oversight

Blue Hill Housing, Multifamily Project No. 023-36619, Dorchester, Massachusetts

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-10-24.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

      AUDIT REPORT




      BLUE HILL HOUSING
MULTIFAMILY PROJECT NO. 023-36619
  DORCHESTER, MASSACHUSETTS

          01-BO-219-1001

        OCTOBER 24, 2000


    OFFICE OF AUDIT, NEW ENGLAND
       BOSTON, MASSACHUSETTS
                                                                     Issue Date
                                                                             October 24 , 2000

                                                                    Audit Case Number
                                                                             01-BO-219-1001




TO: Ellen Connolly, Director, Housing Management Division, 1AHMLA



FROM: Stephen D. King, Acting District Inspector General, Office of Audit, 1AGA


SUBJECT:        Blue Hill Housing
                Multifamily Project No. 023-36619
                Dorchester, Massachusetts


We performed an audit of Blue Hill Housing (BHH). The objective of our review was to assess BHH’s
performance related to property maintenance, tenant eligibility, and use of project funds.

Our audit disclosed one finding on apartment underutilization.

Within 60 days, please provide us a status report on the: (1) corrective action taken; (2) proposed
corrective action and date to be completed; or (3) reason why action is not considered necessary.
Also, please furnish us copies of any correspondence or directives issued related to this audit.

If you have any questions, please contact our office at (617) 565-5259.
Management Memorandum




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01-BO-219-1001            Page ii
Executive Summary
We performed an audit on the Blue Hill Housing (BHH) multifamily project located in Dorchester,
Massachusetts. We selected BHH for review based on a low REAC physical assessment. Our
objective was to assess BHH’s performance relating to maintaining the property, ensuring tenant
eligibility, and using project funds appropriately.




                                    We noted that deficiencies in property maintenance, disclosed
 Audit Results
                                    in the REAC assessment, were being addressed by BHH. We
                                    noted no deficiencies in the use of project funds. However, our
                                    audit disclosed an underutilization of apartments.

                                    During our review of tenant eligibility, we determined that 24 of
                                    144 apartments were underutilized contrary to HUD
                                    requirements. Based on household compositions, families are in
                                    apartments with too many bedrooms. BHH had not established
                                    and implemented a policy to address underutilization.
                                    Consequently, HUD is paying too much in subsidies for the
                                    number of tenants served ($4,705 per month based on current
                                    conditions) and larger families are being restricted from
                                    appropriate size apartments.

                                    We recommend that you monitor BHH’s compliance with their
 Recommendations                    new transfer policy; and, obtain progress reports until the
                                    underutilization is resolved.

                                    On September 18, 2000, we provided BHH a draft audit
 Finding and
                                    report for comments and received their response on October
 Recommendations
                                    12, 2000. BHH’s response is commented on in the Finding
 Discussed
                                    section of the report. A copy of the BHH’s response is
                                    included in Appendix A.




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Executive Summary




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01-BO-219-1001       Page iv
Table of Contents

Management Memorandum                                       i



Executive Summary                                          iii



Introduction                                                1



Finding

1     Underutilized Apartments                              5



Management Controls                                         9



Appendices
    A Auditee Comments                                     11


    B Distribution                                         13




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Table of Contents




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01-BO-219-1001        Page   vi
Introduction
The Blue Hill Housing (BHH) project is owned by Blue Hill Housing Limited Partnership (BHHLP) that
was organized under Massachusetts Laws in November 1987. The partnership was created to acquire,
rehabilitate and operate a low-income residential housing project pursuant to the National Housing Act.
BHH’s limited partner, American Tax Credit Property L.P. (publicly held investment company), has a
99% interest in the project’s capital. BHH is located over several city blocks in the Franklin Park/Blue
Hill Avenue section of Dorchester, Massachusetts. It consists of five walk-up, brick buildings with a
total of 144 units.

