The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General audited the Meeker Family and Elderly Housing project based on a referral from HUD’s Office of Multifamily Housing Programs in Denver, CO. The project is owned and managed by the Meeker Housing Authority. HUD alleged that the owner had failed to file audited financial statements or make mortgage payments to HUD for the past 10 years. Our objectives were to determine whether the owner properly maintained its bank accounts, used project funds only for eligible expenses, properly submitted its financial statements and mortgage payments, and conducted eligible project improvements with reserve for replacement funds.
The owner did not maintain its bank accounts in the name of the project and did not separate project and owner funds. The owner used operating funds to pay for ineligible and unsupported expenses. It did not submit its annual financial statements to HUD for more than 10 years and did not maintain separate books of account for the ownership entity. It also did not make the required mortgage payments on its $1.4 million outstanding mortgage balance. Additionally, the owner improperly used project operating funds to pay for project renovations.
We recommend that the Director of HUD’s West Region Office of Multifamily Housing Programs require the owner to (1) put all project bank accounts in the name of the project; (2) separate all owner bank accounts from the project’s bank accounts; (3) develop and implement controls over the distinction between project funds and owner funds, for its use of the project funds, to ensure that the certified public accountant submits audited financial statements and that the project does not use operating funds for any items that qualify for the use of reserve for replacement funds; (4) take HUD-approved training; (5) submit any outstanding audited financial statements; (6) work with the local multifamily office to make any outstanding mortgage payments; (7) repay the project’s operating account for the $143,805 spent on ineligible expenses using nonproject funds; (8) reimburse the project’s operating account $50,400 from the reserve for replacement account; and (9) provide support for the $12,355 in project funds spent to pay individuals who were not on the payroll.
Recommendations
Housing
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Status2018-DE-1001-001-AOpenClosedClosed on July 22, 2020
Put all project bank accounts in the name of the project.
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Status2018-DE-1001-001-BOpenClosedClosed on June 25, 2020
Separate all owner bank accounts from the project’s bank accounts.
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Status2018-DE-1001-001-COpenClosedClosed on September 21, 2020
Develop and implement controls over the distinction between project funds and owner funds. These controls should include policies related to when the owner is allowed to take project funds owed to the owner.
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Status2018-DE-1001-001-DOpenClosedClosed on May 15, 2020
Take HUD-approved training related to operating and maintaining a multifamily project.
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Status2018-DE-1001-002-AOpenClosed$142,805.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on December 16, 2021Repay the project’s operating account from nonproject funds for the $142,805 spent on ineligible expenses.
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Status2018-DE-1001-002-BOpenClosed$12,355.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on August 17, 2020Provide support for the $12,355 in project funds spent to pay individuals who were not on the payroll and for services provided for project operations. For any portion of this amount that is not supported, the owner should repay the project operating account using nonproject funds.
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Status2018-DE-1001-002-COpenClosedClosed on May 15, 2020
Obtain training on the eligible use of project funds.
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Status2018-DE-1001-002-DOpenClosedClosed on June 25, 2020
Develop and implement detailed policies and procedures for procurement, travel, and the use of its credit cards. These controls should comply with HUD regulations regarding procurement and other disbursement documentation requirements.
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Status2018-DE-1001-003-AOpenClosedClosed on March 01, 2023
Submit any outstanding audited financial statements.
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Status2018-DE-1001-003-BOpenClosedClosed on July 22, 2020
Review the audited financial statements and determine the amount of outstanding mortgage payments due.
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Status2018-DE-1001-003-COpenClosedClosed on June 25, 2020
Work with the local multifamily office to make any outstanding mortgage payments or devise a plan to bring the property current through the use of available funds.
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Status2018-DE-1001-003-DOpenClosedClosed on March 22, 2021
Develop and implement policies and procedures to ensure that the certified public accountant submits audited financial statements by the required HUD deadline.
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Status2018-DE-1001-003-EOpenClosedClosed on June 25, 2020
Maintain separate books of account and submit audited financial statements solely for the project.
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Status2018-DE-1001-004-AOpenClosed$50,400.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Closed on August 14, 2020Reimburse the project’s operating account $50,400 from the reserve for replacement account.
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Status2018-DE-1001-004-BOpenClosedClosed on May 15, 2020
Receive training on the proper use of its reserve for replacement account.
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Status2018-DE-1001-004-COpenClosedClosed on August 12, 2020
Develop and implement policies and procedures for the use of reserve for replacement funds, which ensure that the project does not use operating funds for any items that qualify for the use of reserve for replacement funds.