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.
Page iii 01-BO-219-1001
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.
Page 3 01-BO-219-1001
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.
Page 9 01-BO-219-1001
Management Controls
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01-BO-219-1001 Page 10
Appendix A
Auditee Comments
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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
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)