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AUDIT REPORT
BAY TOWERS
MULTIFAMILY MORTGAGOR OPERATIONS
PROJECT NUMBER 012-11031
FAR ROCKAWAY, NEW YORK
2001-NY-1001
DECEMBER 7, 2000
OFFICE OF AUDIT
NEW YORK/NEW JERSEY
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Issue Date
December 7, 2000
Audit Case Number
2001-NY-1001
TO: Deborah VanAmerongen, Director, New York Multifamily HUB, 2AH
FROM: Alexander C. Malloy, District Inspector General for Audit, 2AGA
SUBJECT: Bay Towers
Multifamily Mortgagor Operations
Project Number 012-11031
Far Rockaway, New York
In response to your request, we conducted an audit of the books and records of the multifamily
project, Bay Towers, Project Number 012–11031, (herein called the Project). The results of our
audit are provided within this audit report, which contains three findings with recommendations
for 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 contact Edgar Moore, Assistant District Inspector
General for Audit, at (212) 264-8000, extension 3976.
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Management Memorandum
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2001-NY-1001 Page ii EXIT
Executive Summary
We conducted an audit of the books and records of the multifamily project, Bay Towers. The
objective of our review was to determine whether the Owners and Management Agent complied
with requirements of the Regulatory Agreement.
We concluded that the Management Agent generally
Results
complied with regulations and requirements of the U.S.
Department of Housing and Urban Development (HUD),
including those regarding the use of project funds for
reasonable operating expenses and necessary repairs.
However, our review disclosed that the Agent did not
comply with the provisions of the Regulatory Agreement
and other HUD requirements that pertain to: (1) computing
and remitting Section 236 excess income to HUD; (2) using
project funds to pay legal fees relating to the filing of
bankruptcy petitions by the Owners; (3) maintaining
documentation on an account receivable and a loan
payable; and (4) the writing off of an account receivable
and a loan payable.
Specifically, we found that contrary to HUD requirements,
Excess Income Was the Management Agent did not properly compute excess
Neither Computed income due HUD; as a result, excess income due HUD in
Correctly nor remitted the amount of $199,205 was not remitted. Furthermore, we
to HUD noted that the HUD New York State Office (NYSO) may
have inadvertently given approval to the Project to retain
future excess income amounts collected.
We also found that the Management Agent charged
Ineligible Legal Fees ineligible legal fees that pertain to the filing of petitions of
Charged To Project bankruptcy by the Owners of the Project. As a result, the
Project has been deprived of $77,000, which should have
been used for reasonable project operating expenses. In
addition, the Management Agent wrote-off a $201,312
account receivable, due from the Project’s Owners; and a
Questionable Write-Offs
$174,677 loan payable, without obtaining HUD’s written
approval. Consequently, we believe that the Project could
be deprived of funds from a collectible receivable, and that
its loans payable balance may be understated.
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Page iii 2001-NY-1001
Executive Summary
As a result, we recommend that the HUD NYSO make a
Recommendations determination on whether (a) the $199,205 in excess
income collected and retained by the Agent during the
period March 31, 1998 through March 31, 2000 should be
remitted to HUD; and (b) the NYSO’s April 10, 2000
approval to allow Bay Towers to retain future excess
income collected should be rescinded. We also recommend
that the Owners be required to immediately reimburse the
Project’s operating account for the $77,000 in legal fees
charged to the Project. In addition, we recommend that the
amounts for the account receivable and the loan payable be
put back on the Project’s books until HUD makes a
determination on their authenticity.
On November 8, 2000, we held an exit conference with
Exit Conference
officials of the Agent to discuss the results of our draft
findings and recommendations. The Officials provided us
with written responses to the findings, which we included
in its entirety as Appendix B of this report. We also
provided a summary and an evaluation of their responses
at the end of each finding.
