We audited the Second Northwest Cooperative Homes Association’s administration of the U.S. Department of Housing and Urban Development’s (HUD) Section 236 program based on a hotline complaint. Our audit objective was to determine if the Association properly identified and remitted excess income to HUD according to its regulatory agreement and whether it hired staff according to applicable HUD regulations. We found that the Association did not establish market rents for any of the program units as required and charged all of the members occupying program units basic rents. Thus, the Association did not properly identify excess income as required by its regulatory agreement and failed to remit at least $172,977 in excess income to HUD for its program units. It also did not always hire staff according to its own bylaws. Specifically, the Association hired an employee who was closely related to a member of the board of directors.

We recommended that the Director of HUD’s Washington, DC, Office of Multifamily Housing direct the Association to (1) immediately establish market rents and obtain HUD’s approval for the rents; (2) immediately recalculate rents for all members based on the most recent annual recertification performed; (3) remit to HUD $172,977 in excess income identified; and (4) identify and remit excess income for members occupying program units that were not reviewed during the audit. We also recommend that the Association establish and implement written policies and procedures to ensure that future tenant rents and excess income are properly calculated and excess income is remitted to HUD as required. Lastly, we recommend that the Association comply with its approved bylaws or obtain HUD’s written approval of its amended bylaws.