We reviewed the books and records of Amar Plaza (project), a U.S. Department of Housing Department (HUD)-insured (Section 236) multifamily cooperative housing project with project-based Section 8 assistance located in La Puente, CA. We initiated the review in response to a request from the Departmental Enforcement Center due to its concerns about Amar Plaza’s serious compliance issues, including but not limited to overdue 2009 and 2010 financial audit reports. The request also referenced a letter from the project’s former independent public accountant, indicating possible diversions of the project’s cash. Our objective was to determine whether the project was administered in accordance with HUD rules and regulations. Specifically, we wanted to determine whether project funds were used for eligible purposes.

The project was not administered in accordance with HUD rules and regulations. The project’s shareholders violated and defaulted on the project’s regulatory agreement by inappropriately approving an unauthorized encumbrance on the project. The project executed a deed and note for $100,000 and named a HUD-terminated management agent as the beneficiary of the project, which resulted in legal fees of at least $147,284. Regarding the note amount, $45,518 was for ineligible costs, and $8,465 was unsupported. The project also improperly used $4,921, lacked supporting documentation for $133,904, and did not maintain a general operating reserve or adequately document shareholder interest. Further, it did not adequately support its procurement activities.

We recommend that the Director of HUD’s Los Angeles Office of Multifamily Housing pursue administrative sanctions, as appropriate, against the project, applicable shareholders, and the HUD-terminated management agent for their part in violations of the regulatory agreement, including but not limited to taking possession of Amar Plaza, and require the project to (1) seek indemnification of $75,038 in paid legal costs and any outstanding ($72,246) or future applicable legal costs from the two shareholders who improperly executed the deed and note; (2) repay the operating account $50,439 used for ineligible expenses from non-Federal sources; (3) support $142,369 in unsupported expenses or repay the project’s operating account from non-Federal sources; (4) establish and implement controls and procedures to ensure compliance with the regulatory agreement and other HUD requirements for the use of operating funds, documenting shareholder interest and the funding and maintenance of the general operating reserve; and (5) follow its current management agent’s procurement procedures. Further, we recommended that HUD’s Associate Counsel for Program Enforcement pursue double damages remedies, civil money penalties, and administrative sanctions, as appropriate, against the project, applicable shareholders, and the applicable management agent(s) for their part in the regulatory violations cited in this report.