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Table of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1 The Agent Incorrectly Computed Excess Income
Due HUD 3
2 Ineligible Legal Fees Were Charged to the Project 9
3 The Agent’s Write-Offs Of An Account Receivable and
A Loan Payable Are Questionable 13
Management Controls 19
Follow Up On Prior Audits 21
Appendices
A Schedule of Ineligible and Unsupported Costs 23
B Auditee Comments 25
C Distribution 29
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Table of Contents
Abbreviations
HUD U.S. Department of Housing and Urban Development
NYSO New York State Office
RAP Rental Assistance Program
TPA Transfer of Physical Assets
NYC-HPD New York City Department of Housing Preservation and
Development
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Introduction
Bay Towers, which was constructed in 1973, is a 375 unit multifamily project located in Far
Rockaway, New York. The original Mitchell-Lama mortgage of $13,670,000 was refinanced in
1977. Specifically, the original mortgage was recast into a $5,476,900 first mortgage, which is
insured under Section 223(f) of the National Housing Act and an uninsured second mortgage of
$8,943.600. The Project has an interest reduction contract under Section 236 of the National
Housing Act. The Project has a Rental Assistance Payment (RAP) Contract with HUD for 75
units, and also receives Section 8 rental assistance from the New York City Housing Authority
for approximately 58 units. The New York City Housing Development Corporation is the
servicing mortgagee; however, applications for rental increases are submitted to HUD for
approval.
Bay Towers Company owns the Project. There have been two unauthorized transfers of physical
assets (TPA). One in 1986, this resulted in Bay Towers Associates becoming a limited partner
in Bay Towers Company. In this regard, a TPA was submitted to HUD but was never approved.
The second in 1992, during this one DAL Realty was made a general partner of Bay Towers
Company without the approval of HUD. The President of DAL is also the President of the
Management Agent, U.S. Housing Management, Inc., and is the general partner for Bay Towers
Company. U.S. Housing Management, Inc. has managed the Project since November 1991. The
financial books and records are maintained at the Management Agent’s office at 326 Third
Street, Lakewood, New Jersey.
The objective of our review was to determine whether the
Audit Objectives Owners and Management Agent complied with
requirements of the Regulatory Agreement.
To accomplish our objectives, we interviewed HUD New
Audit Scope and York State Office officials as well as officials and staff
Methodology members of the Agent. We obtained an understanding of
the applicable HUD program requirements and internal
control procedures employed by the Agent. We examined
audited financial statements and other reports submitted to
HUD.
We reviewed and verified cash disbursements made by the
Agent and the Owners on behalf of the Project. We verified
project rental income and recomputed Section 236 Excess
Income using the rent rolls and other accounting
information. We also conducted an inspection of the Project
to ensure that necessary repairs were completed.
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Introduction
The audit generally covered the period January 1, 1998
through December 31, 1999, and where appropriate, was
extended to cover other periods. The audit fieldwork was
performed between January 3, 2000, and August 2000.
The audit was conducted in accordance with generally
accepted governmental auditing standards.
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Finding 1
The Agent Incorrectly Computed Excess
Income Due HUD
Contrary to HUD requirements, the Management Agent did not properly compute excess income
due HUD; as a result, excess income due HUD was not remitted. Furthermore, the HUD NYSO
may have inadvertently given approval to the Project to retain future excess income amounts
collected. We attribute this to the Agent’s failure to follow HUD’s procedures for calculating and
remitting excess income. Accordingly, we recommend that the HUD NYSO make a
determination on whether excess income in the amount of $199,205, which was collected and
retained by the Agent during the period from March 1, 1998, through March 31, 2000, should be
remitted to HUD.
Section 4 (I) of the Regulatory Agreement provides that
Criteria ”…owners agree to remit to the Secretary on or before the
tenth day of each month the amount by which the total
rentals collected on the dwelling units exceeds the sum of
the approved basic rentals for all occupied units, which
remittance shall be accompanied by a monthly report
approved by the Secretary…”
HUD Housing Notice 98-10 changed the method of
computing excess income (rent collected in excess of the
basic rent) so that it would be computed on a unit-by-unit
basis based on the rent roll effective with rents collected on
March 1, 1998. The notice also required all excess income
as calculated by these revised procedures to be remitted to
HUD without delay on a monthly basis.