Benchmark Apartment Management Corporation (BAM), an affiliate of BHHLP’s general partners,
manages BHH pursuant to a management agreement approved by HUD. BAM has an on-site
management office at the project site and a regional management office in Plymouth Meeting, PA.
Oversight, accounting and capital project management functions are performed at the regional office.
All other functions are performed at the on-site office. BAM also manages Elm Hill Housing (EHH), a
HUD-insured project owned by Elm Hill Housing Limited Partnership. EHH consists of 140 units and
is located in the same area as BHH. Both BHH and EHH are owned by the same partners and
managed out of the aforementioned BAM offices. Certain operating/maintenance and administrative
costs are allocated 55% / 45% (based on property square footage), respectively.

Pursuant to Section 8 of Title II of the Housing and Community Development Act of 1974, HUD
has contracted with BHH to make annual housing assistance payments covering all 144 units.

In September 1999, HUD’s Real Estate Assessment Center (REAC) performed a physical inspection
of the property. REAC found significant problems and BHH received a score of 18 out of a possible
100 points. BHH is addressing the REAC inspection results. In April 2000, they submitted a
corrective action plan that HUD project management accepted. During 2000, BHH also performed
more thorough annual unit inspections.

During December 1999, BHH submitted a formal appeal of REAC’s inspection. In March 2000,
REAC responded by conducting a quality assurance review onsite. They found that the inspector had
misrepresented the number of buildings and deficiencies in the laundry rooms and basements.
Consequently, REAC has decided to perform a complete re-inspection in November 2000.


                                       The objective of the audit was to assess BHH’s performance
 Audit Objectives                      relating to:

                                       •   Maintaining the property in a satisfactory physical condition;

                                       •   Ensuring tenant eligibility; and

                                       •   Using project funds appropriately.

                                            Page 1                                01-BO-219-1001
Introduction


                    The audit focused on operating/maintenance costs,
                    administrative costs, capital improvement costs, tenant eligibility
                    and related management systems for the period January 1998
                    through April 2000. The period was extended as needed to
                    assess compliance with tenant occupancy requirements. The
                    audit was performed during the seven months ended August
                    2000 in accordance with generally accepted government
                    auditing standards.

                    To accomplish the audit objectives, we:
 Audit Procedures
                    •   Reviewed HUD directives including those covering
                        Multifamily Asset Management and Project Servicing;
                        Reviewing Annual and Monthly Financial Reports; Financial
                        Operations and Accounting Procedures for Insured
                        Multifamily Projects; Management Documents, Agents and
                        Fees; Section 8 Additional Assistance Program for Projects
                        with HUD-Insured or HUD-Held Mortgages; and
                        Occupancy Requirements of Subsidized Multifamily
                        Housing Programs.

                    •   Interviewed the HUD project manager to determine
                        whether any significant problems existed.

                    •   Reviewed the Housing Assistance Payment Contract, the
                        Regulatory Agreement, the Partnership Agreement, the
                        Management Agreement and BHH’s Standard Lease
                        Agreement.

                    •   Reviewed pertinent information in HUD project
                        management files and the Real Estate Management System
                        (REMS).

                    •   Reviewed REAC’s physical inspection report, BHH’s
                        appeal, REAC’s response to the appeal and BHH’s
                        corrective action plan.

                    •   Interviewed the Independent Public Accountants and
                        reviewed their 1997-1999 audit reports and 1998 and
                        1999 work papers, particularly those related to cost
                        allocation, identity of interest and tenant eligibility.



01-BO-219-1001           Page 2
                                                    Introduction


•   Interviewed BHH’s owner, controller, property manager
    and maintenance superintendent about the REAC
    inspection, identity of interest transactions, tenant eligibility,
    HUD subsidies and management systems for operations
    and costs (including allocations with affiliate EHH); and
    documented management systems.

•   Tested operating/maintenance, administrative and capital
    improvement accounting transactions to books of original
    entry, supporting documentation (including authorizations,
    procurement bids, service contracts, vendor invoices, time
    reports and canceled checks).

