We completed an audit of Richard A. Hutchens and Associates (agent) pertaining to its management of the financial operations of Cayuga Village and Touraine Apartments. The objectives of our audit were to determine whether the agent used project funds in accordance with the regulatory agreement and HUD requirements. Specifically, to determine whether the agent (1) provided adequate documentation to support the reasonableness of payments made to an identity-of-interest company, (2) made loans and withdrawals of residual receipts that were authorized, and (3) disbursed project funds for expenditures that were reasonable and necessary.

The audit disclosed that the agent did not use project funds in accordance with its regulatory agreement and HUD requirements. The agent did not solicit competitive bids or maintain adequate documentation to support $987,697 in repair and maintenance costs paid to an identity-of-interest company. Further, the agent made $505,342 in unauthorized loans and withdrawals of residual receipts. In addition, the agent improperly disbursed $142,785 in project operating funds to pay expenses that were questionable and did not make a required $7,902 payment to the residual receipts account or make a required equity payment in a timely manner.

We recommend that HUD instruct the owner and agent to develop procedures to ensure compliance with all terms of its regulatory agreement. Further, we recommend that HUD require the owner and agent to 1) reimburse the projects for the ineligible costs associated with unauthorized loans and withdrawals from residual receipts, an improper salary advance, and excessive fees; and 2) submit supporting documentation to justify all unsupported costs, so that HUD can make an eligibility determination, and reimburse the projects from nonproject funds all amounts determined to be ineligible.