HUD Housing Notice 99-28 permitted former non-insured
State Agency Section 236 assisted projects, whose
mortgages were refinanced under Section 223(f) (Mitchell-
Lama projects), to apply to HUD for approval to retain a
portion of the excess income for specified purposes. These
projects may retain excess income retroactively to October
21, 1998, the date that Congress authorized these owners to
retain excess income. However, all past due, unpaid excess
income should have been paid in full to HUD before future
excess income may be retained, with the exception of
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Finding 1
Mitchell-Lama projects that may have been holding such
income while awaiting further instructions from HUD.
During our review we learned that the monthly reports of
Excess Income Reports Were Section 236 excess income that were submitted to HUD by
Not Correctly Prepared the Agent during the period March 1998 through August
1998 were not properly prepared. These reports were
prepared using the old forms and instructions that had been
superseded. Agent officials were not aware that effective
March 1, 1998 the method of computing excess income
was changed by HUD Housing Notice 98-10. As a result,
Excess Income reports submitted to HUD for this period
showed that no money was due HUD. However, our audit
of rental collections for the period March 1998 through
August 31, 1998, revealed that a total of $43,539 of excess
rental income had been collected during this period;
accordingly, the monthly amounts collected should have
been remitted to HUD.
After learning of the new procedures, the Agent used the
correct forms in September 1998; however, the excess
income calculation was not mathematically correct.
Subsequent to this, the Agent correctly calculated excess
income for the periods from October 1998 through
December 1999. However, the Agent chose not to remit the
excess income to HUD. Agent employees indicated that the
Project could not afford to pay the excess income to HUD;
therefore, the excess income collected was used for project
operations.
On March 31, 2000, Bay Towers Company requested
Bay Towers Request To approval from HUD to retain all of its excess income per
Retain Excess Income HUD Housing Notice 99-28. They requested to retain all
Collected excess income collected from February 2000 retroactive
back to October 21, 1998, as well as any future excess
income to be collected. The purpose of this request was to
use these funds to meet project-operating shortfalls and to
cover future repair costs for on-going projects. On April 10,
2000, the HUD NYSO, Director, Project Management
approved Bay Tower’s request for retention of excess
income retroactive to October 21, 1998 for the purposes
cited above. The excess income to be retained totaled
$145,204.
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Finding 1
The HUD NYSO was not aware that prior excess income
Questionable Eligibility To reports were not prepared correctly. Accordingly, HUD did
Retain Excess Income not know that excess income collected and due HUD for
Collected periods prior to October 21, 1998 had not been remitted, as
required. As a result, Bay Towers may not have been
eligible for approval for retention of Section 236 excess
income. HUD Housing Notice 99-28 provides that for
former non-insured Section 236 projects whose mortgages
were refinanced under Section 223(f) (Mitchell-Lama
projects), excess income could be retained retroactively to
October 21, 1998. If excess income collected during this
period was remitted to HUD, the Agent could apply for a
refund for the project. However, all past due amounts
(excess income collected prior to October 21, 1998) must
have been paid in full before future excess income could be
retained.
We calculated that the Agent collected a total of $56,606 in
excess income during the period from March 1, 1998
$56,606 Was Owed To HUD through October 20, 1998; however, this amount was not
Prior To October 21, 1998 remitted to HUD. As a result, we believe that the $56,606
should have been remitted to HUD prior to the Project
being approved to retain future excess income collected.
Furthermore, we believe that since the Agent did not
request approval to retain all excess income collected until
March 31, 2000, all excess income collected prior to this
date should have been remitted to HUD.
We determined that the Agent collected a total of $199,205
of excess income for the period March 1, 1998 through
March 31, 2000; which should have been remitted to HUD
on a monthly basis as required by the regulations. This
amount consists of $56,606 due for the period from March
1998 through October 20, 1998; $109,565 due for the
period October 21, 1998 through December 31, 1999; and
$33,034 collected by the Agent but not remitted during the
period January 2000 through March 31, 2000. Since this
excess income was not remitted to HUD on a monthly basis
and since the Project did not request approval to retain
excess income until March 2000, we do not believe that the
Project is eligible to retain any excess income collected.
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Finding 1
Accordingly, we believe that the NYSO should determine
A HUD Determination is whether or not Bay Towers should be required to remit to
Needed HUD the $199,205 in excess income collected from the
period March 1, 1998 through March 31, 2000.
