We audited Baker Tower Apartments, LLC (corporation), located in Denver, CO, based on data showing that the corporation had taken more than $3.4 million in owner distributions since 2013 and scored poorly on its most current Real Estate Assessment Center physical property inspection. The objective of our audit was to determine whether the corporation complied with the regulatory agreement and U.S. Department of Housing and Urban Development (HUD) regulations when it paid out owner distributions and disbursements and while maintaining the property’s security deposit account.
The corporation did not always comply with its regulatory agreement or HUD regulations when it paid out distributions and disbursements and it did not properly maintain its security deposit account. Specifically, the corporation paid out an ineligible distribution that was $242,634 more than the surplus cash computation reported to HUD, improperly used project funds to pay $15,000 for its refinance application fee, held a $0 balance on its security deposit account from August to November 2016, and deposited all security deposit transactions directly into the project’s operating account.
We recommend that the Regional Director of HUD’s West Region, Office of Multifamily Housing Programs, require the corporation to develop and implement controls over owner contributions and owner distributions to ensure compliance with its regulatory agreement and HUD regulations, complete HUD-approved training regarding owner contributions and owner distributions, repay its project’s operating account for the ineligible $15,000 disbursement from non-project funds, perform an analysis of all security deposits and ensure that the security deposit account is fully funded, and develop and implement procedures to maintain the project’s security deposit funds separately from all other accounts by depositing and disbursing all security deposit funds directly into and from the security deposit account.