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
Housing
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Status2019-BO-1004-001-AOpenClosed$17,761.00Questioned 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 September 30, 2020Reimburse the project $17,761 from nonproject funds for the project operating funds disbursed for ineligible expenses.
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Status2019-BO-1004-001-BOpenClosed$17,653.00Questioned 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 September 30, 2020Support or reimburse the project $17,653 from nonproject funds for the project operating funds disbursed without sufficient supporting documentation.
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Status2019-BO-1004-001-COpenClosed$45,000.00Funds Put to Better Use
Recommendations that funds be put to better use estimate funds that could be used more efficiently. For example, recommendations that funds be put to better use could result in reductions in spending, deobligation of funds, or avoidance of unnecessary spending.
Closed on January 29, 2021Reclassify and properly record $45,000 in owner advances misclassified as loans.
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Status2019-BO-1004-001-DOpenClosedClosed on January 29, 2021
Strengthen controls to ensure that project advances are reimbursed only when the project is in a surplus-cash position.
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Status2019-BO-1004-001-EOpenClosedClosed on February 08, 2021
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.
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Status2019-BO-1004-001-FOpenClosedClosed on January 29, 2021
Implement adequate controls to ensure that project funds are used only for eligible and supported operating expenses.
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Status2019-BO-1004-001-GOpenClosedClosed on February 12, 2021
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.
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Status2019-BO-1004-001-HOpenClosedClosed on January 29, 2021
Amend the management agent agreement compensation schedule to remove bookkeeping fees as a fee separate from the 8.9 percent management agent fee.