Auditee Comments The auditee comments provide that in April 2000, HUD
New York Field Office permitted the Bay Towers project to
retain excess income based on the Projects difficulties
meeting operating expenses, the need for immediate and
future repairs and completion of ongoing renovations and
improvements. HUD’s verbal communications to U.S.
Housing indicated that all excess income retroactive to
March 1998 could be retained.
The Project regrets any misunderstanding over the filing of
the excess income worksheets and any administrative
problems that may have been caused HUD. However,
regardless of what excess income may have been owed
HUD, Bay Towers cannot afford to pay excess income to
HUD at this time. The Bay Towers project has been
substantially improved while under its present management
and ownership and more than 1.5 million dollars have been
invested in the Project. Since the Project is still in need of
funds to undertake improvements, any excess income that
HUD permitted the Project to retain has already been
allocated and disbursed. Therefore, any revocation of
previous determinations that excess income be retained
would substantially prejudice the Project and ongoing
improvements.
OIG Evaluation of OIG’s position is unchanged. HUD Housing Notice 98-10
Auditee Comments provides that all past due excess income must be paid in
full to HUD before future excess income can be approved
for retention. HUD staff must approve requests for
retention of excess income in writing and excess income
can only be retained beginning October 21, 1998.
Therefore, at a minimum, the $56,606, which was due for
the period prior to October 21, 1998, should be paid if the
Project is going to be considered eligible for approval for
retention of excess income. HUD Housing Notice 99-28
states that all excess income is the property of the Federal
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Finding 1
Government and must be remitted to HUD monthly without
any delay for any reason. As a result, we also believe that
the excess income due HUD should not be offset against
prior or future contributions to project operations.
Recommendations We recommend that the HUD NYSO:
1A. Make a determination as to whether the $199,205
in excess income collected for the period March 31,
1998 through March 31, 2000 should be remitted to
HUD. At a minimum, the Agent should be required
to remit the $56,606 in Section 236 excess income
collected during the period prior to October 21,
1998 (The date Congress acted to allow retention of
excess income).
1B. Determine whether the NYSO’s April 10, 2000
approval to allow Bay Towers to retain future
excess income collected should be rescinded.
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Finding 1
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Finding 2
Ineligible Legal Fees Were Charged to the
Project
Contrary to HUD regulations, the Management Agent charged ineligible legal fees that pertain to
the filing of petitions of bankruptcy by the Owners of the Project. As a result, the Project has
been deprived of $77,000, which should have been used for reasonable project operating
expenses. We attribute this to the Agent’s belief that these costs were allowable project expenses.
Accordingly, we recommend that the Owners be required to reimburse the Project the total
amount of these costs.
The Regulatory Agreement, Section 8, provides that,
CRITERIA “Owners shall not file any petition in bankruptcy, or for a
receiver, or in insolvency, or for reorganization or
composition, or make any assignment for the benefit of
creditors or to a trustee for creditors or permit adjudication
in bankruptcy…”
Also, Section 6(b) of the Regulatory Agreement, provides
that owners may not without the prior written approval of
the Secretary: “... Assign, transfer, dispose of, or encumber
any personal property of the project, including rents, or pay
out of any funds, other than from surplus cash, except for
reasonable operating expenses and necessary repairs.”
The Partnership Bay Towers Company owns Bay Towers
project. Bay Towers Company has a limited partner “Bay
Towers Associates” and a General Partner “DAL Realty,
Co. The President of DAL Realty Co. is also the President
of the Project’s Management Agent, US Housing
Management, Inc.
We found that in June 1996 the Owners of the project, Bay
Towers (Bay Towers Company) and its General Partner
Owners File For
(DAL Realty Co., Inc.) separately filed voluntary petitions
Bankruptcy
under Chapter 11 of the Bankruptcy Code. Bay Towers
Company having incurred accounts payable in excess of $1
million and having a substantial doubt about its ability to
continue as a going concern, precipitated this filing for
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Finding 2
bankruptcy. In March 1997, while facing a disputed notice
of acceleration and Uniform Commercial Code (UCC) sale,
the limited partner of Bay Towers Company (Bay Towers
Associates) filed for relief under Chapter 11 of the
Bankruptcy Code.
