Flaws Not Corrected, Watchdog States : Kemp Acts Too Slowly on HUD Thefts, Report Says

Housing Secretary Jack Kemp and his aides have failed to take adequate measures to prevent a repetition of multimillion-dollar rip-offs by private closing agents who handle home foreclosure sales for the government, the agency’s inspector general has concluded.

The inspector general’s audit report, released Friday, is the first to criticize the new leadership at the scandal-torn Department of Housing and Urban Development. It said the same flaws in internal controls still exist despite disclosures last spring that a closing agent known as “Robin HUD” had stolen up to $5.5 million before she was caught.

Although praising Kemp for taking some measures to crack down on sloppy practices in safeguarding funds from home sales, the report said that “the actions either have not been fully implemented or are being implemented very slowly.”

The report prodded Kemp to move faster to implement additional controls over closing agents. It said that this was “imperative to limit the department’s exposure to further loss of funds.”

However, a spokesman for Kemp said that the audit had been finished at the end of May, three months after he took over the department, which had been run for eight years by Samuel R. Pierce Jr.

“It wouldn’t be fair to try and determine after three months how successful the secretary’s reform actions will be,” the spokesman, Jack Flynn, said. (Although the audit process was completed in May, the report, including comments later obtained from department officials, was not completed until Aug. 25.)

Kemp plans to announce in mid-September a series of additional steps to tighten controls over HUD programs, the spokesman added.

Even so, the report by the inspector general, the agency watchdog, will be reviewed carefully, along with new recommendations for higher bonding requirements, minimum qualifications and stricter supervision for closing agents, Flynn said.

HUD Inspector General Paul A. Adams has estimated that the agency will lose about $20 million because of thefts committed by closing agents from proceeds of single-family home sales.

“There is little visible improvement in the (control) system” in the two years since the first inspector general’s report on the problem, the report said. “In some cases, evidence strongly indicates that large amounts of money have been misappropriated.”

The report gave the following examples of loose supervision:

--A closing agent in Indianapolis failed to turn over $257,012 owed to the government for the sale of 16 homes.

--When confronted by HUD auditors, closing agents in Tampa, Fla., and Ft. Worth turned in $372,198 they owed the Treasury from the sale of nine properties.

--Files on 522 properties, mostly under the responsibility of the Denver HUD office, could not be found or were incomplete. In the Phoenix office, case files on 29 properties that were sold for $1,517,886 could not be found.

--Closing agents often wired funds to the wrong government bank account.

The auditors said that closing agents, who are supposed to send proceeds from home sales immediately to the U.S. Treasury by bank wire transfer, often were months and sometimes even years late in forwarding the money.

During the fiscal year that ended last Sept. 30, HUD sold 81,517 single-family homes for a total of $3.1 billion.

The inspector general’s report said that the automated system designed to keep track of those properties and of the funds received for them was antiquated and plagued by clerical errors in entering data. However, a new computerized control system has been delayed and will start only on a trial basis on Dec. 1.

“Specifically, we are bothered by the continued misuse and misappropriation of funds by closing agents, continued delays in submitting sales proceeds, the unreconciled differences in accounting records, the failure to fully implement the standardized closing agent contract and the additional time that is needed to implement the new automated system,” the report said in summary.

The auditors based their conclusions on surveys of field offices in Denver, Richmond, Va., Tampa, Indianapolis, Ft. Worth, Kansas City, Phoenix and Seattle. At Kemp’s request, work is continuing in HUD offices in Los Angeles, New Orleans, Denver and Houston.