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Published on July 27th, 2012 | by Len Lazarick

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Md. Housing Department audit finds late paperwork, misplaced funds

By Dana Amihere
dana@marylandreporter.com

Headquarters of Md. Department of Housing and Community Development

Headquarters of Md. Department of Housing and Community Development

The Housing and Community Development Department filed reports on escrow accounts six months late and $194,000 supposed to go to housing was sent to the wrong state agency by a bank without efforts to recover it, state auditors found. Similar audits in past years had found the same problems with the escrow accounts.

Three of DHCD’s units were audited by the Legislative Audits Office –– the development finance, credit assurance and neighborhood revitalization divisions –– for operations from March 2008 to March 2011. Collectively, these agencies account for about 96% of DHCD expenditures and work to increase the supply of low-income housing, insure mortgage loans and fund local local community revitalization efforts.

“(We) look at significant activities to make sure controls are in place to protect the state’s assets and (agencies’ operations) comply with state laws for administering programs under them,” said Thomas Barnickel, acting legislative auditor.

DHCD uses interest earned on escrow accounts from the state’s 1,000 title insurance companies’ to fund affordable housing. In FY 2011, this totaled about $793,000.

The audit said reports used to verify interest revenue received from the escrow accounts were filed six months past the March 31 deadline for both 2008 and 2009 and often lacked the proper documentation. In 2009 alone, there were 36 unexplained discrepancies totaling about $78,000 in the amount of reported interest versus the amount received.

“A similar condition was commented upon in our two preceding audit reports,” said the audit report released Thursday.

In its response to the audit, Housing Secretary Raymond Skinner agreed with the findings and promised “every action will be taken to ensure compliance with the audit’s recommendations.”

Misplaced money and covering costs

In addition, $194,000 in DHCD funds was sent to the Maryland Legal Services Corporation. While the money was erroneously deposited by the bank, the housing department didn’t work to get the money back for two years, Barnickel said. Moreover, the housing secretary wasn’t contacted to approve the decision allowing the other agency to keep the money.

UPDATE: After this story appeared, the housing department responded with clarification and correction.

As of June 2011, there was also a substantial gap in the net assets of the Maryland Housing Fund, the arm of the DHCD which insures certain mortgage loans. MHF owes about $166 million on outstanding insurance obligations and single family home mortgages, according to audited financial statements.

The state housing department is also continuing to struggle with the federal Department of Housing and Urban Development to recover reimbursement for administering the Section 8 subsidized rental housing program.

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  • abby_adams

    Are these STATE employess funded by MD taxpayers still receiving THEIR paychecks??? Maybe we should try the carrot & stick approach since they obviously aren’t getting the message concerning due diligence in performing the job.

    • http://www.facebook.com/people/Dale-McNamee/100002467161143 Dale McNamee

       Abby,

        Forget the carrot…Let’s just use the stick !

  • Hungrypirana

    The legislative auditor’s report indicates marginal finding development and a lack of aggressive recommendations.

    Their report indicates banks paid DHCD $793,000 of interest on title companies’ escrowed funds and withheld $390,000 to cover service charges. I interpret that to mean the banks take off the top one-third of the gross revenues of this program. That doesn’t seem to bother the auditors because their report doesn’t recommend DHCD take action to evaluate the reasonableness of service charges (they seem excessive) and get banks to give them a better deal if the charges are inequitable.

    The auditors found that $194,000 belonging to DHCD was mistakenly sent by a bank to MLSC. After the bank notified DHCD of its error, DHCD decided not to collect that money, instead letting MLSC keep it. It’s unclear from the report why the burden of remedying the bank’s mistake got into the hands of DHCD. Regardless, the auditors don’t seem to have developed this finding far enough to understand who made the dumb (and illegal) decision not to recover and the basis for that decision. There’s something funny happening here.

    Regarding the uncollected receivable from HUD on DHCD’s books, the auditor recommends vaguely that DHCD keep trying to collect. The auditors mention that DHCD doesn’t have much leverage with HUD and as such they seem to have bought the excuse given to them by DHCD. In fact, the prevailing law and HUD regulations require HUD to pay all legitimate claims for reimbursement of administrative costs. Getting HUD to comply with the law and its own regulations shouldn’t be that hard. I tend to think DHCD might want to consider hiring a contractor for $10-15k to light a fire under HUD and get this money collected.

    Overall, the audit report indicates DHCD is doing a rather poor job of managing the business side of this program. And the tone of the auditors report suggests they are content to inform DHCD of the findings and issue simple “fix the problem” recommendations. 

  • http://www.facebook.com/people/Dale-McNamee/100002467161143 Dale McNamee

    I wonder what Maryland Legal Services spent the money on ?

    And the DHCD didn’t work to get the funds back for 2 years…And there are cries for more taxes and tax increases…We should let ‘em cry…

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