The Management Agent indicated that the building services
Bankruptcy Legal Fees union had obtained a judgment against Bay Towers
Paid With Project Company for back wages and wrongful termination of
Funds. employees, which had forced the owners to file for
bankruptcy protection. As a result, during the period from
January 1, 1998 through December 31, 1999 a total of
$77,000 in legal fees related to these bankruptcy filings
were charged to the Project.
The Management Agent believed that the legal fees and
costs associated with the filings and administration of the
Agent Believed Bankruptcy bankruptcies were allowable project costs. We disagree;
Legal Fees Were Allowable and believe that the costs associated with the bankruptcies
Project Expenses. are the expenses of the Owners, which should not have
been charged to the Project. Accordingly, we believe that
the Owners of Bay Towers should reimburse the Project’s
operating account the total amount of the bankruptcy cost
that was paid with project funds.
Officials of Bay Towers stated that there are circumstances
Auditee Comments where the owners may be liable for the legal fees; however,
they believe that the particular circumstances of the Project
and its Chapter 11 reorganization warranted paying the
legal fees out of project funds. The owners believe that
there was no alternative but to file for bankruptcy, which
benefited the Project and not the Owners. The legal fees
were incurred to protect the Project from failure. Should
HUD insist the owners are responsible for the $77,000 in
legal fees, capital contributions of approximately 1.5
million dollars more than compensate the Project for the
legal fees.
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Finding 2
OIG’s position is unchanged. The Regulatory Agreement
OIG Evaluation of prohibits the use of project funds except from surplus cash
Auditee Comments for other than reasonable operating expenses and necessary
repairs. In addition, the Regulatory Agreement prohibits
owners from filing for bankruptcy. Accordingly, we
believe that the Project funds used to pay bankruptcy
related legal fees benefited the owners by preserving their
ownership interests and were not a reasonable and
necessary project expense. Therefore, we believe that the
bankruptcy related legal fees should be reimbursed to the
Project’s operating account.
Recommendations We recommend that the NYSO:
2A. Instruct the owners of Bay Towers to reimburse the
Project’s operating account for the $77,000 in legal
fees and related costs that was charged to the
Project, which resulted from petitions of bankruptcy
being filed by the owners.
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Finding 2
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Finding 3
The Agent’s Write-Offs Of An Account
Receivable And A Loan Payable Are
Questionable
Contrary to HUD requirements, the Management Agent wrote-off an account receivable that was
due from the Project’s Owners, and a loan payable, without obtaining HUD’s written approval.
We attribute this to the Agent’s failure to follow HUD requirements; and to the Agent’s and
Owner’s failure to maintain proper documentation of all financial instruments related to the
Project. Consequently, the Project may be deprived of a $201,312 receivable, which could be
used to pay for necessary operating expenses, if collected. Furthermore, its loans payable balance
may be understated by $174,677. As a result, we recommend that the amounts for the account
receivable and the loan payable be put back on the Project’s books until HUD makes a
determination on their authenticity.
The Regulatory Agreement, Section 9 (a) provides that
CRITERIA “Owners shall provide for the management of the project in
a manner satisfactory to the Secretary...”
Section 9(c) of the Regulatory Agreement provides that
“...Owners shall keep copies of all written contracts or other
instruments, which affect the mortgaged property, all or any
of which may be subject to inspection by the Secretary or
his duly authorized agents.”
Furthermore, Section 6 of the Regulatory Agreement
provides that “Owners shall not without the prior written
approval of the Secretary...(b) Assign, transfer dispose of,
or encumber any personal property of the project, including
rents, or pay out of any funds, other than from surplus cash,
except for reasonable operating expenses and necessary
repairs.”
In examining the December 31, 1998, financial statements,
A $201,312 Account we learned that various assets and liabilities were written
Receivable, Due From off and charged to the Project’s capital account as a prior-
Owners, Was Written period adjustment. Included in the assets written-off was an
Off account receivable entitled “Due from Project Owners” in
the amount of $201,312.
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Finding 3
The $201,312 account receivable had been on the Project's
IPA Did Not Obtain books since at least January 1992. However, the Project’s
Verification From Owners California based Independent Public Accountant (IPA)
stated that the prior year’s financial statements did not
contain a reference about the account receivable (a note to
the financial statements). The IPA was also unable to obtain
information regarding the receivable from the Owners of
Bay Towers. As a result, the IPA provided the Agent with
the adjusting journal entries and the Agent without
HUD Written Approval obtaining written approval from HUD, wrote-off the
Was Not Obtained account as of December 31, 1998.
Included in the liabilities that were written-off was a loan
payable, which was unsecured and in the amount of
A 174,677 Loan Payable
$174,677. The financial statements for the year ended
Was Written-Off
December 31, 1996, indicated that a loan in the amount of
$234,864 was obtained from the New York City
Department of Housing Preservation and Development
(NYC-HPD). The loan was in connection with a 1984
transfer of partnership interest and for organization fees.
The loan was payable in seven annual installments of
$33,512 commencing on April 1, 1985. The IPA informed
us that after consulting with the Owners and the Agent, he
was unable to verify the loan payable. Accordingly, an
Neither Owners Nor adjusting entry was prepared and the Agent wrote-off the
Agent Verification; Nor payable. Again, the Agent did not obtain written HUD
HUD Written Approval approval prior to writing off the amount. As a result, we are
not certain that all available means to verify this account
was exercised.
Loan Payable May Be An Although the above loan was recorded in the Project’s
Owner’s Obligation records, we believe that it may have been the Owners’
obligation; inasmuch as, the loan was for organization fees,
which are usually expenses that are paid by the Owners.
The Regulatory Agreement prohibits the use of project
funds, from other than surplus cash, for this type of
$60,187 In Project Funds expense. However, records indicate that the Project may
Was Used As A Payment have paid $60,187 on this payable since at December 31,
On The Loan Payable 1996, the balance of the payable had been reduced to
$174,677. No additional payments had been made up to the
date the payable was written-off the books.
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Finding 3
Accordingly, we believe that a determination should be
A HUD Determination Is made whether this loan was an obligation of the Project or
Needed the Owners. If it is determined that the loan payable is an
obligation of the Project, the obligation should be re-
established on the books unless NYC-HPD provides
documentation showing that the loan has been paid or
forgiven. If the loan payable is not an obligation of the
Project, then the Owners should provide documentation to
show whether payments on the loan were made from non-
project funds or from surplus cash. If payments on the loan
were made with project funds, the Owners have a liability
to the Project. Accordingly, we believe that the Owners
should be required to reimburse the Project’s operating
account for the $60,187 if project funds were used to make
payments on the loan payable.
In both cases the IPA stated that he was unable to verify the
amounts written off with the Agent or the Project’s
Owners. However, regulations provide that the Agent and
Owners have a fiduciary relationship with HUD to properly
maintain all documents, papers and instruments, which
affect the mortgaged property. Furthermore, prior written
approval from HUD must be obtained before assets are
disposed of or encumbered. Since written HUD approval
was not obtained, we believe that the amount written-off
for the account receivable “Due from project Owners’” and
the loan payable-unsecured, should be put back on the
books of the Project. The Agent and Owners should then be
required to submit documentation to HUD so that a
determination can be made as to the authenticity of the
amounts.
The auditee commented that they have no proof, written or
Auditee Comments otherwise that the account receivable existed, therefore, the
Project’s current CPA firm has written off the account since
the Project will never receive any of these apparently non-
existent monies. With regard to the loan payable, the
auditee again comments that there is no indication that the
loan exists. HUD refers to a $60,187 payment on the loan,
yet the Project, its managers and accountants have no
records of the loan or any payments on the loan. It also
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Finding 3
appears that the New York City Department of Housing
Preservation and Development, the lender, has no record of
this loan. Both the account receivable and the HPD loan, if
they ever existed, originated more than ten years ago. None
of the parties involved appear to have records, which date
back ten years. However, in the absence of any records, we
respectfully submit that our auditors properly “wrote-off”
these items.
