We audited Baldwin Creek Apartments as part of the activities in our fiscal year 2016 annual audit plan.  We selected the project based on our analysis of risk factors related to multifamily projects in Region 5’s jurisdiction¹.   Our objective was to determine whether the project’s owner and management agents operated the project in accordance with the U.S. Department of Housing and Urban Development’s (HUD) requirements and the regulatory agreement.

The project’s owner and former management agent did not always operate the project in accordance with HUD’s requirements and the regulatory agreement.  Specifically, the project’s owner or former management agent (1) inappropriately provided rent-free housing to two households, (2) did not always properly support transactions charged to the project for purchases, (3) did not always maintain the project’s security deposit account at a level to fully cover deposit obligations, and (4) failed to submit the required audited financial statements to HUD in a timely manner.  As a result, (1) the project lost $8,210 in rental revenue for two units and (2) HUD lacked assurance that $1,442 in additional rental revenue was not lost or that $6,608 was appropriately used for the project’s units.

We recommend that HUD require the project’s owner to (1) reimburse the project from nonproject funds $8,210 for the lost rental revenue, (2) support that additional revenue was not lost or reimburse the project from nonproject funds $1,442 for the two units as appropriate, (3) provide documentation supporting the distribution or allocation of the purchased appliances to the appropriate project units or reimburse the project $6,608 from nonproject funds, and (4) implement adequate procedures and controls to address the findings cited in this audit report.

¹ Region 5 includes the States of Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin.