Chicago, Illinois November 2, 2009 COOK COUNTY. Barry McLaughlin, SAC Ray Espinosa, ASAC Brad Geary, ASAC U.S. HOUSING & URBAN DEVELOPMENT OFFICE OF INSPECTOR

Chicago, Illinois

November 2, 2009

COOK COUNTY

Barry McLaughlin, SAC

Ray Espinosa, ASAC

Brad Geary, ASAC

U.S. HOUSING & URBAN DEVELOPMENT

OFFICE OF INSPECTOR GENERAL

Inspector General: Mission Independent audits and investigations.

Prevent waste, fraud, and abuse.

Promote economy, efficiency, and effectiveness.

Review pending legislation, and regulation.

Keep Congress informed.

Inspector General: Authorized

Records & information of the agency and program participants.

Conduct audits and criminal investigations.

Issue subpoenas for records and documents.

Hire staff and control budget resources.

• Special Agents are trained at the FLETC and have federal law enforcement authority and powers.

• HUD-OIG conducts investigations on a complex array of HUD programs.

• HUD-OIG strives to become the “Gold Standard” for the investigations of housing and mortgage fraud.

InvestigationsFollow CIGIE Investigative Standards.

Reports provided to Department of Justice, or HUD management (misconduct).

Systemic control weaknesses identified during an investigation are referred to HUD.

InvestigationsReactive to allegations.

Scope may be undetermined at onset.

Confidential with no formal notification.

Investigation information “secret.”

Interviews: complainants, witnesses, subjects, or employees.

Departmental / Management / Employee Responsibilities

• Report to OIG – Suspected violations of laws, rules, or

regulations.– Gross mismanagement.– Waste of funds.– Abuse of authority.

• Cooperate During Audits and Investigations

(See HUD handbook 2000.3 REV-4 Chapter 3)

Role of Office of Inspector General

Intake. Preliminary

inquiries.Prove/disprove

allegations. Analysis.

Investigation.Interviews.Records.ReportsProsecution.Testify.

OIG Priorities FY-2010

1. Mortgage Fraud.2. Recovery Act Fraud.3. Neighborhood Stabilization / CPD

Fraud.4. Multi-Family Fraud.

©2008 by the Association of Certified Fraud Examiners, Inc.

Executive SummaryU.S. organizations lose 7% of their annual

revenues to fraud. Median loss $175,000. Losses over $ 1 million + 25 % Typical fraud in study + two years


Executive SummaryMost Common Fraud:

Corruption (27%) Billing schemes (24%)

Most Costly Financial statement fraud (median loss of $2

million) among the 99 financial misstatements in this Report.


Executive SummaryAnti-fraud controls impact an

organization’s exposure to fraud.

Industries most victimized:Banking and financial services (15% of cases)Government (12%) Healthcare (8%).


How Fraud is Committed


Breakdown of All Occupational Fraud Schemes — Frequency3

3The sum of percentages in this chart exceeds 100 percent because several cases involved multiple schemes from more than one category.

Victim Organizations


Fraud Schemes - Government Public Administration (106 cases)12

12The sum of percentages in this chart exceeds 100 percent because several cases involved multiple schemes from more than one category.

Detection of Fraud Schemes


Initial Detection Method by Organization Type8

8The sum of percentages in this chart exceeds 100 percent because in some cases respondents identified more than one detection method.

Detection of Fraud Schemes


Percent of Tips by Source9

9The sum of percentages in this chart exceeds 100 percent because in some cases respondents identified more than one source of the initial tip.

Victim Organizations


Internal Controls Modified or Implemented in Response to Fraud

The Perpetrators


About the ACFE


The ACFE is the world’s premier provider of anti-fraud training and education.

Together with nearly 50,000 members in more than 125 countries, the ACFE is reducing business fraud worldwide and providing the training and resources to fight fraud more effectively.

Founded in 1988 by Joseph T. Wells, CFE, CPA, the ACFE proudly celebrates its 20th anniversary as the leader in the global fight against fraud.