OIG Evaluation of The fact that the audited financial statements listed both the
account receivable and the loan payable is evidence that
Auditee Comments this asset and liability existed. As a result, we believe that
the owners have a fiduciary relationship through the
requirements of the Regulatory Agreement to keep copies
of all written contracts or other instruments, which affect
the mortgaged property. The Regulatory Agreement also
requires the Owners to obtain written approval from HUD
prior to disposing of any property of the Project. Since a
written approval from HUD was not obtained we are not
certain that all available means to verify the authenticity of
the amounts written off were made. Accordingly, OIG
believes that the amounts should not have been written-off
without proper HUD approval and verification.
Recommendations We recommend that HUD NYSO instruct the Agent and
Owners to:
3A. Put the $201,312 account receivable “Due from
Owners,” and the $174,677 loan payable back on
the books of the project Bay Towers.
3B. Submit documentation to HUD so that a
determination can be made as to whether the
account receivable of $201,312 is authentic. If
determined to be real, the Owners should be
instructed to repay these funds to the operating
account of the Project, or show that the receivable
has been satisfied. HUD should also consider
assessing an accrued interest charge if the amount is
still owed by the Owners.
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Finding 3
3C. Submit documentation to HUD so that a
determination can be made as to whether the loan
payable has been satisfied. If the loan is an
obligation of the Owners the loan payable should be
removed from the Project books. The Owners
should then be instructed to reimburse the Project’s
operating account for the $60,187 paid on the loan
with project funds.
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Finding 3
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Management Controls
In planning and performing our audit, we considered the management controls of the
Management Agent in order to determine our audit procedures, not to provide assurance on
controls. Management controls include the plan of organization, methods and procedures
adopted by management to ensure that goals are met. Management controls include the process
for planning, organizing, directing and controlling program operations. Management controls
also include the systems for measuring, reporting and monitoring program performance.
We determined the following management controls were
Relevant Management
relevant to our audit objectives:
Controls
Program Operations – Policies and procedures that
management has implemented to reasonably ensure that a
program meets its objectives.
Validity and Reliability of Data – Policies and procedures
that management has implemented to reasonably ensure
that valid and reliable data are obtained, maintained and
fairly disclosed in reports.
Compliance with Laws and Regulations – Policies and
procedures that management has implemented to
reasonably ensure that resource use is consistent with laws
and regulations.
Safeguarding Resources – Policies and procedures that
management has implemented to reasonably ensure that
resources are safeguarded against waste, loss and misuse.
We assessed all the relevant controls identified above.
It is a significant weakness if management controls do not
provide reasonable assurance that the process for planning,
organizing, directing and controlling program operations
will meet an organization’s objectives.
Based on our review, we believe that significant
Significant Weaknesses weaknesses exist in the areas of “Validity and Reliability of
Data” (see finding 1) and “Compliance with Laws and
Regulations” (see findings 1, 2 and 3).
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Management Controls
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Follow Up On Prior Audits
This was the first audit conducted by the Office of the Inspector General. An Independent Public
Accountant performed prior audits of the Project for the 12-month periods ended December 31,
1998 and December 31, 1999. The reports do not contain any findings.
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Follow Up On Prior Audits
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Appendix A
Schedule Of Ineligible and Unsupported Costs
Finding Ineligible 1/ Unsupported 2/
1 $199,205
2 $77,000
3 375,989
$77,000 $575,194
1/ Ineligible costs are costs charged to a HUD-financed or insured project or activity that
the auditor believes are not allowable by law, contract, or Federal, State, or local
policies or regulations.
2/ Unsupported costs are costs charged to a HUD-financed or insured project or activity
and eligibility cannot be determined at the time of audit. The costs are not supported by
adequate documentation or there is a need for a legal or administrative determination on
the eligibility of the cost. Unsupported costs require a future decision by HUD program
officials. This decision, in addition to obtaining supporting documentation, might
involve a legal interpretation or clarification of Departmental policies and procedures.
