We audited Rainbow Terrace Apartments based on our analysis of risk factors related to multifamily projects in Region 5’s jurisdiction and the activities included in our fiscal year 2018 annual audit plan. Our objective was to determine whether the project’s owner and management agent operated the project in accordance with the regulatory agreement and the U.S. Department of Housing and Urban Development’s (HUD) requirements.
The project’s owner and management agent did not always operate the project in accordance with the regulatory agreement and HUD’s requirements. Specifically, the project’s owner and management agent did not always provide sufficient documentation to support that project funds were used for reasonable operating expenses or necessary repairs of the project. In addition, (1) project funds were not used for reasonable expenses or necessary repairs of the project, (2) excess management fees and unsupported bookkeeping fees were charged to the project, and (3) tenants’ security deposits were not maintained in the project’s security deposit bank account. As a result, HUD and the owner lacked assurance that more than $2.3 million in project funds was used for reasonable operating expenses or necessary repairs of the project. In addition, more than $141,000 in project funds was not used appropriately.
We recommend that HUD require the owner to (1) support the reasonableness of or reimburse the project from nonproject funds for disbursements from the project’s operating account without sufficient documentation, (2) reimburse the project from nonproject funds for unreasonable operating expenses or unnecessary repairs of the project, (3) use the project’s security deposit bank account to deposit and disburse security deposits, and (4) implement adequate procedures and controls to address the findings cited in this report.
Recommendations
Housing
-
Status2018-CH-1009-001-AOpenClosed$2,232,004.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on Septiembre 21, 2020Support the reasonableness of or reimburse the project $2,232,004 ($1,719,736 $484,615 $27,653) from nonproject funds for the project funds disbursed without sufficient procurement or contract documentation.
-
Status2018-CH-1009-001-BOpenClosed$7,091.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on Enero 22, 2020Support or reimburse the project from nonproject funds $7,091, as appropriate, for the project funds disbursed without sufficient supporting documentation.
-
Status2018-CH-1009-001-COpenClosed$46,024.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on Febrero 20, 2020Reimburse the project from nonproject funds $46,024 for the project funds that were not used for reasonable operating expenses or necessary repairs of the project.
-
Status2018-CH-1009-001-DOpenClosed$39,690.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on Febrero 12, 2020Support or reimburse the project from nonproject funds $39,690, as appropriate, for the project funds disbursed without sufficient documentation supporting that the invoices were not for duplicate work.
-
Status2018-CH-1009-001-EOpenClosedClosed on Enero 17, 2020
Implement adequate procedures and controls to ensure that project funds are used for only reasonable operating expenses or necessary repairs when the project is in a non-surplus-cash position.
-
Status2018-CH-1009-001-FOpenClosed$95,174.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on Enero 09, 2020Reimburse the project $95,174 from nonproject funds for management fees in excess of the maximum yield.
-
Status2018-CH-1009-001-GOpenClosed$70,632.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on Enero 23, 2020Support or reimburse the project $70,632 from nonproject funds, as appropriate, for the project funds disbursed to Vesta Corporation for bookkeeping fees without documentation showing that the bookkeeping fees charged were reasonable.
-
Status2018-CH-1009-001-HOpenClosedClosed on Enero 07, 2020
Implement adequate procedures and controls, including but not limited to ensuring that the project receives HUD’s communications to ensure that its management and bookkeeping fees comply with HUD’s requirements.
-
Status2018-CH-1009-001-IOpenClosedClosed on Diciembre 16, 2019
Implement adequate procedures and controls to ensure that its bookkeeping fees are based on actual costs.
-
Status2018-CH-1009-001-JOpenClosedClosed on Enero 08, 2020
Use the project’s security deposits bank account to deposit and disburse security deposits.