•   Reviewed management and bookkeeping fees for
    duplicative costs; and procurement transactions for identity
    of interest companies.

•   Tested maintenance management system activity to unit
    inspection forms, service request forms, supporting plans,
    work orders, maintenance log and inventory records.

•   Tested tenant eligibility and subsidies by reviewing
    supporting documentation for family composition, income
    and allowances; computing tenant rent and subsidy
    amounts; comparing pertinent data to HUD User FY2000
    Income Limits Schedule, HUD Owner Certification of
    Compliance Forms-50059, HUD Rent Schedule Form
    92458 and HUD Housing Owner’s Certification &
    Application for Housing Assistance Payment Form 52670;
    and reviewing move-ins for the last five years.




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Introduction




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01-BO-219-1001     Page 4
                                                                                              Finding 1


                        Underutilized Apartments
Blue Hill Housing has a significant number of apartments (24 of 144) where there are too many
bedrooms for the size of families that inhabit them. The underutilization has resulted from a failure to
establish and implement a policy for complying with HUD occupancy requirements. Consequently,
HUD’s Section 8 rent subsidies are too great for the number of people served; and, the needs of larger
families are being restricted.




                                       HUD stipulates that owners should develop occupancy
 HUD Directives Require
                                       standards for determining unit size (Paragraph 2-18 of HUD
 Occupancy Standards
                                       Directive 4350.3-Occupancy Requirements of Subsidized
                                       Multifamily Housing Programs).

                                       Occupancy requirements address interim changes involving the
                                       number or composition of a household. They require the owner
                                       to determine whether:

                                       •   The current unit is still appropriate for the changed
                                           household; and

                                       •   The tenant should be required to transfer to a different unit
                                           (Paragraph 5-9 of HUD Directive 4350.3).

                                       Occupancy standards must address units that become
                                       underutilized due to reductions in household composition.
                                       When underutilization develops, the owner must require the
                                       family to move to an appropriate size unit within the project,
                                       consistent with lease terms, when one becomes available. A
                                       family may remain in the same unit, only if it pays the HUD
                                       approved market rent. Failure to pay market rent, may result in
                                       eviction (Paragraph 2-19 of HUD Directive 4350.3).

                                       BHH’s lease and contract terms also require compliance with
                                       HUD occupancy requirements (Lease Section 19-Size of
                                       Dwelling, HUD Housing Assistance Payment Contract Section
                                       2.5 (e)-Underoccupied Units plus Exhibit 7-Relocation Plan
                                       Section V. C. and the Regulatory Agreement for Multifamily
                                       Housing Projects Coinsured by HUD).



                                            Page 5                                01-BO-219-1001
Finding 1


                            As of May 2000, 24 of 144 BHH apartments were
 Apartments Underutilized   underutilized as follows:

                               Family Size    No. of Bedrooms     Total Units in Category
                                   1                  2                      8
                                   1                  3                      2
                                   1                  4                      1
                                   2                  3                      5
                                   2                  4                      1
                                   3                  4                      5
                                   3                  5                      2
                                 Total                                      24

                            Due to underutilized apartments, HUD is paying too much in
                            rent subsidies for the people housed. Moreover, families
                            needing larger apartments are being restricted. We estimate
                            that there is a total excess monthly HUD subsidy of $4,705 for
                            tenants in the 24 underutilized apartments. For example, the
                            HUD approved monthly rent for a 5-bedroom apartment at
                            BHH is currently $1,743. Moving a family of three from a five
                            to a 3-bedroom apartment ($1,436 monthly rent) would reduce
                            the monthly rent by $307.

                            We found that this condition has existed for some time. Based
                            on family composition forms supporting annual re-certifications
                            for six of the 24 units (two with three bedrooms, two with four
                            and two with five), they were underutilized for at least five
                            years.

