We audited Bethany Towers Apartments as part of our annual goal for auditing multifamily projects and in response to a request from the U.S. Department of Housing and Urban Development's (HUD) Tampa, Florida, Multifamily Division. We focused the audit on the nonprofit owner's and management agents' compliance with the project's regulatory agreement, applicable laws, and other HUD requirements pertaining to the sale and transfer of ownership interest in the project, use of project assets, identity-of-interest relationships, necessity and reasonableness of project costs, and record keeping.

The owner and its undisclosed identity-of-interest (IOI) management agent did not provide proper oversight and management of the project's financial affairs. The owner executed an unauthorized agreement to sell the project, diverted $90,000 in funds paid towards the purchase to its church sponsor, selected an undisclosed IOI management agent, allowed financial harm to the project from IOI dealings, incurred more than $16,000 in ineligible/improperly supported costs, and maintained inadequate books and records.

We recommend that the Director of HUD's Jacksonville Multifamily Housing Hub (a) determine whether to declare the project in technical default of its regulatory agreement and initiate foreclosure proceedings, require the owner to repay or support more than $106,000 in questioned costs, which include the diverted funds, and require the owner to establish and implement policies and procedures to ensure compliance with HUD requirements. We also recommend that the Acting Director of the Departmental Enforcement Center take appropriate administrative action against the owner and its IOI agent for the most significant reported violations and that HUD's Regional Counsel, in coordination with HUD's Director, Jacksonville Multifamily Housing Hub, and HUD's Office of Inspector General, seek double damages against the owner for diverting $90,000 received for the purchase of the project.