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Report Fraud, Waste and Abuse
July 25, 2007
  • Housing
2007-BO-1006
ig0711006.pdf

We audited the records for Moosup Gardens Apartments (project), a U.S. Department of Housing and Urban Development (HUD)-insured multifamily project in response to a request from HUD. Our audit objective was to determine whether the project's costs were accurately reported to HUD and in accordance with the regulatory agreement and HUD's requirements.

We identified questioned costs and opportunities for funds to be put to better use totaling more than $730,000. These cost exceptions were due to weak internal controls, lack of policies for related company transactions, and inadequate accounting procedures. As a result, the owners (1) repaid advances when the project was in a non-surplus-cash position, charged ineligible costs, and did not adequately support payments to their related company; (2) paid their related company more than $230,000 in unreasonable and unsupported relocation services costs when the project was in a non-surplus-cash position; (3) included more than $280,000 in unreasonable and unsupported expenses in their HUD-insured mortgage cost certification; and (4) did not properly manage the HUD-assisted learning center.

We recommend that the director of HUD's Boston Multifamily Hub require the owners to (1) repay the project for ineligible use of operating funds while the project was in a non-surplus-cash position and pay down the project's mortgage for unsupported development costs; (2) repay the project for unreasonable and unsupported relocation costs; (3) make a principal payment to pay down the project's mortgage for unreasonable relocation costs and provide support for or make a principal payment to pay down the project's mortgage for unsupported operations expenses included in the mortgage amount HUD insured; and (4) establish and implement a business to plan which ensures that the learning center delivers effective programs in an economical and efficient manner and becomes self-sufficient without HUD funding.

Further, we recommend that HUD pursue administrative sanctions as appropriate against the responsible parties for the unreasonable and unsupported disbursements cited in this report.