We audited Schwenckfeld Manor because it was a high-risk multifamily project on our multifamily risk assessment for projects within our region and we had never audited it. Our audit objectives were to determine whether the project owner (1) disbursed project funds for costs that were reasonable, necessary, and supported for the operation and maintenance of the project; and (2) properly disclosed identity-of-interest relationships.
The owner of Schwenckfeld Manor (1) may not have disbursed project funds for costs that were supported as reasonable and necessary for the operation and maintenance of the project, and (2) did not disclose its identity-of-interest relationships to the U.S. Department of Housing and Urban Development (HUD). Specifically, the owner (1) used project funds to pay up to nearly $2.1 million in costs that may have been for its parent company’s benefit and the benefit of five other non-HUD housing entities the parent company owned, and (2) did not disclose to HUD its related parties as identity-of-interest entities on its management certification and paid nearly $403,000 in management fees to its parent company instead of the approved management agent for the project.
We recommend that HUD require the owner to (1) provide documentation to show that payroll and other direct costs totaling nearly $2.1 million were reasonable and necessary expenses for the operation of the project or repay the project from nonproject funds for any amount that it cannot support; (2) develop and implement controls to ensure that the project complies with the regulatory agreement and applicable HUD requirements; (3) submit a project owner’s and management agent’s certification for identity-of-interest agents and other required documentation for review and approval; and (4) request retroactive approval of the fees paid to the identity-of-interest entity totaling nearly $403,000 and if HUD does not approve the management agent retroactively, repay that amount or the amount not approved by HUD. We also recommend that the Director of HUD’s Departmental Enforcement Center pursue civil money penalties and administrative sanctions, as appropriate, against the owner and its parent company and their principals for their part in the violations cited in this report.
Recommendations
General Counsel
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Status2017-PH-1006-001-AOpenClosed$2,019,496.00Questioned 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.
Provide documentation to show that payroll costs totaling $2,019,496 and any payroll costs incurred outside our audit period, including fiscal year 2017, were reasonable and necessary expenses for the operation of the project or repay the project from nonproject funds for any amount that it cannot support.
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Status2017-PH-1006-001-BOpenClosed$56,021.00Questioned 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.
Provide documentation to show that other direct costs totaling $56,021 and any direct costs incurred outside our audit period, including fiscal year 2017, were reasonable and necessary expenses for the operation of the project or repay the project from nonproject funds for any amount that it cannot support.
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Status2017-PH-1006-001-COpenClosedClosed on Mayo 19, 2023
Develop and implement controls to ensure that the project complies with the regulatory agreement and applicable HUD requirements.
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Status2017-PH-1006-002-DOpenClosedClosed on Agosto 19, 2019
Pursue civil money penalties and administrative sanctions, as appropriate, against the owner and its parent company and their principals for their part in the violations cited in this report.
Housing
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Status2017-PH-1006-001-DOpenClosedClosed on Abril 01, 2019
Provide training and technical assistance to the owner and its management agent to ensure compliance with the terms of its regulatory agreement and applicable HUD requirements.
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Status2017-PH-1006-002-AOpenClosedClosed on Diciembre 04, 2018
Submit a project owner’s or management agent’s certification for identity-of-interest agents, a management entity profile, a management plan, and other required documentation for review and approval.
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Status2017-PH-1006-002-BOpenClosed$402,975.00Questioned 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 Noviembre 08, 2018Request retroactive approval of the fees paid to the identity-of-interest entity totaling $402,975 and any fees incurred outside our audit period, including fiscal year 2017, when submitting the project owner’s or management agent’s certification for identity-of-interest agents in response to recommendation 2A. If the request is not approved retroactively, the owner should repay the project from nonproject funds for the amount that was not approved.
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Status2017-PH-1006-002-COpenClosedClosed on Diciembre 04, 2018
Evaluate the owner’s capability to effectively manage the project and consider whether independent professional management services are needed.