We audited the Casa Otonal multifamily housing project, located in New Haven, Connecticut, based on a referral received from the U.S. Department of Housing and Urban Development’s (HUD) Hartford Program Center. The referral disclosed compliance findings regarding the project’s audited financial statements, including instances of unauthorized loans/disbursements to an affiliate. Our primary audit objective was to determine whether the project owner managed and operated the project in accordance with HUD regulations and the project’s regulatory agreement. Specifically, we wanted to (1) determine the extent of unauthorized distributions made while the project was in a non-surplus-cash position, (2) determine whether goods and services were properly procured, and (3) ensure that the project’s cost allocation plan adequately prorated staff time and shared office space.

The project owner did not always use project funds in accordance with HUD regulations or the regulatory agreement. We identified questioned costs totaling $265,350 See appendix A - $254,470 ($236,439 + $12,559 + $5,472) + $8,748 ($7,337 + $1,411) + $2,132. while the project was in a non-surplus-cash position. Specifically, the owner made $236,439 in unauthorized loans/distributions to an affiliate, Casa Otonal, Inc. Additionally, the owner did not follow proper procurement procedures due to a lack of written policies and procedures and the absence of a contract log, contracts, purchase orders, or related bidding or source selection evaluation documents. Later, the project incurred $18, 031 in ineligible costs, $8,748 in unsupported costs, and $2,132 in unreasonable costs. Finally, the owner did not prepare a formal written cost allocation plan to appropriately allocate staff time spent on nonproject activity or the use of office space by nonproject personnel. However, the nonproject staff time and office space used appeared to be minimal.

We recommend that the Director of the Office of Multifamily Housing, Boston hub, require the project owner to (1) reimburse the project $254,470 $236,439 + $18,031 ($12,559 + $5,472). for the ineligible disbursements and $2,132 for the unreasonable disbursements and (2) provide documentation to support the $8,748 in unsupported disbursements or reimburse the project. We also recommend that the Director require the project owner to establish a written procurement policy that follows federal procurement regulations and an adequate cost allocation plan to appropriately allocate staff time at the project. Further, we recommend that HUD pursue (1) double damages remedies against the responsible parties for the ineligible/inappropriate unsupported disbursements that were used in violation of the project’s regulatory agreement and (2) civil money penalties and administrative sanctions, as appropriate, against the responsible parties for their part in the regulatory violations.