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Schedule Of Ineligible and Unsupported Costs
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Appendix B
Auditee Comments
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Appendix B
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Appendix B
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Appendix B
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Appendix C
Distribution
President, U.S. Housing Management, Inc., Lakewood, New Jersey (2)
Deputy Secretary, SD, Room 10100
Chief of Staff, S, Room 10000
Special Assistant to the Deputy Secretary for Project Management, SD, Room 10100
Assistant Secretary for Administration, S, Room 10110
Assistant Secretary for Congressional & Intergovernmental Relations, J, Room 10120
Senior Advisor to the Secretary, Office of Public Affairs, S, Room 10132
Director of Scheduling and Advance, AL, Room 10158
Counselor to the Secretary, S, Room 10234
Deputy Chief of Staff, S, Room 10266
Deputy Chief of Staff for Operations, S, Room 10226
Deputy Chief of Staff for Programs and Policy, S, Room 10226
Deputy Assistant Secretary for Public Affairs, W, Room 10222
Special Assistant for Inter-Faith Community Outreach, S, Room 10222
Executive Officer for Administrative Operations and Management, S, Room 10220
Senior Advisor to the Secretary for Pine Ridge Project, W, Room 10216
General Counsel, C, Room 10214
Director, Office of Federal Housing Enterprise Oversight, O, 9th Floor Mailroom
Assistant Secretary for Housing/Federal Housing Commissioner, H Room 9100
Office of Policy Development and Research, R, Room 8100
Assistant Secretary for Community Planning and Development, D, Room 7100
Assistant Deputy Secretary for Field Policy and Management, SDF, Room 7108
Government National Mortgage Association, T, Room 6100
Assistant Secretary for Fair Housing & Equal Opportunity, E, Room 5100
Chief Procurement Officer, N, Room 5184
Assistant Secretary for Public and Indian Housing, P, Room 4100
Chief Information Officer, Q, Room 3152
(Acting) Office of Departmental Operations and Coordination, I, Room 2124
Chief Financial Officer, F, Room 2202
Office of Deputy General Counsel, CB, Room 10220
Director, Enforcement Center, V, 200 Portals Building, 1250 Maryland Avenue SW, Washington,
DC 20024
(Acting) Real Estate Assessment Center, X, 1280 Maryland Avenue, SW, Suite 800, Washington,
DC 20024
Director, Office of Multifamily Assistance Restructuring, Y, 4000 Portals Building, 1280 Maryland
Avenue SW, Washington, DC 20024
Secretary’s Representative, New York/New Jersey, 2AS
Director, MF HUB, 2AH
Assistant General Counsel, New York/New Jersey, 2AC
Assistant Deputy Secretary for Field Policy and Management, SDF, Room 7108
Deputy Chief Financial Officer for Finance, FF, Room 2202
Director, Office of Budget, FO, Room 3270
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Appendix C
CFO, Mid-Atlantic Field Office, 3AFI
Office of housing/Federal Housing Commissioner, HF, (Attn: Audit Liaison Officer,
Room 9116)
Departmental Audit Liaison Officer, FM, Room 2206
Acquisitions Librarian, Library, AS, Room 8141
Steve Redburn, Chief
Office of Management and Budget
725 17th Street, NW Room 9226
New Executive Office Building
Washington, DC 20503
Deputy Staff Director
Counsel Subcommittee on Criminal Justice
Drug Policy & Human Resources
B373 Rayburn House Office Building
Washington, DC 20515
The Honorable Henry A. Waxman
Ranking Member
Committee on Governmental Reform
2204 Rayburn Building
House of Representatives
Washington, DC 20515-4305
The Honorable Joseph Lieberman
Ranking Member
Committee on Governmental Affairs
706 Hart Senate Office Building
United States Senate
Washington, DC 20510
The Honorable Dan Burton
Chairman
Committee on Government Reform
2185 Rayburn Building
House of Representatives
Washington, DC 20515-6143
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Appendix C
The Honorable Fred Thompson
Chairman
Committee on Governmental Affairs
340 Dirksen Senate Office Building
United States Senate
Washington, DC 20510-6250
Director, Housing & Community Development Issue Area,
United States General Accounting Office
441 G Street, NW, Room 2474
Washington, DC
(Attention: Judy England-Joseph)
Ms. Cindy Fogleman
Subcommittee on General Oversight & Investigations
O'Neill House Office Building, Room 212
Washington, DC 20515
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Bay Towers Multifamily Mortgagor Operations Project Number 012-11031, Far Rockaway, NY
Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-12-07.
Below is a raw (and likely hideous) rendition of the original report. (PDF)