Housing Fraud Schemes

Zero incomeUnder reportingProperty ownerLandlord

&TenantStraw LandlordStraw Tenant

Bribes GangsDrugsGunsMoney

Laundering

CPD Fraud SchemesUse of HUD funds

CarsClothesVacationsKid’s TuitionCondos

Reporting Over/Under

EmbezzlementGangsDrugsGunsMoney

Laundering

Overview

AMERICAN RECOVERY AND REINVESTMENT ACT - 2009

COMMUNITY DEVELOPMENT COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG)BLOCK GRANT (CDBG)

$1 Billion – By Formula - DoneStandard CDBG Eligible Activities Including:

Acquisition, Code Enforcement, Demolition, Rehabilitation, Construction, Public And Social Services, Planning And Capacity Building, Nonprofit Development, Economic Development, Relocation, Ta, Housing And Homeownership Assistance

Bid-based Contracts w/in 120 DaysHUD Must Establish Requirements To

Expedite Use Of Funds

NEIGHBORHOOD STABILIZATION NEIGHBORHOOD STABILIZATION PROGRAM (NSP)PROGRAM (NSP)

$2 Billion - competitive States, local governments, non-profits (consortia of

non-profits who can partner with for-profits) Purchase, rehabilitate, re-occupy foreclose homes,

including financing, land banking and demolition HUD NOFA w/in 75 days – mid-July; must obligate all

funds w/in one year 2/17, 2010 Applications due 75 days after solicitation Recipients must spend 50% w/in 2 years; 100% w/i 3

years No demolition of public housing Added tenant protections for renters in acquired

foreclosed property

OVERVIEW

RECOVERY AND TRANSPARENCY BOARD

The Board is responsible for coordinating and conducting oversight of Federal spending under the Recovery Act to prevent waste, fraud, and abuse.

Members: Earl Devaney, Chair and other designated IGs

Functions: Monitor the accountability objectives established by the Recovery ActReports: Submitted to the President, Congress and the

Senate/House Appropriations Committees

• Flash• Quarterly• Annual

•Website

RAT Board

OMB will coordinate Recovery Act activities until the Recovery Accountability and Transparency Board is in place.

OMB will support the Board in its oversight of Recovery Act implementation, including working with agencies to meet full performance of the accountability objectives.

The Board is responsible for coordinating and conducting oversight of Federal spending under the Recovery Act to prevent waste, fraud, and abuse.

The Board will monitor the accountability objectives established by the Recovery Act.

Recovery Accountability & Transparency Board

The Board will establish and maintain a user-friendly and public website containing:

1.Materials explaining what Act means to citizens

2.Accountability information , including findings from audits, Agency IGs, and GAO

3.Data on relevant economic, financial, grant and contract information

4.Detailed data on awarded contracts that expend funds including information on competitiveness and process used for contract award., and summaries for contracts over $500,000.

5.Printable reports on covered funds obligated by month to each state and congressional district

6.A method for public feedback on contract performance

Recovery Accountability and Transparency Board


7.Detailed information on Federal contract/grant expending funds, including data elements required with Federal Funding Accountability and Transparency Act of 2006. Aggregate reporting for awards below $25,00 or to individuals

8.A link to estimate of jobs sustained/created by Act

9.A link to information on announcements of grant competitions and solicitations for contracts to be awarded

10.Links to other state and government websites with info on covered funds


(Website)


11.The plan from each federal agency using covered funds

12.Info on Federal allocation of formula grants & awards of competitive grants using covered funds.

13.Info on Federal allocations of mandatory & other entitlement programs by State, country of geographical unit.

14.Job opportunities organized by location, and links to accessing job opportunities, with local employment agencies, State job banks, Labor Dept Career One Stop website, state, local and other public agencies plus contracted private firms receiving Federal funding


(Website)

Funds awarded/distributed in prompt, fair, and reasonable manner

Uses and benefits of funds are reported clearly, accurately, timely and are transparent to the public

Fraud, waste, abuse and errors are mitigated

Funded projects avoid cost overruns and delays

Program goals are achieved with specific outcomes and improved results

1.2 Accountability Objectives

For individual programs receiving Recovery Act funds, risk assessment includes:

Existing internal controls are sufficient to adequately mitigate the risk of fraud, waste, and abuse

Agencies must have defined strategies, developed with input from the Inspector General for the agency, to prevent or timely detect waste, fraud, or abuse.

Possible performance issues with (potential) funding recipients

Leading or lagging indicators (error measurements) to monitor ongoing program performance

Risk Management

Yes. Separately report obligations associated with oversight of

Recovery Act programs. The Recovery Act includes provisions that provide supplemental funding to some IGs to carry out additional oversight of activities funded by the Act.

Report these funds separately in their budget execution reports and submissions to Recovery.gov.

Report other funds not provided through the Recovery Act that are used to monitor Recovery Act programs in their agency .

