We audited Park Lee Apartments to determine whether it complied with the U.S. Department of Housing and Urban Development’s (HUD) regulatory agreement and other federal requirements.
We found that Park Lee Apartments did not use its project funds in compliance with HUD and other federal requirements. Specifically, the owner and/or management agents violated the regulatory agreement with HUD by paying $512,562 in questioned costs from the project’s operating account when the project was in a non-surplus-cash position. The questioned costs included the payment of development expenses from operating funds ($439,439), ineligible and unsupported disbursements ($45,623), and a wire transfer of project revenue to the owner ($27,500). In addition, the owner maintained the project in poor physical condition and submitted annual audits of the financial statements that did not meet HUD requirements.

We recommend that the Director of the San Francisco multifamily hub require the project’s owner to repay or support questioned costs of $512,562. We also recommend that HUD’s Regional Counsel pursue double damage remedies. In addition, we recommend that the Director of HUD’s Departmental Enforcement Center pursue civil money penalties and administrative sanctions, as appropriate.