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We audited Tuscan Homes I and II, a multifamily project located in Hartford, CT, because our risk assessment ranked the project as the highest risk multifamily project in New England.  Our audit objective was to determine whether the owner managed the project in accordance with its regulatory agreement and U.S. Department of Housing and Urban Development (HUD) requirements; specifically, whether (1) exigent health and safety deficiencies were corrected and certified within required timeframes, (2) operating funds were used only for reasonable and necessary operating expenses, and (3) the project was used only for its intended purpose.

The project’s owner and management agent did not always manage the project in accordance with the regulatory agreement and HUD requirements.  Although exigent health and safety deficiencies were corrected and certified within required timeframes, (1) the operating funds were not always used for eligible operating expenses, and expenses were not always supported, (2) the owner made advances to the project that were misclassified as loans, (3) the project may have been used for nonresident purposes, and (4) the management agreement was in conflict with the management agent’s certification.  These issues occurred because the owner and management agent lacked adequate controls for the operation of the project to ensure that project funds were used only in accordance with the regulatory agreement and HUD’s requirements.  As a result, the project incurred ineligible costs of $17,761 and unsupported costs of $17,653.  In addition, $45,000 in owner advances misclassified as loans can be put to better use if the transactions are reclassified and properly recorded to ensure that any repayments are made in accordance with the regulatory agreement.

We recommend that the Director of HUD’s Boston Asset Management Division require the owner to (1) reimburse the project for $17,761 used for ineligible costs, (2) support or reimburse the project $17,653 for inadequately supported expenses, (3) reclassify and properly record $45,000 in owner advances, (4) obtain a formal agreement and approval from HUD regarding allowed nonresident uses of the project, and (5) strengthen controls to address the control weaknesses identified in the report.