We audited Central City Housing Development Corporation’s U.S. Department of Housing and Urban Development (HUD) Sections 202 and 8-funded project, Satchmo Plaza, as part of our annual audit plan to review multifamily projects. Our audit objective was to determine whether the Corporation met the requirements of its regulatory agreement and followed HUD requirements when operating the project.
We found that the Corporation did not always meet the requirements of its regulatory agreement and follow HUD requirements when operating its project. Specifically, it did not (1) maintain the project in good repair and condition, (2) make monthly deposits to its reserve fund for replacements, (3) spend funds for supported and reasonable costs, and (4) satisfy the HUD judgment against it. These conditions occurred because the project lacked financial stability and adequate oversight and controls. As a result, it subjected elderly and disabled tenants to dangerous health and safety risks and is at risk of losing its housing assistance payments contract. In addition, it underfunded its reserve fund for replacements by at least $8,600, paid $2,810 in questioned costs, and remained in violation of the regulatory agreement with the outstanding judgment. Further, it could not provide HUD reasonable assurance that it properly managed its project and funds, putting at least $314,184 at risk for mismanagement.
We recommend that HUD require the Corporation to develop and implement a HUD-approved written plan and checklists to correct the project’s physical condition and other deficiencies identified and prevent a recurrence of such issues to better ensure that it spends and manages at least $314,184 in accordance with requirements. We also recommend that HUD require the Corporation to (1) obtain a waiver or make retroactive deposits of $8,600 to its reserve fund for replacements, (2) repay $879 and support or repay $1,931, and (3) satisfy the judgment. Finally, we recommend that HUD evaluate the viability of the project and monitor the project’s performance-based contract administrator.