oversight

Review of Metro Management Corporation

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-02-21.

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

                                             U.S. Department of Housing and Urban Development
                                             Great Plains Office of District Inspector General
                                               for Audit, 7AGA
                                             Gateway Tower II - 5th Floor
                                             400 State Avenue
                                             Kansas City, Kansas 66101-2406




                                                                         AUDIT MEMORANDUM
                                                                                 2001-KC-1801

February 21, 2001

MEMORANDUM FOR:              Herman Ransom, Director, Office of Multifamily Housing, Kansas
                             City Hub, 7AHM



FROM:         Roger E. Niesen, District Inspector General for Audit, 7AGA

SUBJECT:      Review of Metro Management Corporation

We have completed a review of Metro Management Corporation (Metro), located in Overland
Park, Kansas. Our objective was to assess Metro’s compliance with the terms and conditions of
the Regulatory Agreement and applicable HUD regulations and instructions regarding Metro’s
management of Royal Towers/Pickwick Plaza from 1997 through 1999.

We found that Metro generally followed applicable requirements while managing Royal
Towers/Pickwick Plaza. However, we did find several instances of non-compliance. Therefore,
this memorandum contains two recommendations requiring corrective action.

Within 60 days please provide us, for each recommendation in this report, a status report on: (1)
the corrective action taken; (2) the proposed corrective action and the date to be completed; or
(3) why action is considered unnecessary. Also, please furnish us copies of any correspondence
or directives issued because of the audit.

Should you or your staff have any questions, please contact me at (913) 551-5871.
 Telephone: (913) 551-5870     http://www.hud.gov/oig/oigindex.html      Fax: (913) 551-5877



                                             Background

We selected Metro Management Corporation for review based on recent newspaper articles,
HUD actions regarding the poor physical condition of Royal Towers/Pickwick Plaza, the
considerable volume of Metro managed HUD-assisted properties, and complaints reported to the
Offices of Inspector General Audit and Investigation regarding Metro improprieties involving
various HUD-assisted properties.

Metro was the management agent for Royal Towers/Pickwick Plaza from November 1996
through March 2000. In March 2000, the property was assigned by the owner to HUD. One
month after Metro took over as management agent, on December 1, 1996, Royal Towers had a
major fire that caused extensive property damage. Metro was paid a separate management fee to
oversee the fire repair work performed by outside contractors on Royal Towers.

Metro no longer manages Royal Towers/Pickwick Plaza, however, they do currently manage
twelve other HUD assisted properties.

                             Objectives, Scope and Methodology

The objective of our review was to assess Metro’s compliance with the terms and conditions of
the Regulatory Agreement and applicable HUD regulations and instructions regarding the
financial management of Royal Towers/Pickwick Plaza from 1997 through 1999. We did not
review Metro’s management of any other properties.

During the review, we conducted interviews with appropriate Office of Housing staff and Metro
personnel. We reviewed books and records maintained by Metro at its corporate office. We also
reviewed HUD guidelines and other pertinent federal regulations applicable to the review
objectives.

                                            Audit Results

Our review resulted in four observations that identified problems with Metro’s management of
Royal Towers/Pickwick Plaza. Two of the observations require no corrective action since Metro
no longer manages the project. However, they represent information that HUD needs to be aware
of in its oversight of other HUD projects that Metro manages. The other two observations
involve the inappropriate payments of a duplicate management fee and an ineligible management
fee, and require corrective action.

Problems not requiring corrective actions

The following are problems we identified that HUD should be aware of in its monitoring of
Metro projects:

    •   Metro did not have an accurate Previous Participation Certificate (2530). Metro’s
        certificate was not updated to reflect current information on all properties it owned.



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 Telephone: (913) 551-5870       http://www.hud.gov/oig/oigindex.html      Fax: (913) 551-5877



        Metro indicated the inaccurate certificate was an oversight and included an updated 2530
        with their response to our review.
    •   Metro did not maintain complete and accurate project account books and records. We
        needed considerable time and repeated requests to document Metro’s support for
        disbursements and deposits to project accounts.

Problems requiring corrective actions

1 - Excess Management Fees. Metro paid itself $6,770 in duplicate management fees for June
1999. Metro submitted two separate invoices for June management fees, and paid itself for both.
Metro did not have adequate controls to prevent duplicate payments.

In their response to our review, Metro indicated that the problem was due to errors with an
upgrade to its new software system. Metro said that during 1999 they purchased Yardi Systems
software, a fully integrated accounting software package to alleviate any issues with check
printing and reconciliations. Metro agreed to reimburse the property operating account $6,770.

                                           Recommendation

We recommend the Director, Office of Multifamily Housing:

        1A.       Ensures Metro Management Corporation reimburses the Royal Towers/Pickwick
                  Plaza project account $6,770 for the duplicate management fees inappropriately
                  withdrawn.


2. - Ineligible Management Fees. Metro collected $2,736 in ineligible management fees from
1997 through 1999. The fees were taken on commercial income; however, the governing
Management Agent Certification does not allow Metro to claim a percentage of commercial
income collected as a management fee. Metro said they recognize the management certification,
notwithstanding the fact that it expired October 31, 1998, does not include commercial income.
Regardless of whether or not commercial income was included in the certification, they believe
they are entitled to the fee. They believe it is a reasonable fee for managing space with
associated physical difficulties and problems in leasing and collecting rent and that it would be
unreasonable to expect any firm to manage the space without payment. Additionally, they said
HUD was aware of the commercial space when they reviewed the certification and approved the
rent schedule.

We believe that the terms of the agreement should be honored. Since HUD was aware of the
commercial space, it does not appear to be an oversight that it was excluded from the
management fee schedule.




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 Telephone: (913) 551-5870       http://www.hud.gov/oig/oigindex.html     Fax: (913) 551-5877



                                           Recommendation

We recommend the Director, Office of Multifamily Housing:

        2A.       Requires Metro Management Corporation to reimburse the Royal
                  Towers/Pickwick Plaza operating account $2,737 for ineligible management fees
                  withdrawn from the project’s account
        .




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 Telephone: (913) 551-5870   http://www.hud.gov/oig/oigindex.html      Fax: (913) 551-5877
                                                                           Appendix A

Distribution
Chairman, Committee on Governmental Affairs, 340 Dirksen Senate Office Building,
  United States, Senate, Washington, DC 20510
Ranking Member, Committee on Governmental Affairs, 706 Hart Senate Office Building,
  United States, Senate, Washington, DC 20510
Chairman, Committee on Government Reform, 2185 Rayburn Building, House of
  Representatives, Washington, DC 20515
Ranking Member, Committee on Government Reform, 2204 Rayburn Building
  House of Representatives, Washington DC 20515
Subcommittee on Oversight and Investigations, Room 212 O’Neil House Office Building
  Washington, DC 20515
Director, Housing and Community Development Issue Area, United States General Accounting
  Office, 441 G Street NW, Room 2474, Washington DC 20548
Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug Policy & Human
  Resources, B373 Rayburn House Office Building, Washington, DC 20515
Chief, Housing Branch, Office of Management & Budget, 725 17th Street, NW, Room 9226,
  New Executive Office Building, Washington, DC 20503




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