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Report Fraud, Waste and Abuse
September 09, 2019
  • Housing and FHA
2019-BO-1004
2019-BO-1004.pdf

We audited Tuscan Homes I and II, a multifamily project located in Hartford, CT, because our risk assessment ranked the project as the highest risk multifamily project in New England.  Our audit objective was to determine whether the owner managed the project in accordance with its regulatory agreement and U.S. Department of Housing and Urban Development (HUD) requirements; specifically, whether (1) exigent health and safety deficiencies were corrected and certified within required timeframes, (2) operating funds were used only for reasonable and necessary operating expenses, and (3) the project was used only for its intended purpose.

The project’s owner and management agent did not always manage the project in accordance with the regulatory agreement and HUD requirements.  Although exigent health and safety deficiencies were corrected and certified within required timeframes, (1) the operating funds were not always used for eligible operating expenses, and expenses were not always supported, (2) the owner made advances to the project that were misclassified as loans, (3) the project may have been used for nonresident purposes, and (4) the management agreement was in conflict with the management agent’s certification.  These issues occurred because the owner and management agent lacked adequate controls for the operation of the project to ensure that project funds were used only in accordance with the regulatory agreement and HUD’s requirements.  As a result, the project incurred ineligible costs of $17,761 and unsupported costs of $17,653.  In addition, $45,000 in owner advances misclassified as loans can be put to better use if the transactions are reclassified and properly recorded to ensure that any repayments are made in accordance with the regulatory agreement.

We recommend that the Director of HUD’s Boston Asset Management Division require the owner to (1) reimburse the project for $17,761 used for ineligible costs, (2) support or reimburse the project $17,653 for inadequately supported expenses, (3) reclassify and properly record $45,000 in owner advances, (4) obtain a formal agreement and approval from HUD regarding allowed nonresident uses of the project, and (5) strengthen controls to address the control weaknesses identified in the report.

Recommendations
Recommendation Status Date Issued Summary
2019-BO-1004-001-A Closed September 09, 2019 Reimburse the project $17,761 from nonproject funds for the project operating funds disbursed for ineligible expenses.
2019-BO-1004-001-B Closed September 09, 2019 Support or reimburse the project $17,653 from nonproject funds for the project operating funds disbursed without sufficient supporting documentation.
2019-BO-1004-001-C Closed September 09, 2019 Reclassify and properly record $45,000 in owner advances misclassified as loans.
2019-BO-1004-001-D Closed September 09, 2019 Strengthen controls to ensure that project advances are reimbursed only when the project is in a surplus-cash position.
2019-BO-1004-001-E Closed September 09, 2019 Implement adequate controls to ensure the review of the management agent fee to ensure that it is properly calculated in accordance with the HUD management agent certification and approved prior to payment from project operating funds.
2019-BO-1004-001-F Closed September 09, 2019 Implement adequate controls to ensure that project funds are used only for eligible and supported operating expenses.
2019-BO-1004-001-G Closed September 09, 2019 Obtain a formal agreement and approval from HUD to specify who is authorized to use the project’s community and recreation rooms and what activities are authorized or prohibited. In addition, this agreement must ensure that sufficient legal and liability protections are in place, establish consequences for noncompliance, and determine who is to pay for the utilities and maintenance of the rooms.
2019-BO-1004-001-H Closed September 09, 2019 Amend the management agent agreement compensation schedule to remove bookkeeping fees as a fee separate from the 8.9 percent management agent fee.