4.17 Do Inspectors’ General need to follow special rules in reporting their own

Recovery Act spending ?

Performance Management and AccountabilityAgencies in consultation with the Inspectors General, shall establish

procedures to validate the accuracy of information submitted on a statistical basis and/or risk based approach as approved by OMB.

Internal Controls AssessmentConsistent with normal practices, agencies must use appropriate

internal control assessments to assess the risk of program waste, fraud, and/or abuse. Using the aforementioned risk assessments, agencies must have defined strategies, developed with input from the Inspector General for the agency, to prevent or timely detect waste, fraud, or abuse.

Are Federal agencies expected to initiate additional oversight requirement for grants (Sec 5.4) and loans/loan guarantee (Sec 7.4) under the Recovery Act

Each grantee or sub-grantee awarded funds made available under the Recovery Act shall promptly refer to an appropriate inspector general any credible evidence that a principal, employee, agent, contractor, sub-grantee, subcontractor, or other person has submitted a false claim under the False Claims Act or has committed a criminal or civil violation of laws pertaining to fraud, conflict of interest, bribery, gratuity, or similar misconduct involving those funds. Competitive and formula grant agreements Loans and loan guarantee agreements

5.9 Are there terms and conditions, beyond standard practice, that must be included under the Recovery Act?

Any inspector general of a Federal department or executive agency shall review, as appropriate, any concerns raised by the public about specific investments using funds made available in this Act.

Any findings of such reviews not related to an ongoing criminal proceeding shall be relayed immediately to the head of the department or agency concerned.

In addition, the findings of such reviews, along with any audits conducted by any inspector general of funds made available in this Act, shall be posted on the inspector general’s website and linked to the website established by section 1526, ( RAT Board website)

ACCOUNTABILITY AND ACCOUNTABILITY AND TRANSPARENCY TRANSPARENCY

Act Section 1514 INSPECTOR GENERAL REVIEWS

Semi-annual Report On Extensions. The inspector general shall include in semi-annual reports to Congress a list of those investigations for which the inspector general received an extension.

Semi-annual Report. The inspector general shall include in semi-annual reports to Congress a list of those investigations the inspector general decided not to conduct or continue under this paragraph.

ACCOUNTABILITY & ACCOUNTABILITY & TRANSPARENCY TRANSPARENCY

Section 1553 Protecting State And Local Government And Contractor Whistleblowers.

41

Red Flags of Mortgage Fraud

42

Top Ten States for Mortgage Fraud

MARI Industry wide Mortgage Fraud

Results/Projections

44

Red Flags - ApplicationUnsigned or UndatedPower of AttorneySource of down paymentHigh income – No personal propertyP.O. Box for employerNo debtBorrower’s age – v – Employment Patterns from broker / sellerEducation – v- ProfessionNo primary residence

45

Red Flags – Credit ReportNo credit history / Alias / Multiple SSN Debt reported – v – Credit reportHigh income but uses finance companiesInconsistent employment infoCredit bureau alertsSimilar reports between borrowersUTL at work address

46

Red Flags – Title InsuranceSeller not on titleBuyer has pre-existing interest in propertyChain of title includes buyer / realtor /

brokerMailed to 3rd party other than lenderIncome / property tax liensFaxed documents – v – Original / Cert.

copy

47

Red Flags - VODCompleted same dayDeletionsNo deposit accounts listed, but in fileDeposit account with rounded numbersDeposit account insufficient to closeBad signatureYoung / Low Income with large cashClosing check drawn on diff bank

48

Red Flags – VOESimilarities in names – borrower /sellerInappropriate sourceNot on original letterhead or standard formCompleted same day orderedBad signatureP.O. Box onlyEmployer out of townExcessive praiseRounding of dollar amountsFaxed documents

Our Address

Barry McLaughlinBarry McLaughlinSpecial Agent in ChargeSpecial Agent in Charge

U.S. HUDU.S. HUDOffice of Inspector General Office of Inspector General

77 West Jackson Blvd. 77 West Jackson Blvd. Room 2646Room 2646

Chicago, Illinois 60604Chicago, Illinois 60604(312) 913-8634(312) 913-8634

Thank you.Thank you.

QUESTIONS ?QUESTIONS ?

Documents

Chicago, Illinois November 2, 2009 COOK COUNTY. Barry McLaughlin, SAC Ray Espinosa, ASAC Brad Geary, ASAC U.S. HOUSING & URBAN DEVELOPMENT OFFICE OF INSPECTOR