                            BHH had not taken corrective action to resolve the
 No Corrective Action       underutilization of apartments. There were 31 move-ins (23 to
                            apartments with less than 3 bedrooms) during the period
                            September 1997 to April 2000. Although there were
                            appropriate size apartments available, only one move-in
                            addressed underutilization.

                            There is a HUD requirement to address underutilization
 BHH Had No Policy          stipulated in the aforementioned directive and contracts. BHH
                            had not, however, established and implemented a policy to
                            address it.

 Corrective Action Plan     After we brought the underutilization to BHH’s attention, they
 Inadequate                 prepared a Transfer Policy and corrective action plan to

01-BO-219-1001                  Page 6
                                                                          Finding 1


                    address it. We believe the corrective action plan is inadequate.
                    BHH’s plan states that vacancies will be alternately filled from
                    the waiting list (outside) and the transfer list (tenants in
                    underutilized apartments). This method will double the amount
                    of time necessary to correct the problem. BHH could not
                    provide a sound reason why it is necessary to alternate between
                    the two lists.



Auditee Comments    In BHH’s letter dated October 6, 2000 (Appendix A), they
                    concurred with our audit finding. Accordingly, BHH has
                    revised the Transfer Policy so once an apartment becomes
                    available it will be filled from the transfer list before going to the
                    waiting list. As of October 6, 2000, they have placed three
                    transfer list families and have plans for three others within the
                    next two months.


OIG Evaluation of   Based on BHH’s response, we have amended our
Auditee Comments    recommendations accordingly.




Recommendations     We recommend that you:

                    1A. Monitor BHH’s compliance with their new Transfer
                        Policy; and, obtain progress reports until the
                        underutilization is corrected.




                                       Page 7                             01-BO-219-1001
Finding 1




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01-BO-219-1001     Page 8
Management Controls
In planning and performing the audit, we considered Blue Hill Housing (BHH) management control
systems that were relevant to the audit objective. Our goal was not to render an opinion on controls or
provide assurance of its effectiveness.

The three primary objectives of a management control system are to ensure efficient and effective
operations, accurate financial reporting and compliance with laws and regulations. An effective
management control system includes five essential components, including control environment, risk
assessment, control activities, information & communication and monitoring.




                                       We determined the following management controls areas were
 Relevant Management                   relevant to our audit objectives:
 Controls
                                       •   Accounting and budgets

                                       •   Procurement and contract administration

                                       •   Capital improvements and maintenance

                                       •   Compliance with HUD tenant eligibility requirements

                                       A significant weakness exists if management controls do not
 Assessment Results                    give reasonable assurance that resource use is consistent with
                                       laws, regulations, and policies; that resources are safeguarded
                                       against waste, loss, and misuse; and that reliable data is
                                       obtained, maintained, and fairly disclosed in financial statements
                                       and reports.

                                       Our audit identified a significant deficiency in controls related to
 Significant Weakness
                                       complying with HUD’s requirement for tenant occupancy
                                       standards. The deficiency is discussed in the Finding section of
                                       the report.




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Management Controls




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01-BO-219-1001         Page 10
                              Appendix A

Auditee Comments




                   Page 11   01-BO-219-1001
Appendix A




01-BO-219-1001   Page 12
                                                                                          Appendix B

