The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General, audited Five Star based upon a request from the HUD Denver Office of Multifamily Housing.

The objective of our audit was to determine whether Five Star submitted the required monthly accounting and Section 236 excess income reports to HUD. Five Star did not submit required monthly accounting reports and Section 236 excess income reports to HUD. It submitted monthly accounting reports only when it requested permission to use its reserve for replacement fund. In addition, it did not submit any Section 236 excess income reports to HUD for the 31 months in our review period.

We recommend that HUD's Denver Office of Multifamily Housing require Five Star to submit the required monthly accounting reports and outstanding Section 236 excess income reports to HUD and if the required reports are not submitted, consider rescinding the privilege of retaining future excess income or taking other appropriate administrative action. We also recommend that HUD require Five Star to establish and implement sufficient controls to ensure submission of the required reports.