date: December 21, 2010
Audit Report No.: 2011-NY-1004
Title: The City of Binghamton, NY, Did Not Always Administer Its Section 108 Loan Program in Accordance With HUD Requirements
We completed an audit of the operations of the City of Binghamton, NY (City), pertaining to its administration of its Community Development Block Grant (CDBG) Section 108 Loan Guarantee program. Our audit objectives were to determine whether the City (1) administered its Section 108 loan program effectively, efficiently, and economically in accordance with applicable rules and regulations; (2) used Section 108 loan proceeds on eligible activities that met a national objective of the program; and (3) expended additional CDBG funds for subsequent Section 108 loan repayments and other related costs that were necessary, reasonable, and in accordance with all applicable contracts, agreements and Federal regulations.
The City did not ensure that its Section 108 loans and related activities were administered effectively, efficiently, and economically in accordance with applicable rules and regulations and that loan proceeds were expended on eligible activities that met a national objective of the program. In addition, the City did not ensure that additional expenditures of CDBG funds for subsequent Section 108 loan repayments and other related costs were necessary, reasonable, and in accordance with all applicable contracts, agreements, and Federal regulations. Consequently, significant CDBG funds were disbursed for Section 108 debt repayments, and future CDBG funds will be required until the Section 108 debts have been fully paid. Therefore, the ability to provide program benefit to low- and moderate-income residents of the City has been diminished.
We recommend that the Director of HUD’s Buffalo Office of Community Planning and Development instruct the City to (1) establish a Section 108 repayment account and repay more than $1.5 million in hotel sales proceeds that were used for City expenses from non-Federal funds; (2) transfer the $81,561 in hotel sales proceeds that remains in the City’s trust account to the established Section 108 repayment account; (3) submit documentation to justify the use of more than $2.4 million in CDBG funds to pay for Regency Hotel Section 108 debt so that HUD can make an eligibility determination; and (4) establish controls to ensure that Section 108 loan proceeds are at all times adequately safeguarded, collateral for Section 108 loans is continually protected until all loan funds have been repaid, the provisions of all Section 108 loan contracts and agreements are followed and promptly enforced, and Section 108 loan activities meet a national objective of the program.
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Issue Date: September 30, 2010
Audit Memorandum No.: 2010-NY-1809
Title: Sterling National Mortgage Company, Inc., Great Neck, NY, Did Not Properly Underwrite a Selection of FHA Loans
We conducted a review of Federal Housing Administration (FHA) loans underwritten by Sterling National Mortgage Company, Inc. (Sterling), an FHA direct endorsement lender. The review was conducted as part of the Office of Inspector General’s (OIG) Operation Watchdog 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. The objective of the review was to determine whether Sterling underwrote 20 loans in accordance with U.S. Department of Housing and Urban Development (HUD)/FHA requirements. Sterling officials did not underwrite 6 of the 20 loans reviewed in accordance with HUD/FHA regulations. As a result, the FHA insurance fund suffered actual losses of more than $429,703 on five loans and faces a potential lo