Distribution
Secretary, S., Room 1000 (1)
Deputy Secretary, SD, Room 10100 (1)
Chief of Staff, S., Room 10000 (1)
Office of Administration, S, Room 10110 (1)
Acting Assistant Secretary for Congressional and Intergovernmental Relations. J,
Room 10120 (1)
Deputy Assistant Secretary for Public Affairs, W., Room 10222 (1)
Deputy Assistant Secretary for Administrative Services, Office of the Executive Secretariat, S, Room
10220 (1)
Deputy Chief of Staff, S, Room 10226 (1)
Deputy Chief of Staff for Policy, S, Room 10226 (1)
Deputy Chief of Staff for Programs, S, Room 10026 (1)
Special Counsel to the Secretary, S, Room 10234 (1)
Senior Advisor to the Secretary, S, Room 10222 (1).
Special Assistant for Inter-Faith Community Outreach, S, Room 10222 (1)
Executive Office for Administrative Operations and Management, S, Room 10220 (1)
General Counsel, C., Room 10214 (1)
Assistant Secretary for Housing/Federal Housing Commissioner, H, Room 9100 (1)
Assistant Secretary for Policy Development and Research, R, Room 8100 (1)
Assistant Secretary for Community Planning and Development, D, Room            7100 (1)
Assistant Deputy Secretary for Field Policy and Management, SDF, Room 7108 (2)
Office of Government National Mortgage Association, T, Room 6100 (1)
Director, Office of Departmental Equal Employment Opportunity, Room 10126 (1)
Chief Procurement Officer, N, Room 5184 (1)
Assistant Secretary for Public and Indian Housing, P, Room 4100 (1)
Director, Office of Departmental Operations and Coordination, I, Room 2124 (1)
Office of the Chief Financial Officer, F, Room 2202 (1)
Chief Information Officer, Q, Room 3152 (1)
Director, Enforcement Center, V, 200 Portals Building (1)
Director, Real Estate Assessment Center, X, 1280 Maryland Avenue, SW, Suite 800 (1)
Director, Office of Multifamily Assistance Restructuring, Y, 4000 Portals      Building (1)
Director, Office of Budget, FO, Room 3270 (1)
Inspector General, G, Room 8256 (1)
Deputy Inspector General, G, Room 8256 (1)
Assistant Inspector General for Audit, GA, Room 8286 (1)
Deputy Assistant Inspector General for Audit, GA, Room 8286 (1)
Assistant Inspector General for Investigation, GI, Room 8272 (1)
Director, Program Research and Planning Division, GAP, Room 8180 (1)
Director, Financial Audits Division, GAF, Room 8286 (1)
Director, Information Systems Audit Division, GAA, Room 8172 (1)
Counsel to the Inspector General, GC, Room 8260 (1)

                                           Page 13                                       01-BO-219-1001
Appendix B


Central Records, GF, Room 8256 (4)
Semi-Annual Report Coordinator, GF, Room 8254 (1)
Office of Inspector General Webmaster - Electronic format
Public Affairs Officer, G, Room 8256 (1)
Acquisitions Librarian, Library, AS, Room 8141 (1)
District Inspector General (Districts 2 - 11)
Secretary’s Representative, 1AS (2)
Appropriate Special Agent-In-charge, 1AGI (1)
Primary Field Audit Liaison Officer, 3AFI (2)
Special Projects Coordinator, HF, (2)
Departmental Audit Liaison Officer, FM, Room 2206 (2)
Auditee (2)

Armando Falcon, Director, Office of Federal Housing Enterprise Oversight,1700G Street, NW, Room
4011, Washington, DC (1)

Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug Policy & Human Resources,
B373 Rayburn House Office Building, Washington, DC 20515 (1)

The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, 340 Dirksen Senate
Office Building, United States Senate,Washington, DC 20510 (1)

The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs, 706 Hart
Senate Office Bldg., United States Senate, Washington, DC 20510 (1)

The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn Bldg.,
House of Representatives, Washington, DC 20515 (1)

The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform, 2204
Rayburn Bldg., House of Representatives, Washington, DC 20515 (1)

Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O’Neill House Office
Building, Washington, DC 20515 (1)

Steve Redburn, Chief, Housing Branch Office of Management & Budget, 725 17th Street, NW, Room
9226, New England Executive Office Building, Washington, DC 20503 (1)

Stanley Czerwinski, Associate Director, Resources, Community, and Economic Development Division,
United States General Accounting Office, 441 G Street, NW, Room 2T23, Washington, DC 20548 (1)




01-BO-219-1001                            Page 14